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I'm invested in a broad range of index funds that pay dividends once a quarter. Whenever they pay dividends, IBKR deposits over half of those dividends into my account as "payments in lieu" instead of straight up, ordinary/qualified dividends.

I don't have a margin loan with them, or subscribe to their share lending program; so none of my shares should be getting lent out to short sellers for this to be happening.

I do have, however, naked short option positions in my account.

Why is this happening and how can I put a stop to it? Is it because of my naked short option positions?

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IBKR offers an explanation about why one might receive a Payment-In-Lieu dividend:

To summarize, if by the record date of a dividend certain shares have not been delivered to IB, the Firm will be paid an amount of cash that is equivalent to the dividend amount, but IB will not receive a qualified dividend payment directly from the issuer. In such cases, the Firm will receive PIL and will have no choice but to allocate such payment in lieu to customer accounts. The firm first allocates PIL to those accounts who hold the shares as collateral for a margin loan. If, after PIL is allocated to all shareholders whose accounts are not fully paid, any portion of PIL remains to be paid, it is allocated on a pro-rata basis to each remaining client account.

You best bet would be to call them for an accurate answer.

Holding naked short option positions in your account has no bearing on this.

Bob Baerker
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