Sharegain’s plans for Securities Lending 3.0 and beyond
Sharegain, a leading capital markets fintech, recently announced a $64 million series B, the largest to date in the securities lending industry. The round was led by WestCap – marking its first entry into the UK tech space – and joined by Citi, EJF Capital LLC and Optiver PSI.
We first spoke about what the round means for Sharegain. “We are delighted by this vote of confidence from such strong investors,” says Yaari, “and that they shared our vision of democratizing securities lending and capital markets as a whole.”
Yaari continues, “We are particularly thrilled to have WestCap join our team. We love the fact they are a hands-on investor with a lot of experience scaling market leaders. Their experience ranges from Airbnb, to Ipreo, to Klarna, and now Sharegain. Citi, EJF and Optiver also bring strong expertise in terms of being a global custodian, as well as alternative assets, and market making.
“With this expanded team and our existing investors, we are perfectly positioned to scale the business globally, launch it in the US and capitalize on the rise of private investors – who now account for more than 23% of daily trading volumes in the US. And that’s what I first set out to do when I founded the business in 2015: to enable private investors to generate additional income by lending their securities that would otherwise sit idle. Renting out your financial assets is a basic ownership right that large financial institutions had been exercising for decades.”
“It’s time to level the playing field”, Yaari adds.
Securities lending 3.0
This idea of democratizing markets is nothing new. We’ve grown used to success stories like Airbnb – renting out rooms, which was previously only available to hotels or large real estate companies; and Uber – renting out seats in a car journey, previously limited to cab companies.
“We’ve already seen this take a few forms in capital markets. For example, neobrokers like Robinhood have enabled private investors to trade their stocks and ETFs. Likewise, companies including iCapital and Crowdfunder have democratized investments in illiquid assets, as have VCs like Seedrs and CapitalCube.”
Many have previously argued, however, that this kind of democratization wouldn’t work in securities lending, a highly regulated, fragmented and opaque market, riddled with legacy systems and dominated by large financial institutions.
Yaari disagrees, “We’ve already started the transition. In a world with increased volatility, high inflation and rising interest rates, investors should expect lower returns on average. And so additional sources of revenues and income on assets already owned become extremely important. We have seen tier 1 banks, wealth managers, neobrokers, private banks all understand the theme and importance of this source of revenue, and many have already chosen us over building it themselves. It’s a complementary setup that cuts a banks time to market from 2-3 years to a matter of months, with minimal capital expenditure compared to other alternatives, like building, enhancing, or replacing.”
“Meanwhile, our solution is also extremely important for the neobrokers that offer fee-free trading, whose ability to create a sustainable business model depends on monetizing assets and aligning your and your clients’ interests. One need only look at Robinhood’s securities lending programme for proof of how securities lending has become a major pillar in neobrokers’ business models.”
The natural evolution of capital markets
Yaari calls this trend “Securities Lending 3.0”. He emphasizes that, rather than bringing about a revolution with winners and losers, he sees it as the natural evolution of capital markets. “Sharegain is enabling the entire securities lending industry to adapt to a new age, create a new revenue stream and grow the pie as a whole.”
The internet has already cracked open the hotel industry, transportation, retail, and many other industries. When the tools change, the activity usually – and almost inevitably – transforms as well. “Think of how railroads crisscrossing continents affected commerce and manufacturing, or how the Bessemer Method heralded steel-framed buildings that allowed construction to scale new heights.”
To bring us back to securities lending, however, Yaari explains, “Sharegain has now laid the rails to enable every financial institution to plug in a securities lending offering and benefit from the ability to generate an additional return to itself and its clients in seamless way, on a you don’t lend you don’t pay business model.”
“And having a digital solution in securities lending also solves for the opacity of this market and enables our market to take data-driven decisions.”
“All this,” Boaz continues, “is healthy and makes for a more efficient, sustainable and equitable marketplace. That’s why we are so passionate about our mission to democratize securities lending and other parts of asset-based lending as a whole. We’re just getting started.”
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