About Stock Lending
Stock lending is the process where a lender transfers their shares to a borrower for a limited period of time. In return, the lender receives daily interest and collateral to protect them against the default of the borrower, until the stocks are returned to the lender.
Stock Lending gives you, as the lender, the opportunity to earn extra income on stocks you already own. After you enable Stock Lending, we may borrow your stocks that are in demand, and you get paid monthly if there’s a match. If your stocks are on loan, you’ll still be able to sell them at any time and realise gains or losses as you would otherwise.
You will not be able to vote on proposals for a company if your stocks in that company are on loan. For more information, review How do shareholder voting rights work for loaned stock?
Stock Lending is offered through Robinhood U.K. Ltd and your stocks are borrowed by Robinhood Securities, LLC for a variety of purposes, including to facilitate trade settlements, for onward lending, or to use as collateral for other loans. There is a remote risk that Robinhood Securities could default on its obligations to you under the Stock Lending program and fail to return the securities it has borrowed. The investments you hold in your Robinhood brokerage account are covered by the Securities Investor Protection Corporation (SIPC) insurance. In the unlikely event that Robinhood files for bankruptcy, SIPC would recover up to $500,000 of the investments in your brokerage account (up to $250,000 for cash only).
However, loaned stocks aren’t covered by SIPC insurance. Robinhood Securities will, however, use cash collateral to protect your loaned stocks in a trust account with Wilmington Trust, National Association, through JP Morgan Chase & Co acting as custodian, and provides you with security interest in that collateral. The cash collateral will be maintained at 102% of the market value of the lent out securities on a daily basis. In the unlikely event that Robinhood Securities goes bankrupt and your stocks are not returned, you will receive cash equivalent to the market value of your stocks from the trustee. If loaned stocks increase in value from the day that Robinhood Securities defaults, you may not receive this full increased value and instead, you will rely on the collateral value of the stocks available in the trust account on the day before the default that may not equal or exceed the value of loaned securities.
The UK Financial Services Compensation Scheme (FSCS) does not apply.
In the event of RHS’ bankruptcy, you will be notified by the Trustee about how to claim back the value of your securities on loan. Refer to the Stock Lending Disclosure and Agreement and RHUK Custodian Appointment Agreement for more details on the collateral arrangements through the third-party bank, trust account, and the trustee. Customers can reach Wilmington Trust via email address at collateralmgmt@wilmingtontrust.com.
To be eligible for Stock Lending, you’ll need to have one of the following:
If your account is flagged for pattern day trading (PDT), you can’t earn income for Stock Lending until you’re no longer flagged as a pattern day trader. Also, if you have margin loans outstanding, you won’t be able to lend securities.
Whole shares of fully paid securities, such as stocks and American Depositary Receipts (ADRs) are eligible to be loaned out through Stock Lending. Securities purchased on margin and fractional shares are ineligible. This means that if you have 1.5 fully paid shares of ABC, you can only loan out 1 share.
Your stocks are borrowed by Robinhood Securities, LLC for a variety of purposes, including to facilitate trade settlements, for onward lending, or to use as collateral for other loans. Financial institutions and other market participants to whom Robinhood Securities, LLC may lend your stocks may in turn use those stocks for a variety of purposes and it is likely that such securities will be used to facilitate one or more short sales or satisfy delivery requirements resulting from short sales.
Since you are holding the shares long term in your account, there is a risk that the activity of short sellers could potentially affect the value of your holdings as they typically expect to profit from a price drop. If you elect not to permit your securities to be used by borrowers in connection with a short sale of the subject securities, Robinhood will terminate any then-outstanding loan and un-enroll your account from the Stock Lending products and services to prevent the borrowing of the security for that purpose. If you do not want your securities used to facilitate short sales, you should not participate in our Stock Lending product and services.
Stocks with low market availability and high demand are more likely to be loaned out.
No, having eligible stocks doesn’t guarantee they’ll be loaned out. Stocks with low market availability and high demand are more likely to be borrowed.
Robinhood Securities, LLC (RHS) manages all aspects of the stock lending program. When your stocks are lent under SLIP, 15% income will be earnt by you. This represents an equal (50:50) split of income between you and us, following the deduction of our costs.
