Retail securities lending: New players in the game
18 February 2025
With insights from retail brokers, fintech firms, and an industry association, Daniel Tison explores the potential of retail to supercharge the securities lending space
Image: stock.adobe.com/Din Nasahrudin
The democratisation of financial markets has been a trend for the last decade, with retail securities lending as a growing component. Driven by technological advances and increased engagement of retail investors, this practice is expected to play a significant role in shaping the future of the securities finance sector.
Representing retail broker Robinhood, Michael De Gaglia, global head of securities finance, has noticed a remarkable growth in demand for retail securities lending over the past few years.
“The rise of commission-free trading, fractional shares, and accessible technology has empowered more individuals to invest, thereby creating a larger pool of lendable securities,” he says. “Additionally, as retail brokers expand their fully paid securities lending programmes, awareness of the potential to earn incremental returns has increased, fueling further interest.”
According to Stuart Jarvis, head of strategic partnerships at Sharegain, securities lending has shifted from a “nice-to-have” to a “must-have” over the past few years. Working for a major securities lending and capital markets infrastructure fintech, he notes that as competition in the sector intensifies, all players seek new revenue streams and innovative solutions to bring value to their clients.
Following this train of thought, Andrew Dyson, CEO of the International Securities Lending Association (ISLA), sees securities lending as an ever-evolving product — moving from a back office function through to international trading desks, and now, in recent times, accessed by retail investors through mobile trading apps operated by tech-first retail brokers and ‘neo brokers’.
He says: “While many view this democratisation of securities lending as a new frontier for the sector, it is still a nascent, albeit growing market. Current estimates are that less than 10 per cent of lendable supply is from retail holdings.
“However, this is likely to increase, especially as governments around the world look to turn savers into investors to address the challenges associated with an ever-ageing population, where they need to progressively look towards the capital markets to fund increasingly onerous retirement obligations. Such policies have been seen in the EU as part of the Capital Markets Union (CMU), now the Savings & Investment Union (SIU), and retail brokers will have an integral role to play in this.”
Levelling the playing field
Dominated by institutional players, the securities lending market used to be an inhospitable territory for individual investors. However, this began to change with the advent of fintech innovations and commission-free platforms like Robinhood, Wealthsimple, and Interactive Brokers. These solutions enable investors to earn passive income by lending out their securities to brokers, who in turn lend them to traditional borrowers like hedge funds.
De Gaglia explains that the inspiration to launch the Robinhood stock lending programme came from a desire to democratise access to financial opportunities.
“We removed the gates that prevented small retail investors from enjoying the same benefits that traditional brokers had offered their high net worth customers for years,” he says. “By enabling millions of new retail investors globally to participate in securities lending, we’ve helped level the playing field and provide a new avenue for income generation.
“The response has been overwhelmingly positive — clients appreciate the simplicity, transparency, and ability to put their idle securities to work.”
As executive vice president of marketing and product development at Interactive Brokers, Steve Sanders operates in both retail and traditional securities lending spaces. While he does not observe any significant distinctions between the two in terms of tools and pricing, there is a clear difference in nature.
“On the retail side, we tend to cater to active traders and sophisticated investors,” he says. “Some of them are even more sophisticated than the institutions.”
While the operational framework mirrors that of institutional lending, the scale and composition of retail participation differ significantly. Retail portfolios are often smaller and more fragmented, which requires advanced technology to aggregate these assets and facilitate the process. Companies like Sharegain play a key role by offering securities lending as a service (SLaaS) to brokers and wealth managers.
Greater accessibility to securities lending enables retail investors to earn more from what they own. By renting out their stocks, bonds, and ETFs, they can increase their portfolio returns and unlock further earning potential of their investments. However, retail lending also creates new opportunities for the broader, more traditional market.
The total assets under management (AUM) held by retail investors is around 40 per cent, according to ISLA. Although the amount available through lending programmes is much smaller, market participants agree that it injects the ‘hard-to-borrow’ supply into the lending pool, which is vital to the securities finance industry.
