Funds lend the ETFs to outside investors in exchange for a collateral or fee.
Moody’s Investor Service, though, believes that the higher compliance costs would diminish the profitability of securities lending, reports Chris Flood for the Financial Times.
“Securities lending provides ETF sponsors [with]extra revenue to compensate for slim ETF management fees,” Vanessa Robert, senior credit officer at Moody’s, said in the article.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.