Robinhood will allow users to borrow their shares in an attempt to diversify income

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Trading platform Robinhood is launching a feature that will allow its users to lend their shares in the hope of earning passive, recurring income from borrowers, the company announced today. Robinhood says the feature is currently being rolled out and will be available to all customers by the end of the month.

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The news comes just after a difficult quarter for the company, during which it laid off 9% of full-time employees. Robinhood earns nearly three-quarters of its income from transactions, and that revenue stream has been steadily falling since last year as trading activity has declined. The new lending feature is an attempt by the company to diversify its revenue streams as it will charge a fee on every loan.

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The company is already making money by lending shares to customers who buy them “on margin,” and this new equity lending program is expected to generate 1-2 times more revenue than its existing margin lending offering, said CFO Jason Warnick. on the last week’s income statement.

Clients will not need to have any minimum balance in their account to participate, which is generally the norm on other exchanges that allow them to lend their shares. As long as the shares are fully paid by the client, Robinhood states that it will match clients with interested borrowers for loans, and that clients will be paid upon the successful placement of their shares. As a rule, the company explains, borrowers are financial institutions seeking to cover shortages, undersales or unfulfilled deliveries.

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According to Robinhood, customers will be able to keep track of the loans they have made and turn the Stock Lending feature on and off as they see fit. They will be able to sell the shares they have loaned and realize profits or losses “as usual,” the company said in a statement.

The announcement was accompanied by a disclaimer stating that stock lending is not suitable for all customers and that they may run the risk of Robinhood defaulting on its obligations and defaulting on borrowed securities.

“The provisions of the Securities Investor Protection Act cannot protect you in relation to leveraged securities,” the disclaimer states.

To reassure customers, the company says it is partnering with an unnamed third-party bank that will provide cash collateral on the loans for additional customer protection, although that collateral may be the only safety measure customers have in the event of a default.

The Exchange also cautions that equity lenders may lose their voting rights as shareholders in respect of the securities they have loaned and will receive cash payments on those securities in lieu of dividends, which may be treated differently for tax purposes.

“We are excited to break another barrier and democratize a product that has historically been reserved for the wealthy with high barriers to entry,” Steve Quirk, chief broker at Robinhood, writes in the announcement.


Credit: techcrunch.com /

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