Retail investors often hold securities that may not be widely available in institutional portfolios, and retail lending programmes tap into this dispersed pool. By diversifying the lending pool, retail lending can reduce over-reliance on institutional players like pension funds.
Jarvis adds: “Retail investors are far more likely to hold small and mid-cap stocks, creating a differentiated inventory that’s highly sought after by hedge funds, lending desks, and market makers. This unique supply broadens the asset mix, boosts trading opportunities, and increases overall market liquidity.”
Through its stock yield enhancement programme, Interactive Brokers can automatically lend out their clients’ shares and split the revenue by half.
“For somebody holding hard-to-borrow shares, it’s kind of free money because they wouldn’t get anything otherwise,” explains Sanders.
In addition, retail lending opens up the securities lending market to a younger and more tech-savvy demographic.
“Retail brokers are, by their nature, quicker to market and better at capturing and analysing data on everything from customer behaviour through to changing economic patterns enabling them to react, change strategy, and market new products quicker than traditional players,” says Dyson.
In the short term, this may appear as a challenge for traditional market players, but Dyson believes that it offers opportunities for them to develop and drive advancements through novel products and technologies.
New ballgame, new rules
Like all investment activities, retail securities lending also involves certain risks, such as counterparty default, temporary loss of voting rights for lenders, or market volatility impacting collateral value.
While borrowers are used to working with institutional clients, who have strong balance sheets and established relationships, retail lending flips this dynamic, bringing in additional challenges like credit exposure and risk management. Jarvis believes that this new ballgame requires a fresh approach and industry-wide change to fully integrate retail lending.
Additionally, managing retail programmes adds significant complexity for traditional securities lending players. Jarvis explains: “Legacy systems weren’t built to meet the stringent demands of retail programmes. With evolving regulations and reporting requirements, such as the impending Rule 10c-1a in the US, institutions are facing rising costs and growing operational challenges when launching retail securities lending programmes.”
Dyson sees education as the key to allowing securities lending to grow safely within the retail space. Apart from the Securities Lending Hub published by ISLA, he believes that every retail broker should provide an overview of the benefits and risks to the customer when introducing them to a lending programme.
“We welcome the participation of retail brokers because we believe that it makes the markets deeper and richer for all market participants,” he states. “However, it is fundamental that the market develops in line with market best practices.”
On that note, De Gaglia adds: “Retail investors often lack familiarity with securities lending, so we prioritise clear, accessible education and disclosures. By providing real-time insights into earnings and programme terms, we ensure our clients understand how their assets are being used.”
Interactive Brokers uses a combination of sources to develop indicative rates, which are displayed along with security availability in its automated securities financing tools. Using automated price discovery and improved creditworthiness, the firm aims to bring transparency, reliability, and efficiency to the market.
“A lot could go wrong when you don’t automate, so we try to automate everything,” says Sanders. “Most of our firm is made up of programmers that have been building these systems for many years.”
Jarvis agrees that utilising new technologies is a necessity in retail lending due to the complexity of processes. Sharegain offers full control and oversight down to the individual account and security level, with data aggregation and straightforward reporting.
“Retail securities lending involves a complex lifecycle across millions of underlying accounts, from loan allocations to corporate events processing and collateral management,” Jarvis explains. “This creates millions of interconnected data points within online brokers' books and records. Without the right technology and robust infrastructure, operational failures, and the fines that come with them, are almost inevitable.”
As retail participation grows, so does the need for regulatory oversight. By addressing risks, defining best practices, and providing a clear framework for the future, securities finance regulations have removed much of the uncertainty that once held the industry back, according to Jarvis. He believes that regulatory clarity in recent years has played a critical role in the market’s growth. However, being a relatively new practice, retail lending does not seem to be targeted that firmly by regulators.
While there is a general awareness of the increasingly growing retail lending market, ISLA has not seen any specific regulation that would directly apply to this sector, apart from the Public Statement issued by the European Securities and Markets Authority (ESMA) in 2023. The paper outlined the need for revenues from securities lending to directly accrue to the retail client and net of a normal compensation for the firm’s services.
