What are the risks of enrolling in the program?

Participating in the FPSL program may enable you to earn interest on the securities loaned via Alpaca to borrowers.  Before enrolling in the FPSL program via your Sarwa Trade account, you should consider the following risks.  This list is not exhaustive.  You should refer to the Alpaca risk disclosures and MSLA for more information.

1. No Guarantee of Lending: Enrolling in the FPSL program doesn’t guarantee your securities will be loaned and you will earn interest on them, as it depends on market demand for those specific securities. You will only earn interest under the FPSL program if lending occurs.
2. Loss of Voting Rights: Loaned securities transfer voting rights to the borrower, preventing you from voting on company matters (such as mergers, board elections etc.) whilst your securities are loaned out under the FPSL program.
3. No Securities Investor Protection Corporation (SIPC) Protection: Loaned securities lack SIPC protection.  Instead, Alpaca will secure your loaned securities with cash collateral at 100% of their value which will be held at a third-party bank.  This arrangement is intended to reduce the risk that your securities will not have SIPC protection, but it is not the same as government-backed protection.
4. Payments in Lieu of Dividends: You may receive cash payments in lieu of dividends, which could have tax implications for you depending on your tax residency.
5. Counterparty Default Risk: If the borrower fails to return your securities, Alpaca will rely on the collateral it has placed at a third-party bank to compensate you, but there is a chance that you may suffer a loss if the amount held is insufficient to meet the shortfall in value of your securities.
6. Gap Risk: A sudden market drop could briefly reduce the collateral’s value compared to the value of your securities.
7. Recall Delays: Selling your securities or unenrolling from the FPSL program may take a few days to recall your securities, potentially delaying transactions or voting.
8. Short Selling Risk:  Some of your loaned securities may be used by borrowers for short selling i.e. a strategy where they sell the securities hoping the price will go down so they can buy them back at a lower price. This is common with securities that are in short supply or affected by corporate actions and are considered ‘hard to borrow’. Short selling activity could put downward pressure on the price of your securities, which may reduce their value.

Important Note:

This list of risks is not exhaustive. Sarwa does not provide any recommendation or advice to clients in relation to the FPSL Program.  If you choose to enrol in the FPSL program via your Sarwa Trade account, we do not undertake any form of assessment to determine whether participation in the FPSL program is suitable for you.  Before enrolling in the FPSL program, you should carefully review the Alpaca risk disclosures and MSLA to make sure you accept the terms and risks associated with your participation in the FPSL program.