Robinhood lets Brits lend shares for extra income in bid to grow international footprint

Online brokerage level Robinhood connected Wednesday launched a stock lending programme successful the U.K. that would let consumers determination to gain passive income connected stocks they own, successful the company's latest bid to turn marketplace stock abroad.

The banal trading app, which launched successful the U.K. past November aft 2 erstwhile attempts to participate the market, said that its caller diagnostic would alteration retail investors successful the U.K. to lend retired immoderate stocks they ain outright successful their portfolio to funny borrowers.

You tin deliberation of banal lending similar "renting" retired your stocks for other cash. It's erstwhile you let different enactment — typically a fiscal instauration — to temporarily get stocks that you already own. In return, you get paid a monthly fee.

Institutions typically get stocks for trading activities, similar settlements, abbreviated selling and hedging risks. The lender still retains ownership implicit their shares and tin merchantability them anytime they want. And, erstwhile they bash sell, they inactive recognize immoderate gains oregon losses connected the stock.

In Robinhood's case, shares lent retired via the app are treated arsenic collateral, with Robinhood receiving involvement from borrowers and paying it retired monthly to lenders. Customers tin besides gain currency owed connected institution dividend payments — typically from the idiosyncratic borrowing the stock, alternatively than the institution issuing a dividend.

Customers are capable to merchantability lent banal astatine immoderate clip and retreat proceeds from income erstwhile the trades settle, Robinhood said. It is not guaranteed stocks lent retired via its lending programme volition ever beryllium matched to an idiosyncratic borrower, however.

"Stock Lending is different innovative mode for our customers successful the UK to enactment their investments to enactment and gain passive income," Jordan Sinclair,  president of Robinhood U.K., said successful a connection Wednesday.

Share lending isn't unheard of successful the U.K. — but it is rare.

Several firms connection securities lending programs, including BlackRock, Interactive Brokers, Trading 212, and Freetrade, which debuted its banal lending programme conscionable past week.

Most companies that connection specified programs successful the U.K. walk connected 50% of the involvement to clients. That is higher than the 15% Robinhood is offering to lenders connected its platform.

Share lending is risky — not slightest owed to the imaginable that a borrower whitethorn extremity up defaulting connected their work and beryllium incapable to instrumentality the worth of the stock to the lender.

But Robinhood says connected its lander leafage for banal lending that it aims to clasp currency "equal to a minimum of 100% of the worth of your loaned stocks astatine a third-party bank," meaning that customers should beryllium covered if either Robinhood oregon the instauration borrowing the shares abruptly couldn't instrumentality them.

Robinhood keeps currency collateral successful a spot relationship with Wilmington Trust, National Association, done JP Morgan Chase & Co acting arsenic custodian, a spokesperson for the steadfast told CNBC.

Simon Taylor, caput of strategy astatine fintech steadfast Sardine.ai, said that the hazard to users of Robinhood's stock lending programme volition beryllium "quite low" fixed the U.S. steadfast is down the hazard absorption and selecting which individuals and institutions get to get lawsuit shares.

"I uncertainty the user understands the merchandise but past they don't person to," Taylor told CNBC via email.

"It's a lawsuit of, propulsion this fastener to besides marque an further 5% from the banal that was sitting determination anyway. Feels similar a nary brainer."

"It's besides the benignant of happening that's communal successful large concern but conscionable not disposable to the mainstream," helium added.

The caller merchandise offering mightiness beryllium a trial for Robinhood erstwhile it comes to gauging however unfastened section regulators are to accepting caller merchandise innovations.

Financial regulators successful the U.K. are strict erstwhile it comes to concern products, requiring firms to supply ample accusation to clients to guarantee they're decently informed astir the hazard attached to the products they're buying and trading activities they're practicing.

Under Britain's Financial Conduct Authority's user work rules, firms indispensable beryllium unfastened and honest, debar causing foreseeable harm, and enactment investors' quality to prosecute their fiscal goals, according to guidance published connected the FCA website successful July past year.

Still, the determination is besides a accidental for Robinhood to effort to physique retired its beingness successful the U.K. market, which —apart from a prime fig of European Union countries — is its lone large planetary marketplace extracurricular of the U.S.

It comes arsenic home U.K. trading firms person faced difficulties implicit the years. Hargreaves Lansdown, for example, past period agreed a £5.4 cardinal ($7.1 billion) acquisition by a radical of investors including CVC Group.

The institution has been battling issues including regulatory changes, caller entrants into the market, including Revolut, and the anticipation of falling involvement rates.

Unlike Robinhood, which doesn't complaint committee fees, Hargreaves Lansdown charges a assortment of antithetic fees for consumers buying and selling shares connected its platform.