Securities lending

Securities Lending

Securities lending is an additional, relatively low-risk way for investors to unlock the full potential of their portfolio. In four decades of lending securities on behalf of clients, BlackRock has focused on delivering competitive returns while balancing return, risk and cost.2

Capital at Risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. 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.

  • Securities lending has evolved into a vital component of the financial markets.

    Securities lending may increase liquidity and therefore facilitate transactions. This helps to mitigate price volatility and reduces transaction costs for all market participants. 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.

    In contrast to this, research by the Federal Reserve has found that short sales improve market stability. Their research has shown that short selling does not systematically drive down asset prices and that restricting short selling could actually lead to reduced liquidity and higher transaction costs for investors.

    These findings are driven by the dynamics mentioned above: securities lending and short sales help to improve liquidity and enable investors to hedge risk.1

  • Since BlackRock’s lending program started in 19812, 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. Each year this may include a borrower default simulation.

  • Securities lending is a well-established and regulated activity. For many of our funds domiciled in Europe, rules and guidelines applicable to UCITS funds 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). The primary regulator for funds domiciled in Luxembourg is the Commission de Surveillance du Secteur Financier (CSSF). Funds domiciled in Switzerland are regulated by the Swiss Financial Market Supervisory Authority (FINMA). The primary regulator for funds domiciled in the UK is the Financial Conduct Authority (FCA), with the exception of BlackRock Life Limited (BLL) funds which are dual regulated by the FCA and Prudential Regulation Authority (PRA).

Benefits of securities lending

Securities lending is a way to unlock additional value from a portfolio. A lending 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 holds and the demand to borrow them.

As an investor in a lending fund, this differentiated income stream can offset your running costs and help you reach your objectives faster. Within our lending program, your loan is protected by an indemnity provided by BlackRock that protects you from the unlikely event of a borrower default. The investment management approach of our lending program is focused on delivering competitive returns, whilst balancing return, risk and cost.

Risks of securities lending

We encourage all investors to ask their fund managers about securities lending practices and returns. While every investment bears some risk, we take a rigorous hands-on approach to risk management, and as a result we have delivered positive lending income for every fund that has participated in our lending program since its inception in 1981.2

Borrower default risk

The key risk of securities lending is that a borrower fails to return a borrowed security. In this case, the lending fund would use the collateral given by the borrower in order to purchase replacement securities. There are several processes in place to ensure that lending funds do not experience financial loss in the event of borrower default:

  • The Risk and Quantitative Analysis group (independent from the securities lending team) determine whether firms may be approved as borrowers. They monitor existing borrowers and perform regular borrower reviews. New transactions are systematically prevented if a borrower reaches their risk approved borrow limit.
  • To minimize risk to investors, it is important that any collateral received be of high quality and liquidity.
  • There are daily mark to market checks to ensure that the value of the collateral exceeds the value of the loaned security.
  • As an additional safeguard, we fully indemnify our funds domiciled in Europe. If a shortfall existed between the collateral and the cost to repurchase a loaned security, we would cover this cost in full.
Roland Villacorta, CFA
Managing Director, Head of Global Cash Management and Head of Securities Lending within BlackRock Global Markets
Roland Villacorta, CFA, Managing Director, is Head of Global Cash Management and Head of Securities Lending within BlackRock’s Global Markets. He is a member of BlackRock's Global Operating Committee.