Fully-paid securities lending program

Will my securities be lent as soon as I enroll in the program?

Participation in the program does not guarantee that your securities will be lent. The key factor in determining whether a security will be lent is the availability of the security in the market relative to the demand to borrow that security. Market conditions are therefore among the factors that determine which securities will be lent. Note that you can also exclude certain securities if you don't want them to be lent.

What will my securities be used for when they are out on loan?

During the course of a typical trading day, brokers lend or borrow securities to and from investors for a variety of purposes. Your loaned securities will mainly be used for financing activities, such as cash management and collateral exchange. They can also be used for purposes such as short selling, hedging strategies or to take advantage of arbitrage opportunities.

How will I be informed when my securities are out on loan and of the loan rate?

When your securities are lent, you'll receive daily and monthly reports indicating the names of the loaned securities, the number of securities lent and the lending revenue. The same will apply when securities are returned or when loan rates change. You'll be able to monitor your loaned securities at any time. They will be transferred into a fully-paid securities lending account, which you can consult online. These accounts will be displayed under the "Assets" section of your National Bank Direct Brokerage account.

How is the loan rate determined?

The loan rate is based on market factors and may vary based on supply and demand for the securities.

What portion of the lending revenue am I entitled to?

When you participate in the fully-paid securities lending program, you can earn lending revenue based on the lending value of the securities, prorated to the number of days the securities were lent. The entire amount (100%) of the lending revenue will be paid into your account around the 4th business day of the month. Note that half (50%) of the lending revenue is shared with Natcan Trust Company, as a fee for acting as lending agent, collateral agent and securities intermediary for collateral.

How will these payments be reported on my tax slips?

The total amount of lending revenue received from securities lending must be included in your income tax return. This lending revenue will be reported on your tax slips, the “Investment Income Summary” and the T5 (in Box 14 – Other income from Canadian sources). Please contact a tax specialist to find out how to deduct the amount collected by Natcan Trust Company from your lending revenue and to understand the tax impact of your participation in the program. Consult the tax guide for regulatory information.

What are the eligibility criteria?

You must be a National Bank Direct Brokerage Distinctive Services client or have $100,000 in assets in a non-registered account.

What types of securities are eligible for the program?

The fully-paid securities lending program is restricted to securities from issuers listed on a Canadian or U.S. stock exchange (including exchange-traded funds (ETFs)). Securities listed on an exchange in Canada that meet at least one of the following criteria can be included in the program:

• 6-month average volume weighted average price (VWAP) ≥ $2.00
• 6-month average daily trading volume ≥ 100,000 shares
• 6-month average free float market capitalization ≥ $200 million

What if I change my mind after I enroll in the securities lending program?

You may withdraw from the program at any time by informing us in writing at least 15 business days before your intended date of withdrawal. Upon receiving your notice, Natcan Trust Company will begin the process of recalling your loaned securities. Remember that you maintain full economic ownership of securities out on loan and may sell them or recall the loan at any time.

Am I entitled to dividends on loaned securities?

Yes, you will continue to receive dividends and they will be paid in cash.

Can I participate in a Dividend Reinvestment Plan (DRIP) under the securities lending program?

When your securities are loaned out, it is not possible to participate in a DRIP. If you wish to participate in a DRIP, you may recall loaned securities by providing at least 10 business days notice to NBDB.

Can I exercise my voting rights?

You will retain all voting rights until your securities are lent. Once your securities are lent, you renounce your voting rights and the borrower may exercise them in your place. To exercise your voting rights, you may recall loaned securities in accordance with the Securities Lending Agency Agreement at least 10 business days prior to the applicable record date.

Can I borrow funds from my margin account and still participate in the program?

No. If you have a debit balance in your margin account, you may not lend securities. We will recall loaned securities until the debit balance is cleared.

What option transactions are permitted while my securities are out on loan?

Once a security is out on loan, you may no longer hold a short option position, even if it is covered by stocks or by another option. However, you may continue to acquire call and put options.

Documentation required to enroll in or modify the program

Call us at 1-888-902-0202 to complete the following documents.

• To finalize your enrollment, complete the FPL Account Request Form and the Fully-Paid Securities Lending Package.
• To carry out any modifications, such as excluding securities from the program, complete the Written Instructions Form.

Other documentation

• Consult the agency agreement for information on fully-paid securities lending.
• Consult the GMSLA document for information on ISLA's Global Master Securities Lending Agreement.
• Consult the tax guide for regulatory information.