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BlackRock in landmark move to boost ETF protection
by Emma Dunkley on Jan 03, 2013 at 11:10
With the indemnity in place, BlackRock is now taking on a much greater degree of the risk.
One investor said: ‘iShares and BlackRock were clearly profiting hugely from stock lending, clearly above and beyond their costs.
‘Now with the indemnity they are seen as providing an extra service and taking risk which may allow them to get away with their 40% profit share arrangement.’
There is some debate over this profit share arrangement, though, given the European regulator came out with its final guidelines last year stipulating that all profits generated from securities lending must be returned to the fund, net of costs.
The indemnification policy can also be seen as a way to protect what is an important profit stream for BlackRock shareholders, as a significant proportion of iShares’ profits comes from stock lending.
While the European regulator’s final guidelines potentially restrict such profit generation, the indemnification can help safe-guard the stock-lending income.