The securities lending market has become less lucrative on greater institutional money in ETFs and diminished demand for borrowing ETFs to short or cover trade fails, reports Ari I. Weinberg for Pensions & Investments.
According to Markit Securities Finance, the average “return to lendable” on ETFs is slightly above 10 basis points over the past year, compared to the 20 basis points seen in 2010 and 2011. ETF assets on loan dipped to $9 billion from a peak of almost $14 billion in the last three years while assets available to borrowers grew to $60 billion from $35 billion. Utilization – a measure of demand – has dropped to 15% from about 35% over the last three years.
“The demand to borrow just has not kept pace,” Simon Colvin, vice president for Markit, said in the Pensions & Investments article.
“The majority of demand for shorting is around specific emerging market ETFs,” Paul Lynch, chief operating officer at eSecLending, said in the article. “But the cost to borrow is driven by both the supply and demand as well as the cost to create new shares of an ETF.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.