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BlackRock imposes 50% cap on ETF security lending
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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