Robinhood, a go-to for young traders, benefits from short sale demand

NEW YORK (Reuters) - Robinhood, the online brokerage used by many retail traders to pile in to heavily shorted stocks like GameStop Corp, has made an ambitious push into loaning out its clients' shares to short sellers as it expands its business.

The broker had $1.9 billion in shares loaned out as of Dec. 31, nearly three times the $674 million a year earlier, and it was permitted to lend out $4.6 billion worth of securities under margin agreements, around five times bigger than the prior year, according to an annual regulatory filing late on Monday.

The size of the jump highlights Robinhood's rapid growth over the past year as the number of retail investors has soared in the work-from-home environment during the pandemic and as retail brokers have largely eliminated trading fees, a model Robinhood helped pioneer.

Menlo Park, California-based Robinhood is expected to go public this year with a valuation of more than $20 billion.

Securities lending is common among brokerages, which can earn income by lending shares to hedge funds and others, who then sell the shares back into the market, betting the share prices will drop so they can buy them back at a lower price when it is time to return them, pocketing the difference.

Shares that are in heavy demand from short sellers, like GameStop, which had 140% short interest in January https://www.reuters.com/article/us-retail-trading-shortselling-explainer/explainer-how-were-more-than-100-of-gamestops-shares-shorted-idUSKBN2AI2DD, command the biggest premium from the lender.

What makes Robinhood notable is that many of the stocks its users invest in are among the most sought-after by people who want to bet against them, said one senior financial executive involved with hedge funds.

It was unclear how great a benefit the securities lending was to Robinhood's revenue and income, which it does not disclose.