US stock trading giant Robinhood has announced a new shared lending program in the UK today. This offering will let retail investors in the region earn passive income on the stocks they own. The company has made this move to grow its market share beyond its home market.
Robinhood officially launched in the UK a few months back after two failed attempts in the past.
What is stock lending?
It is similar to renting out the stocks one owns to earn extra money. In this process, one lets another party, such as a financial institution, borrow stocks they own and pay a monthly fee return.
Previously, Robinhood acquired Bitstamp in a $200 million deal and X1 for $95 million.
Financial institutions borrow stocks for trading purposes, such as short selling, settlements, and hedging risks. The ownership of the stocks will remain with the lender and they can sell them anytime they want. When they sell, they still realise the stock-related profits and losses.
When it comes to Robinhood’s feature, shares lent out by retail investors via the app are considered as collateral. The company will receive interest from the borrowers and pay it to the lenders on a monthly basis. Customers can earn cash on the company dividend payments from the borrower instead of the company issuing the dividend.
Jordan Sinclair, president, Robinhood UK, said: “Stock lending is another innovative way for our customers in the UK to put their investments to work and earn passive income. We’re excited to continue to give retail customers greater access to the financial system, with the product now available in our intuitive mobile app.”
Share lending in the UK
This is not something new to the UK as there are some firms that offer securities lending programs. BlackRock, Interactive Brokers, Trading 212, and Freetrade, are among them. While Robinhood offers 15% of the interest to clients, most of these programs offer 50%, which is much higher.
However, given that share lending is risky, Robinhood claims that it aims to hold cash equal to a minimum of 100% of the value of your loaned stocks at a third-party bank. This means that customers should be covered if either Robinhood or the borrowing institution couldn’t return them as intended.
While there are strict rules for investment products in the UK, this move will help Robinhood establish a strong presence in the UK.
