Securities lending

Securities Lending

Securities lending is an additional, relatively low-risk way for investors to unlock the full potential of their portfolio. In three decades of lending securities on behalf of clients, BlackRock has focused on delivering competitive returns while balancing return, risk and cost.

Capital at Risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. With securities lending there is a risk of loss should the borrower default before the securities are returned, and due to market movements, the value of collateral held has fallen and/or the value of the securities on loan has risen.


Why BlackRock for securities lending?

We believe in managing our securities lending operations on our proprietary platforms, rather than outsource this important function to a third-party. To that end, we have built a proprietary securities lending infrastructure so that lending activity is executed in our clients’ best interests and with prudent risk management.

Skillful risk management
Skillful risk management
We take a conservative, low-risk approach and use Aladdin to integrate the capabilities of our dedicated research, trading and risk management teams.
Proprietary technology
Proprietary technology
Our dedicated team works on custom-built reporting, operations and trading systems to help ensure transparency and operational efficiency.
Robust assessment of borrowers
Robust assessment of borrowers
We select highly creditworthy borrowers based on conservative credit standards defined by our risk team, which operates independently from our securities lending business.

Learn more about securities lending at BlackRock


Common questions about securities lending at BlackRock

  • A large financial institution asks to temporarily borrow a stock or bond. In order to borrow the stock or bond, the financial company must pay a fee and provide collateral to the fund. The fund keeps the collateral to secure repayment in case the borrower fails to return the loaned stock or bond. The value of the collateral must exceed the value of the loaned stock or bond, to provide the fund with a ‘safety cushion’ to prevent loss if the borrower doesn’t return the security.

    The financial institution typically uses the loaned stock or bond to hedge against market risks, facilitate a short sale, or use as collateral in another transaction. See the flow chart for an example of how a securities lending transaction works.

  • Securities lending has evolved into a vital component of the financial markets. As of June 2019, more than $21.9 trillion of assets were available for lending globally, with almost $2.4 trillion on loan on an average day.1

    Securities lending may increase liquidity, and so facilitates transactions, helps to mitigate price volatility, and reduces transaction costs. Since securities lending transactions may lead to short sales – where investors sell borrowed securities in anticipation of price declines – some have criticized securities lending as a risk to market stability.

    The Federal Reserve has found that short sales, in fact, improve market stability. Their research has shown that short selling does not systematically drive down asset prices, and that restricting short selling could lead to reduced liquidity and higher transaction costs for investors.2

    This is driven by the dynamics mentioned above – securities lending and short sales help to improve liquidity and enable investors to hedge risk.

  • Since BlackRock’s lending program started in 19813, only three borrowers with active loans have defaulted. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to our clients.

  • BlackRock’s integrated technology platform, alongside an experienced team of over 400 professionals focused on all aspects of markets, trading and liquidity, puts us in a strong position to manage collateral in the rare event of a borrower default. Additionally, our securities lending, operations, portfolio management and trading teams regularly assess our readiness to respond to a borrower default using various tools, which in a given year may include a borrower default simulation.

  • Securities lending is a well-established activity and is subject to regulation.

    In the US, the Securities and Exchange Commission (SEC) is the primary regulator of securities lending activities for mutual funds. SEC rules and guidance govern who can borrow or lend, what types of collateral are acceptable, the levels of collateral, and the reasons for which securities can be borrowed.

    For most of our funds domiciled in Ireland, rules and guidelines applicable to UCITS set out specific standards as to how securities lending activities shall be carried out, including what types of collateral are acceptable and which disclosures are required. The primary regulator for our Irish funds is the Central Bank of Ireland (CBI).

Benefits of securities lending

Securities lending is a way to unlock additional value of a portfolio and collect higher returns than would otherwise be received.  Investors may benefit from securities lending in the form of better fund performance. How? The fund may generate additional income through the fee that it charges for loaning securities.

Securities lending returns vary according to the specific securities a fund invests in and demand to borrow them.

Risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Risks of securities lending

While every investment bears some risk, BlackRock takes a rigorous, hands-on approach and has delivered positive lending income for every fund that has participated in lending since 19813. The primary risk of securities lending is borrower default risk.

Borrower default risk

Since the process involves lending securities, there is a risk that a borrower fails to return a borrowed stock or bond. In this case, the fund company would use collateral to purchase replacement securities. To minimize risk to investors, it is important that any collateral received be of high quality and liquidity.

First, we determine whether firms may be approved as borrowers; then, we monitor borrowers over time. An internal risk unit – separate from the securities lending team – performs regular borrower reviews. New transactions are systematically prevented if a borrower reaches its limits. As an additional safeguard in the event of a borrower default, BlackRock provides an indemnity for its lending funds domiciled in Europe – if a shortfall existed between the collateral and the cost to repurchase a loaned security, BlackRock would reimburse the fund in full under the terms of the indemnity.

Roland Villacorta, CFA
Managing Director, Head of Securities Lending
Roland Villacorta, CFA, Managing Director, is Head of Securities Lending within BlackRock's Trading and Liquidity Strategies group.
Read biography