As seen with existing rules around the Undertakings for Collective Investment in Transferable Securities (UCITS), ISLA believes that regulators in Europe and the UK should ensure sufficient levels of investor protection through market guidance. In the longer term, the association expects to see guidance around topics such as transparency of fee splits, governance, and investor empowerment around participants in lending programmes.
“Instead of new regulation, our view is that as retail brokers become a bigger part of our community, there should be a common understanding of the importance of industry best practices for the benefit of the retail investor,” advises Dyson, pointing at ISLA’s best practice documentation and guides as a good starting point for all new participants entering the sector.
Becoming a global standard
The rise of retail securities lending over recent years is shifting the practice from a peripheral concept to an emerging segment, which has the potential to reshape the securities finance sector quite radically. As the lines between retail and institutional markets blur, the industry faces both opportunities and responsibilities in navigating this new era.
While retail participation expands securities supply and diversifies the lending pool, creating liquidity and more competitive borrowing conditions, there is also increased scrutiny of borrowers’ behaviour, as retail participants demand greater transparency and fairness.
With greater education, growth-aligned regulation, and the development of new technology, Dyson sees great potential for further growth in retail securities lending.
He says: “As this market matures and given the nature of the EU’s CMU/SIU policy, retail investment will develop exponentially over the next three to five years, with retail brokers at the heart of this, alongside traditional players.”
According to De Gaglia, retail securities lending will soon become a standard, with a profound impact on global capital markets.
“Retail-driven lending will increase liquidity, reduce borrowing costs, and promote fairer market conditions,” he predicts. “Additionally, technological advancements in AI will improve programme efficiency, and we’re already coding AI to enable greater scalability, benefitting both retail and institutional participants.”
Jarvis sees retail participation as a key growth pillar for the future of the securities lending market and the broader industry.
Looking ahead, he anticipates: “In the next five years, every retail investor will have access to securities lending — globally. Retail investors will demand more, expecting full control over their lending programmes and the ability to select which securities they want to lend. We've already seen how this level of control is driving wider adoption.
“This wide adoption will inject new levels of liquidity into capital markets and open up new opportunities for both sides of the market. Retail lending won’t just capture a bigger share — it will supercharge the entire space."
Representing retail broker Robinhood, Michael De Gaglia, global head of securities finance, has noticed a remarkable growth in demand for retail securities lending over the past few years.
“The rise of commission-free trading, fractional shares, and accessible technology has empowered more individuals to invest, thereby creating a larger pool of lendable securities,” he says. “Additionally, as retail brokers expand their fully paid securities lending programmes, awareness of the potential to earn incremental returns has increased, fueling further interest.”
According to Stuart Jarvis, head of strategic partnerships at Sharegain, securities lending has shifted from a “nice-to-have” to a “must-have” over the past few years. Working for a major securities lending and capital markets infrastructure fintech, he notes that as competition in the sector intensifies, all players seek new revenue streams and innovative solutions to bring value to their clients.
Following this train of thought, Andrew Dyson, CEO of the International Securities Lending Association (ISLA), sees securities lending as an ever-evolving product — moving from a back office function through to international trading desks, and now, in recent times, accessed by retail investors through mobile trading apps operated by tech-first retail brokers and ‘neo brokers’.
He says: “While many view this democratisation of securities lending as a new frontier for the sector, it is still a nascent, albeit growing market. Current estimates are that less than 10 per cent of lendable supply is from retail holdings.
“However, this is likely to increase, especially as governments around the world look to turn savers into investors to address the challenges associated with an ever-ageing population, where they need to progressively look towards the capital markets to fund increasingly onerous retirement obligations. Such policies have been seen in the EU as part of the Capital Markets Union (CMU), now the Savings & Investment Union (SIU), and retail brokers will have an integral role to play in this.”
Levelling the playing field
Dominated by institutional players, the securities lending market used to be an inhospitable territory for individual investors. However, this began to change with the advent of fintech innovations and commission-free platforms like Robinhood, Wealthsimple, and Interactive Brokers. These solutions enable investors to earn passive income by lending out their securities to brokers, who in turn lend them to traditional borrowers like hedge funds.
