Finance
Robinhood launches stock lending product in the UK
In this photo illustration, the Robinhood Markets Inc. website is shown on a computer on June 06, 2024 in Chicago, Illinois.
Scott Olson | Getty Images
Online brokerage platform Robinhood on Wednesday launched a share lending program in the U.K. that would allow consumers there to earn passive income on stocks they own, in the company’s latest bid to grow market share abroad.
The stock trading app, which launched in the U.K. last November after two previous attempts to enter the market, said that its new feature would enable retail investors in the U.K. to lend out any stocks they own outright in their portfolio to interested borrowers.
You can think of stock lending like “renting” out your stocks for extra cash. It’s when you allow another party — typically a financial institution — to temporarily borrow stocks that you already own. In return, you get paid a monthly fee.
Institutions typically borrow stocks for trading activities, like settlements, short selling and hedging risks. The lender still retains ownership over their shares and can sell them anytime they want. And, when they do sell, they still realize any gains or losses on the stock.
In Robinhood’s case, shares lent out via the app are treated as collateral, with Robinhood receiving interest from borrowers and paying it out monthly to lenders. Customers can also earn cash owed on company dividend payments — typically from the person borrowing the stock, rather than the company issuing a dividend.
Customers are able to sell lent stock at any time and withdraw proceeds from sales once the trades settle, Robinhood said. It is not guaranteed stocks lent out via its lending program will always be matched to an individual borrower, however.
“Stock Lending is another innovative way for our customers in the UK to put their investments to work and earn passive income,” Jordan Sinclair, president of Robinhood U.K., said in a statement Wednesday.
“We’re excited to continue to give retail customers greater access to the financial system, with the product now available in our intuitive mobile app.”
Niche product
Share lending isn’t unheard of in the U.K. — but it is rare.
Several firms offer securities lending programs, including BlackRock, Interactive Brokers, Trading 212, and Freetrade, which debuted its stock lending program just last week.
Most companies that offer such programs in the U.K. pass on 50% of the interest to clients. That is higher than the 15% Robinhood is offering to lenders on its platform.
Share lending is risky — not least due to the prospect that a borrower may end up defaulting on their obligation and be unable to return the value of the share to the lender.
But Robinhood says on its lander page for stock lending that it aims to hold cash “equal to a minimum of 100% of the value of your loaned stocks at a third-party bank,” meaning that customers should be covered if either Robinhood or the institution borrowing the shares suddenly couldn’t return them.
Robinhood keeps cash collateral in a trust account with Wilmington Trust, National Association, through JP Morgan Chase & Co acting as custodian, a spokesperson for the firm told CNBC.
Simon Taylor, head of strategy at fintech firm Sardine.ai, said that the risk to users of Robinhood’s share lending program will be “quite low” given the U.S. firm is behind the risk management and selecting which individuals and institutions get to borrow customer shares.
“I doubt the consumer understands the product but then they don’t have to,” Taylor told CNBC via email.
“It’s a case of, push this button to also make an additional 5% from the stock that was sitting there anyway. Feels like a no brainer.”
“It’s also the kind of thing that’s common in big finance but just not available to the mainstream,” he added.
The new product offering might be a test for Robinhood when it comes to gauging how open local regulators are to accepting new product innovations.
Financial regulators in the U.K. are strict when it comes to investment products, requiring firms to provide ample information to clients to ensure they’re properly informed about the risk attached to the products they’re buying and trading activities they’re practicing.
Under Britain’s Financial Conduct Authority’s consumer duty rules, firms must be open and honest, avoid causing foreseeable harm, and support investors’ ability to pursue their financial goals, according to guidance published on the FCA website in July last year.
Still, the move is also a chance for Robinhood to try to build out its presence in the U.K. market, which —apart from a select number of European Union countries — is its only major international market outside of the U.S.
It comes as domestic U.K. trading firms have faced difficulties over the years. Hargreaves Lansdown, for example, last month agreed a £5.4 billion ($7.1 billion) acquisition by a group of investors including CVC Group.
The company has been battling issues including regulatory changes, new entrants into the market, including Revolut, and the expectation of falling interest rates.
Unlike Robinhood, which doesn’t charge commission fees, Hargreaves Lansdown charges a variety of different fees for consumers buying and selling shares on its platform.
Stock Trader’s Almanac editor-in-chief Jeffrey Hirsch gives his 2025 expectations for the stock market on ‘Making Money.’
They say you get better as you get older. This might just be true for 401(k) plans in 2025 for those striding into their golden years. Planning for retirement just got a significant boost for Americans aged 60 to 63, thanks to provisions in the SECURE Act 2.0.