We determine what you are paid each month for lending shares of a particular stock, as follows:
To check how much money you’ve made through Stock Lending, check your brokerage account statements, or go to Account → in the app, Menu (3 bars) → Investing → Manage Stock Lending
Your income from Stock Lending will likely vary from month to month. You’re more likely to earn money when there’s high market demand and low market availability for the stocks you own.
We provide you with two examples of the returns you might expect to receive, based on two scenarios. Your annual percentage yield—as used in the following examples—represents 15% of the gross revenue generated by RHS as explained in this article. Stocks in high demand tend to have a shorter loan duration with relatively high income yields. The yield is the % that you will earn while your stock is on loan.
Portfolio: You own $1,000 worth of stock ABC Your annual percentage yield: 0.20% Duration of the loan: 1 year
You will receive $2 (equivalent to £1.61 based on the average USD/GBP exchange rate of 1.24 in 2023) for the 1 year period.
Portfolio: You own $1,000 worth of stock XYZ Your annual percentage yield: 2% Duration of the loan: 6 months
You will receive $10 (equivalent to £8.06 based on the average USD/GBP exchange rate of 1.24 in 2023) for the 6 month period.
Stock prices can go down as well as up. In the unlikely event that Robinhood goes bankrupt whilst your stocks are still on loan and the stock prices go up, the cash collateral may not be adjusted to 102% of the loaned stocks’ value anymore due to the default, meaning that the collateral may not cover the full value of your stocks on loan. For example:
Day 1: Robinhood is not insolvent. Collateral is refreshed at the end of the day (EOD) at 102% of market value that day. Market value of stocks on loan: $100 Collateral available for stocks at EOD: $102
Day 2: Robinhood goes insolvent. Collateral is not refreshed at the EOD and the value of collateral is the same as on Day 1. Market value of stocks on loan: $103 Collateral available for stocks at EOD: $102 Loss incurred by customer: $1 (equivalent to £0.81 based on the average USD/GBP exchange rate of 1.24 in 2023)
The examples above are for illustrative purposes only and are not necessarily representative of the quantum of gains or losses that may be incurred by customers in these circumstances.
At this time, you can’t select which stocks to lend out. If you enable Stock Lending, all of your stocks and ADRs will be considered for lending. As the demand for stocks is continuously changing this approach allows you to optimise the use of your stocks and ADRs for securities lending purposes.
Yes, you maintain economic ownership of your stocks and can sell them at any time. The value of your stocks isn’t fixed to the price based on which they’re loaned and may go up and down. If you decide to sell your shares, you’ll realise any gains or losses on them as you would otherwise.
Robinhood does not charge any commission when you sell stocks that are out on loan. Nor does RHS add any spread costs.
Stocks on loan will still earn dividends—the resulting amounts are just paid out differently.
If your stocks are on loan, you’ll still receive cash equal to any dividends earned. They’ll simply be paid to you by Robinhood, not the issuer of the stock. These payments are often referred to as cash in lieu of dividends or manufactured dividends. Manufactured dividends are shown on your brokerage account statements as Manufactured Div. instead of Cash Div.
Cash and manufactured dividends are considered US-sourced income and are subject to applicable US tax reporting and withholding rules. Robinhood does not provide recommendations or advice. For specific questions about how manufactured dividends are taxed and how to report them on your taxes, please seek appropriate advice.
Typically, shareholders of companies are able to exercise some amount of voting power when new policies are proposed, such as a board of directors appointment or corporate action. However, you won’t have shareholder voting rights when your shares of stock in that company are on loan.
This is just a condition of your stocks being on loan. If you disable Stock Lending or your stocks are returned to you, you’ll regain shareholder voting rights.
All investing involves risk and loss of principal is possible.
Stock Lending isn’t appropriate for all customers. We strongly advise you to review the Stock Lending Disclosure and Agreement to learn more about Stock Lending and its risks for your consideration.
Robinhood U.K. Ltd (Robinhood UK) is authorised and regulated by the Financial Conduct Authority (FRN: 823590). Robinhood UK onboards UK customers and has the lead customer relationship with UK customers in relation to their use of the Robinhood UK app and website. Robinhood UK introduces UK customers to Robinhood Securities, LLC for order routing, execution, clearing, settlement, arranging custody services and margin lending to eligible UK customers with margin accounts. Robinhood Securities, LLC is regulated in the U.S. by the SEC and FINRA. Robinhood UK and Robinhood Securities, LLC are subsidiaries of Robinhood Markets, Inc.