Longer term, we think there are additional revenue streams we can enable that are similar to existing broker-dealers like Robinhood, Fidelity and Schwab. That means things like cash float, margin lending, stock lending and payment for order flow. Currently we are not a broker-dealer.
Ah yes, the old "we'll buy stocks for you and then turn around and lend them out to short sellers that actively want you to lose money. Promise we care about you!"
I do not trust any institution that makes money off of lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
> lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
Sure, that is their goal. But, shorting equities is a tough game, because most years the market goes up. An investor who is broadly short the market would therefore lose money more often than not, and has to pay borrow fees on top of that.
If you hold shares that you think are going to go up, you absolutely should be willing to lend out your shares because it will enhance your return.
>I do not trust any institution that makes money off of lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
1. You realize that short sellers have to buy the stock back, which basically has the opposite effect? Unless you're planning to dump the stock in a few months, this isn't worth worrying about.
2. You know what's worse than short sellers driving down the price of your stocks? Corporate malfeasance going undetected and blowing up (eg. Enron), causing you to lose everything. Short sellers might get a lot of flak by profiting off people's losses, but they provide a useful service by exposing misconduct and putting a wet towel on irrational exuberance.
Sorry if this sounds uninformed, but what is the alternative? Even the bank and pensions gamble with your money, its how they move. I wish it wasn't the case either
The alternative is to not fall for the "its basically free!" schtick.
If its free, then you're the product.
If its $1/month, then you're still probably the product. In the case of my investments, I do not want the firm that I invest with -- to whom I trust my assets -- to turn around and lend out my assets to other organizations that have no obligation to me to act in my best interest. Share lending is almost always to lend to short-sellers that are trying to decrease the price of the asset being borrowed.
> Even the bank and pensions gamble with your money, its how they move
I guess its not worth having an opinion that this is not a good thing then? Bring back Glass-Steagall to separate out banks and gamblers.
Banks are inherently in the business of gambling. Since time immemorial the defining characteristic of a bank is to convert short-term liabilities (deposits) to long-term assets (loans). To lend is to gamble that your borrower will pay you back. A bank that takes no risk cannot cover its expenses and will cease to exist.
Vanguard keeps sending me emails lately about enabling lending on my brokerage account[1]; although I only have classic mutual funds in there, which I don't think can be lent. I imagine their brokerage lending will include a cut for the brokerage, although maybe it will be closer to cost than at other brokerages. I don't really know where the Vanguard brokerage net revenue ends up.
[1] And frankly a lot of other 'opportunities' I'm not interested in, that seem outside the John Bogle model of Vanguard helping normal people invest in the public market at low cost. I don't want to invest in off market opportunities, thanks, and it makes me lower my opinion of the company that they push it.
Most vanguard classical mutual funds are share classes of an underlying ETF, and can be lent.
Last I checked (which to be fair was like a year or so ago), vanguard didn't take a cut for securities lending. It does however boost the fund's performance
> Even the bank and pensions gamble with your money, its how they move. I wish it wasn't the case either
banks don't gamble with your deposit - that's illegal. They use your deposit as a form of security when they loan money out (it takes similar position as equity).
Pensions don't gamble, they buy investments which could have some risks (and it's calculated risks). These risks are such that they make a reasonable return for taking it, and therefore can service their obligations (as a pension fund).
So if the risk is calculated, it's not gambling? Lottery tickets publish their odds. And in that case, it's actually possible to be confident that the odds are correct. I don't understand.
"taking calculated risk" doesn't mean to calculate the risk. It means to look at whether the risk is worth taking, and only taking those that are worth.
Lottery is a bad risk - so it would be not wise to take lottery risk (as it's got a negative expectation of return).
You can DRS (https://www.dtcc.com/asset-services/securities-processing/di...) your shares so that no one can lend them out from you.
Some brokers have a setting (opt in or opt out) that disallows lending your shares (or that compensate you if they do).
The bigger issue is that it's basically just well hidden fees. You can add a decent amount of income to your portfolio by lending out the stocks to short sellers. Particularly in a market crash, the fees for borrowing stocks skyrocket (can easily be in high double digit %). Good firms allow you to lend out your stocks and give you the fees. Less good firms claim to give you a very cheap deal, but then basically shaft you by claiming these benefits for themselves.
If this business proposes to be profitable by harvesting the borrow fees, then them being cheap is really disingenuous because they give you with one hand and take from you with the other.
Presumably a combination of a flat-rate fee ($1/user/month) and payment for order flow.
PFOF is a big moneymaker for Robinhood, but you get paid the more your users trade so people doing buy-and-hold index funds probably earn you less that way.
If you can keep expenses super low maybe this can work. But my sense is that costs are pretty flat regardless of how many users you have, so this probably needs to get pretty big to finance itself.
PFOF is so incredibly dirty that I can't believe it is legal. If you could explain it to all the voters without putting them to sleep, I am convinced most people would not support it. It may be legal but it is definitely unethical. That being said I can't see how else OP can payback YC without doing these shady things. At a dollar per user per month, even if every adult in the US joined, YC will probably shut down OP without a second thought if that was the only revenue possible.
> so people doing buy-and-hold index funds probably earn you less that way.
You will be constantly buying and selling because you need to rebalance your "index" every time the market moves... Once you go down this unethical rabbit hole, there are endless possibilities.
I’m not sure what the objections to PFOF are. Do you think you get worse execution than the public market?
If so, it’s easy to prove: compare the price you got to the public markets price at that time. I don’t think you’ll see a worse price.
You should be insulted that somebody is willing to pay for the privilege of trading with you. You can reasonably object to the amount of PFOF vs. price improvement. But it’s not unethical to say “we want your business so much we’ll pay for it”.
> We plan to make money by helping clients secure additional financial products like secured lines of credit, margin, and insurance, all in a fiduciary manner.
Longer term, we think there are additional revenue streams we can enable that are similar to existing broker-dealers like Robinhood, Fidelity and Schwab. That means things like cash float, margin lending, stock lending and payment for order flow. Currently we are not a broker-dealer.