Beginning in 2025, individuals in this age group will be eligible for something called a “super catch-up” contribution limit for employer-sponsored retirement plans, including 401(k)s. This exciting change, recently clarified by the IRS, provides a unique opportunity to accelerate your retirement savings during those crucial pre-retirement years.
The basics: Catch-up contributions
Catch-up contributions allow individuals aged 50 and older to save extra money for retirement beyond the standard contribution limits. For 2024, the catch-up contribution limit was $7,500, on top of the $22,500 annual contribution cap for 401(k)s and similar plans. These additional contributions are designed to help older workers close any retirement savings gaps they may have accumulated over the years.
CRYPTO INDUSTRY AWAITS TRUMP’S CFTC CHAIR PICK AS BEHNAM ANNOUNCES EXIT
Introducing the super catch-up
Under the SECURE Act 2.0, individuals aged 60, 61, 62, and 63 can contribute even more to their retirement accounts starting in 2025. The new “super catch-up” limit will be the greater of $10,000 or 150% of the regular catch-up contribution limit for the given year, adjusted annually for inflation. At 64, you go to the regular catch-up.
401(k)s just got a little better for those who are aged 60-63, thanks to new catch-up provisions. (Reuters)
For example, if the regular catch-up contribution in 2025 remains at $7,500, the super catch-up limit would increase to $11,250 (150% of $7,500). If the $10,000 floor is adjusted for inflation, it could rise even higher, allowing individuals to add substantially more to their retirement savings.
Why is this important?
This enhancement comes at a pivotal time for many individuals. Those in their early 60s often find themselves at the peak of their earning potential, with more disposable income available for saving. At the same time, they are rapidly approaching retirement and may feel pressure to bolster their nest eggs. The super catch-up offers a golden opportunity to bridge any shortfalls and strengthen their financial security.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Additionally, this provision aligns with the reality that many Americans are living longer. Increasing retirement savings can help ensure a more comfortable and secure retirement in the face of rising healthcare costs, inflation, and other financial challenges.
Key considerations
To take full advantage of the super catch-up, it’s essential to plan strategically:
Constellation Research founder Ray Wang discusses stock market trends of tech brands like Google and Amazon on ‘Varney & Co.’
- Evaluate Your Budget: Ensure you have the financial flexibility to maximize contributions. Cutting unnecessary expenses or reallocating resources may be necessary.
- Consult a Financial Advisor: Professional guidance can help optimize your savings strategy, factoring in tax implications and long-term goals. One good place to start is at Exit Wealth to learn more about this technique.
- Understand Tax Implications: Contributions to traditional 401(k)s are tax-deferred, reducing your taxable income now but subject to taxes during retirement withdrawals. Consider how this fits into your overall tax strategy and whether the regular 401(k) or the Roth 401(k) make more sense for your situation.
- Stay Informed: Keep an eye on annual IRS updates regarding contribution limits and inflation adjustments.
CLICK HERE TO READ MORE ON FOX BUSINESS
The super catch-up offers a golden opportunity to bridge any shortfalls and strengthen their financial security.
A new era of retirement savings
The super catch-up contribution is a testament to the growing focus on enhancing retirement readiness for Americans. By leveraging this opportunity, individuals aged 60 to 63 can significantly boost their retirement savings, potentially lower their overall tax liability, and provide greater peace of mind as they transition into their golden years.
If you’re approaching this age bracket, now is the time to review your retirement strategy and prepare to make the most of this exciting new provision. Retirement is a journey, and with the super catch-up, you can ensure yours is as secure and fulfilling as possible.
Ted Jenkin is president of Exit Stage Left Advisors and partner at Exit Wealth.
New IRS regs put some partnership transactions under spotlight
Treasury, IRS propose rules on commercial clean vehicles, issue guidance on clean fuels
IRS and Treasury propose regs on 401(k) and 403(b) automatic enrollment, Roth IRA catchup contributions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Personal Finance1 week agoHow to rebalance your portfolio after lofty stock returns in 2024
-
Economics1 week agoJimmy Carter reshaped his home town
-
Accounting6 days agoDepreciation of Assets and Key Strategies for Accurate Valuation
-
Finance1 week agoKen Griffin’s flagship hedge fund at Citadel climbs 15.1% in 2024
-
Economics1 week agoAn attack in New Orleans raises fears about Islamic State
-
Economics1 week agoRuss Vought: Donald Trump’s holy warrior
-
Economics1 week agoOverall, American states are becoming more democratic
-
Finance1 week agoStocks making the biggest moves midday: TSLA, U, CEG