While not a pressing subject in the U.S., international regulators have voiced concerns that the lending practices could hurt investors and the financial systems. Most critics contend that the practice poses counterparty risk where a default of the security’s borrower could leave the ETF provider in a short squeeze. [How ETF Securities Lending Works]
Moreover, some critics also argue that ETF investors are not fully benefiting from securities lending while remaining fully liable to cover any losses. [ETF Securities Lending in Focus on iShares Suit]
Additionally, IOSCO is calling for a standardized disclosure on ETFs that track an index in terms of composition and performance.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.