Robinhood launches retail client stock lending
US retail online brokerage Robinhood (NASDAQ:HOOD), never afraid to innovate, has announced that it will provide an opportunity for its retail clients to earn extra income on the stocks they already own, via stock lending.
Steve Quirk, Chief Brokerage Officer at Robinhood said:
“Our version of Stock Lending empowers customers to put their investments to work while keeping it simple. Robinhood does the work of finding borrowers and managing transactions while customers can add a potential source of passive recurring income to their portfolio.”
“We’re excited to break down yet another barrier and democratize a product that has been historically preserved for the wealthy with high barriers to entry.”
Unlike at other companies, Robinhood doesn’t require customers to have hundreds of thousands of dollars in their account to participate. They are making fully paid securities lending, and the opportunity for passive recurring income that comes with it, available to customers who traditionally have not had access to it.
By enabling Stock Lending, a customer gives Robinhood permission to lend out any fully paid stocks in their portfolio. Robinhood does the work of finding interested borrowers, and customers get paid when there’s a match. Once shares are loaned out, customers can easily track earnings, see their positions, and enable or disable Stock Lending at any time, all through our intuitive in-app dashboard.
Customers can still sell shares on loan whenever they want and realize gains or losses like they normally would. Plus, participating stocks are backed by cash collateral at a third party bank for added protection.
Fully paid securities lending is a demand-driven business, meaning that securities with limited supply have greater potential to be loaned out and the potential to yield greater returns than securities where supply is more liquid.
Fractional shares, as well as shares held in an account with a margin balance, are not eligible to be loaned out through the program.
Why would someone want to borrow a stock?
Financial institutions and other market participants will often borrow stocks for many reasons, including to cover deficits, failed deliveries, collateral, or to cover short sales. This is why stocks with low market availability and high demand are more likely to be borrowed.
Stock Lending is currently rolling out to customers and the company expects it to be available to all customers by the end of May.