De Gaglia explains that the inspiration to launch the Robinhood stock lending programme came from a desire to democratise access to financial opportunities.
“We removed the gates that prevented small retail investors from enjoying the same benefits that traditional brokers had offered their high net worth customers for years,” he says. “By enabling millions of new retail investors globally to participate in securities lending, we’ve helped level the playing field and provide a new avenue for income generation.
“The response has been overwhelmingly positive — clients appreciate the simplicity, transparency, and ability to put their idle securities to work.”
As executive vice president of marketing and product development at Interactive Brokers, Steve Sanders operates in both retail and traditional securities lending spaces. While he does not observe any significant distinctions between the two in terms of tools and pricing, there is a clear difference in nature.
“On the retail side, we tend to cater to active traders and sophisticated investors,” he says. “Some of them are even more sophisticated than the institutions.”
While the operational framework mirrors that of institutional lending, the scale and composition of retail participation differ significantly. Retail portfolios are often smaller and more fragmented, which requires advanced technology to aggregate these assets and facilitate the process. Companies like Sharegain play a key role by offering securities lending as a service (SLaaS) to brokers and wealth managers.
Greater accessibility to securities lending enables retail investors to earn more from what they own. By renting out their stocks, bonds, and ETFs, they can increase their portfolio returns and unlock further earning potential of their investments. However, retail lending also creates new opportunities for the broader, more traditional market.
The total assets under management (AUM) held by retail investors is around 40 per cent, according to ISLA. Although the amount available through lending programmes is much smaller, market participants agree that it injects the ‘hard-to-borrow’ supply into the lending pool, which is vital to the securities finance industry.
Retail investors often hold securities that may not be widely available in institutional portfolios, and retail lending programmes tap into this dispersed pool. By diversifying the lending pool, retail lending can reduce over-reliance on institutional players like pension funds.
Jarvis adds: “Retail investors are far more likely to hold small and mid-cap stocks, creating a differentiated inventory that’s highly sought after by hedge funds, lending desks, and market makers. This unique supply broadens the asset mix, boosts trading opportunities, and increases overall market liquidity.”
Through its stock yield enhancement programme, Interactive Brokers can automatically lend out their clients’ shares and split the revenue by half.
“For somebody holding hard-to-borrow shares, it’s kind of free money because they wouldn’t get anything otherwise,” explains Sanders.
In addition, retail lending opens up the securities lending market to a younger and more tech-savvy demographic.
“Retail brokers are, by their nature, quicker to market and better at capturing and analysing data on everything from customer behaviour through to changing economic patterns enabling them to react, change strategy, and market new products quicker than traditional players,” says Dyson.
In the short term, this may appear as a challenge for traditional market players, but Dyson believes that it offers opportunities for them to develop and drive advancements through novel products and technologies.
New ballgame, new rules
Like all investment activities, retail securities lending also involves certain risks, such as counterparty default, temporary loss of voting rights for lenders, or market volatility impacting collateral value.
While borrowers are used to working with institutional clients, who have strong balance sheets and established relationships, retail lending flips this dynamic, bringing in additional challenges like credit exposure and risk management. Jarvis believes that this new ballgame requires a fresh approach and industry-wide change to fully integrate retail lending.
Additionally, managing retail programmes adds significant complexity for traditional securities lending players. Jarvis explains: “Legacy systems weren’t built to meet the stringent demands of retail programmes. With evolving regulations and reporting requirements, such as the impending Rule 10c-1a in the US, institutions are facing rising costs and growing operational challenges when launching retail securities lending programmes.”
Dyson sees education as the key to allowing securities lending to grow safely within the retail space. Apart from the Securities Lending Hub published by ISLA, he believes that every retail broker should provide an overview of the benefits and risks to the customer when introducing them to a lending programme.
“We welcome the participation of retail brokers because we believe that it makes the markets deeper and richer for all market participants,” he states. “However, it is fundamental that the market develops in line with market best practices.”
