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BlackRock imposes 50% cap on ETF security lending
Markets
by Emma Dunkley on Jun 20, 2012 at 12:25
He said on average, 20% of the iShares funds lent out, so the 50% fund level limit will impact only a small number of funds in the range.
Linhares added: ‘The vast majority of our funds are not impacted and will not forego securities lending revenue as a result of this change.
He said BlackRock’s view continues to be that lending more than 50% of a fund’s assets can be beneficial from a risk/return perspective for clients.
Additionally BlackRock will indemnify the ETFs should a borrower default.
‘Whilst we continue to believe that the strong risk management framework surrounding our securities lending programme delivers the protection clients need, we formalise the confidence we have in our risk management capabilities and explicitly provide an indemnity against borrower default,’ said Linhares.
This means while the majority of returns are passed on to the client, BlackRock now bears the risk in case of borrower default.
‘The indemnity will come at a cost to BlackRock, but we will not pass on these costs to our clients. So the indemnity does not increase the costs for our clients and we are not planning to change the securities lending revenue sharing arrangements in place.’
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2 comments so far. Why not have your say?
Not all ETF's are the same
Jun 20, 2012 at 13:32
So let me get this straight. upto 50% of the assets (that clients invested) can be loaned out by BlackRock to third parties for revenue, but only 60% of the revenue is returned to clients?!?!?! Nice work if you can get it.
No mention that the ETF will benefit from lower costs or improved returns. Have BlackRock REALLY listened to their clients???
report thisPeter Sleep
Jun 21, 2012 at 14:39
In my view, this is significant and positive development by iShares in favour of their investors.
The iShare investor used to take 100% of the risk from stock lending, but only received 60% of the income. This led to a potential conflict of interest. With the indemnity Blackrock may now bear some of the risk. I would like to see the terms of the indemnity to see what exactly is being indemnified.
We also need to bear in mind the balance sheet strength of Blackrock to understand whether they can meet their indemnity in a stressed scenario. Investors now have counterparty risk with Blackrock rather than an unknown stock lending counterparty.
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