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• Institutional investors and other brokerages borrow stocks to settle trades or facilitate short sales
• Brokerage expects to earn between $137 million $275 million in a year from Stock Lending
Robinhood Markets Inc (NASDAQ: HOOD) on Wednesday launched Stock Lending, a fully-paid securities offering program, which will let users lend out shares they own through the platform to other market participants and passively collect a cut of the fees.
“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,” said Steve Quirk, Chief Brokerage Officer at Robinhood.
Demand to borrow shares for a fee often comes from institutional investors and other brokerages looking to settle trades or facilitate short sales.
The move is part of Robinhood’s efforts to boost its income by diversifying away from transactional revenue, which made up around three-quarters of its total revenue in the first quarter and was down 48% from a year earlier.
Robinhood already makes money by lending out shares that its customers buy on margin, but the new program will include all shares held by its nearly 23 million users.
The new fully-paid lending program will potentially generate nearly the same or maybe twice the revenue that Robinhood’s margin securities lending program brings in, Chief Financial Officer Jason Warnick said last week on an analyst call.
The Menlo Park-based company earned $137.2 million from margin securities lending in 2021.
“Transactional revenue has been the core component of the revenue, but as you build out the offering, those other components become a more meaningful portion,” Steve Quirk, Robinhood’s chief brokerage officer, said in an interview.
Picture Credit: FT
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