On that note, De Gaglia adds: “Retail investors often lack familiarity with securities lending, so we prioritise clear, accessible education and disclosures. By providing real-time insights into earnings and programme terms, we ensure our clients understand how their assets are being used.”
Interactive Brokers uses a combination of sources to develop indicative rates, which are displayed along with security availability in its automated securities financing tools. Using automated price discovery and improved creditworthiness, the firm aims to bring transparency, reliability, and efficiency to the market.
“A lot could go wrong when you don’t automate, so we try to automate everything,” says Sanders. “Most of our firm is made up of programmers that have been building these systems for many years.”
Jarvis agrees that utilising new technologies is a necessity in retail lending due to the complexity of processes. Sharegain offers full control and oversight down to the individual account and security level, with data aggregation and straightforward reporting.
“Retail securities lending involves a complex lifecycle across millions of underlying accounts, from loan allocations to corporate events processing and collateral management,” Jarvis explains. “This creates millions of interconnected data points within online brokers' books and records. Without the right technology and robust infrastructure, operational failures, and the fines that come with them, are almost inevitable.”
As retail participation grows, so does the need for regulatory oversight. By addressing risks, defining best practices, and providing a clear framework for the future, securities finance regulations have removed much of the uncertainty that once held the industry back, according to Jarvis. He believes that regulatory clarity in recent years has played a critical role in the market’s growth. However, being a relatively new practice, retail lending does not seem to be targeted that firmly by regulators.
While there is a general awareness of the increasingly growing retail lending market, ISLA has not seen any specific regulation that would directly apply to this sector, apart from the Public Statement issued by the European Securities and Markets Authority (ESMA) in 2023. The paper outlined the need for revenues from securities lending to directly accrue to the retail client and net of a normal compensation for the firm’s services.
As seen with existing rules around the Undertakings for Collective Investment in Transferable Securities (UCITS), ISLA believes that regulators in Europe and the UK should ensure sufficient levels of investor protection through market guidance. In the longer term, the association expects to see guidance around topics such as transparency of fee splits, governance, and investor empowerment around participants in lending programmes.
“Instead of new regulation, our view is that as retail brokers become a bigger part of our community, there should be a common understanding of the importance of industry best practices for the benefit of the retail investor,” advises Dyson, pointing at ISLA’s best practice documentation and guides as a good starting point for all new participants entering the sector.
Becoming a global standard
The rise of retail securities lending over recent years is shifting the practice from a peripheral concept to an emerging segment, which has the potential to reshape the securities finance sector quite radically. As the lines between retail and institutional markets blur, the industry faces both opportunities and responsibilities in navigating this new era.
While retail participation expands securities supply and diversifies the lending pool, creating liquidity and more competitive borrowing conditions, there is also increased scrutiny of borrowers’ behaviour, as retail participants demand greater transparency and fairness.
With greater education, growth-aligned regulation, and the development of new technology, Dyson sees great potential for further growth in retail securities lending.
He says: “As this market matures and given the nature of the EU’s CMU/SIU policy, retail investment will develop exponentially over the next three to five years, with retail brokers at the heart of this, alongside traditional players.”
According to De Gaglia, retail securities lending will soon become a standard, with a profound impact on global capital markets.
“Retail-driven lending will increase liquidity, reduce borrowing costs, and promote fairer market conditions,” he predicts. “Additionally, technological advancements in AI will improve programme efficiency, and we’re already coding AI to enable greater scalability, benefitting both retail and institutional participants.”
Jarvis sees retail participation as a key growth pillar for the future of the securities lending market and the broader industry.
Looking ahead, he anticipates: “In the next five years, every retail investor will have access to securities lending — globally. Retail investors will demand more, expecting full control over their lending programmes and the ability to select which securities they want to lend. We've already seen how this level of control is driving wider adoption.
“This wide adoption will inject new levels of liquidity into capital markets and open up new opportunities for both sides of the market. Retail lending won’t just capture a bigger share — it will supercharge the entire space."
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