Robinhood, an online brokerage platform, has launched a share lending program in the U.K. This program allows consumers to earn passive income on stocks they own by lending them out to interested borrowers. Customers can still retain ownership of their shares and sell them at any time. The shares lent out via the app are treated as collateral, with Robinhood receiving interest from borrowers and paying it out monthly to lenders. Customers can also earn cash owed on company dividend payments.
Share lending is a niche product in the U.K., with several firms offering securities lending programs. Robinhood is offering 15% of the interest to lenders on its platform, which is lower than what other companies typically offer. There is a risk involved in share lending, as borrowers may default on their obligation. However, Robinhood aims to hold cash equal to the value of the loaned stocks at a third-party bank to cover any potential defaults. The risk to users of Robinhood’s share lending program is considered low, as the U.S. firm is behind the risk management and selection of borrowers.
The launch of the share lending program in the U.K. may be a test for Robinhood to gauge local regulators’ acceptance of new product innovations. Financial regulators in the U.K. have strict rules when it comes to investment products, requiring firms to provide ample information to clients to ensure they are properly informed about the risks involved. The program is also an opportunity for Robinhood to expand its presence in the U.K. market, which is its only major international market outside of the U.S. The move comes as domestic U.K. trading firms have been facing difficulties, including regulatory changes, new entrants into the market, and falling interest rates.
Customers are able to sell lent stock at any time and withdraw proceeds from sales once the trades settle, Robinhood said. It is not guaranteed that stocks lent out via the lending program will always be matched to an individual borrower. However, Robinhood aims to provide retail customers in the U.K. with greater access to the financial system through this new product. The stock lending program is an innovative way for customers to earn passive income on their investments. By allowing customers to put their investments to work in this way, Robinhood aims to provide an additional source of income for its U.K. customers.
