01-projects/investing/decisions

alpaca fpsl enrollment skip

2026-05-13·decision-log·status: decided·! medium
alpacasecurities-lendingfpsldecision-log

Decision — Skip Alpaca Fully Paid Securities Lending program (for now)

Context

Founder received the Alpaca Master Securities Lending Agreement (FPSL program, V01.2025.03, 49 pages) via iMessage on 2026-05-13 evening. Asked Ray for a read on the agreement and any reasons not to enroll.

The FPSL program lets Alpaca lend out the customer's fully-paid securities (typically to short sellers + DTC custodians for fail-to-deliver coverage), pay the customer a share of the lending fee, and post collateral at BMO Harris Bank N.A. via 17a-4 LLC as independent collateral administrator.

Decision

Skip enrollment for now. Founder iMessage 2026-05-13 20:23 ET: "No need. We can call this decided. I'm skipping it."

Reasoning surfaced during the conversation

Five concerns flagged from the agreement read:

  1. No indemnification. Schwab, Fidelity, IBKR all indemnify customers against borrower default. Alpaca explicitly does not — collateral at BMO is the customer's "only source of satisfaction." If a borrower defaults during an intra-day price gap, the customer eats the shortfall above the 102% collateral.
  2. Fee split. Standard tier is 20% to customer (Alpaca keeps 80%) — meaningfully below the 50/50 industry norm. Alpaca Elite tier gets 50% (industry norm).
  3. Cash-in-lieu kills qualified-dividend tax treatment. Replacement payments on dividend-paying stocks become ordinary income (up to 37% federal) instead of qualified-dividend rate (up to 20%). Alpaca makes no guarantee to recall before ex-div.
  4. SIPC protection forfeited on loaned shares. Voting rights waived during loan. 5-business-day cure period before customer can claim collateral on default.
  5. Re-enrollment friction. Annex E §7 contemplates restrictions on re-enrolling after opt-out.

Confirmed during the conversation:

Founder-side reasons skip is the right call right now:

Ray's calibration error worth flagging

In the second iMessage of this conversation, the founder asked "50% is awfully high! That would mean risky, right?" which was a misread (50% is the fee SPLIT, not the yield rate — totally different concept). The original Ray summary message had presented the 50%/20% as numbers without explicitly framing them as fee-split percentages, which created the misread. Per [[feedback_calibrate_overconfidence]] — Ray walked back cleanly with "Sorry, I should have made that clearer last message." Lesson for future investing-product summaries: always state the units and what the percentage measures BEFORE presenting the number. Fee splits, yield rates, expense ratios, and gross-vs-net returns are easy to confuse.

Revisit conditions

Pull this back up if any of the following:

The four other concerns (no indemnification, qualified-dividend tax loss on dividend payers, SIPC loss while loaned, re-enrollment friction) still apply regardless of tier or account size — they're structural to Alpaca's program design.

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