Robinhood has confirmed the launch this week of its fully-paid securities lending product to what it describes as “a small set of customers”.
The online trading company indicates that this step will provide opportunity for retail customers to “generate extra income on the stocks they already own” [i.e. fully paid for], thereby adding a new source of passive income to their investment portfolios.
In a statement yesterday, the company says that stock lending is currently rolling out to customers and is expected to be available to all customers by the end of May.
Through this principal-based programme, securities lending is offered to customers through Robinhood Financial LLC, with securities being lent to Robinhood Securities LLC.
According to the firm, this service will complement securities lending services that the trading platform offers for securities bought on margin.
In extending this facility, Robinhood indicates that “unlike at other companies”, it will not require customers to have hundreds of thousands of dollars in their account to participate.
“We are making fully paid securities lending, and the opportunity for passive recurring income that comes with it, available to customers who traditionally have not had access to it. It’s the Robinhood way,” it says in yesterday’s statement.
“Our version of stock lending empowers customers to put their investments to work while keeping it simple,” said Steve Quirk, chief brokerage officer at Robinhood. “Robinhood does the work of finding borrowers and managing transactions while customers can add a potential source of passive recurring income to their portfolio.”
“We are excited to break down yet another barrier and democratise a product that has been historically preserved for the wealthy with high barriers to entry,” he adds.
The company warns that stock lending is not appropriate for every customer. “There are operational risks associated with securities lending that could affect, for example, whether or when your securities are loaned or recalled, collateral is collected, or payments are made,” it says. “There is a risk that Robinhood Securities could default on its obligations to you under the stock lending programme and fail to return the securities it has borrowed. If Robinhood Securities defaults and is unable to return loaned securities, you will not be able to trade such securities as usual.”
The release of this service was flagged in Robinhood Markets’ Q4 2021 and Full Year 2021 results, where it indicated that it was continuing to discuss the launch of a fully paid securities lending service with regulators and that it hoped to launch this programme during H1 2022.
Robinhood Markets has taken this step to extend and diversify revenue opportunities available through its trading platform at a time when first quarter total net revenue has fallen 43 per cent YoY to US$299 million.
Transaction-based revenues have slumped 48 per cent to US$218 million for Q1 2022 compared with Q1 2021. This was fuelled by a 73 per cent YoY slide in equity trading revenue to US$36 million.
Transaction-based revenue from options contracted 36 per cent to US$127 million for Q1, with revenue from cryptocurrencies also substantially down, falling 39 per cent to US$54 million.
This contributed to a net loss of US$392 million, or US$0.45 per diluted share, for Robinhood Markets during Q1 2022 — albeit a reduction on the net loss of US$1.4 billion, or US$6.26 per diluted share, that it sustained in Q1 2021.
Robinhood Markets’ senior management cast a positive light on the longer term outlook and the company’s development strategy.
Jason Warnick, CFO of Robinhood Markets, says: “We are seeing our customers affected by the macroeconomic environment which reflected our results this quarter. At the same time, we have also made progress on our long-term plans and continue to pursue them aggressively.”
Vlad Tenev, CEO and co-founder of Robinhood Markets, comments: "This quarter saw our product development engine gain velocity with the rollout of some of our most requested features and capabilities.
“With the introduction of the Robinhood Cash Card, the release of crypto wallets to all customers, the addition of new coins to our platform, and our agreement to acquire [UK-based cryptoasset and electronic money institution] Ziglu Limited, we have made huge strides against our roadmap.”
