You rent out your home with Airbnb, you’re happy to hire a Zipcar, or share a ride with Uber. You might even borrow designer clothes through Rentez-Vous, or lend out your lawnmower with Sharestreet. And now the sharing economy is opening up the world of high finance, so get ready to start renting out your securities.
You mean I can lend out my shares?
Yes. Securities lending, something that was once only available to institutional investors, is now possible for private investors. This means that, with very little effort, you can make additional money from the stocks, bonds and ETFs you already own.
Don’t worry – while your shares are out on loan, not much changes. You still retain all the economical rights for the shares you lend out, except for the right to vote. If your shares go up in value, you’ll still benefit (and naturally you’re also exposed to share-price falls). If there’s a dividend payment, you’ll still get it. But meanwhile, your securities could be out on loan, earning you rent.
Before you ask – you have the right to recall your shares at any time.
But what is the borrower doing with my securities?
He is probably shorting your shares, something many professional investors do for various reasons.
Unlike the borrower, you’re probably holding your shares because you have a long-term view about them, so why not make some additional return on shares you don’t intend to sell soon?
Guess what? Securities lending is something big financial institutions have been doing for decades, and there are currently $2 trillion worth of securities out on loan.
Also, if you know traders are borrowing your shares to short them, you now have important market information that you didn’t have before and has previously only been available to leading institutional investors.
What security do I have when I lend out my shares?
Every borrower has to deposit collateral worth over 100% of the value of those shares, in advance. Imagine having to stump up this much money for a deposit if you were renting a house – lending your securities is pretty, well, secure.
How much could I make?
The level of the rent is driven by the demand for your securities. The more borrowers looking for the stocks, bonds, or ETFs you hold, the higher the rent will be – simple economics.
Whatever you make will be an additional income, on top of any share-price gains and dividends.
What happens if the borrower doesn’t return my securities?
We’re talking about very reputable borrowers here, typically large investment banks. In the highly unlikely event of your borrower not being able to return your securities, then the safely stored collateral will be used to pay you back.
The collateral is held by an independent third party, so it’s available to you even if something goes wrong with the borrower.
So why am I only hearing about this now?
Until now, securities lending has largely been available only to banks and financial institutions, who have been making billions of dollars every year from this common practice. But now, thanks to Sharegain, private investors can benefit too.
We’ve launched our service initially to private investors with big portfolios, but bear with us. We don’t plan to stop until this is available to everyone.
The Airbnb moment for stocks, bonds and ETFs is here, and we are leading the way.
Interested? Register now and be part of this exciting new sharing economy.