A U.S. District Court in Tennessee dismissed a securities lending lawsuit brought against BlackRock (NYSE: BLK), the parent company of iShares, the world’s largest ETF issuer.

The Laborers Local 265 Pension Fund, based in Cincinnati, and Plumbers and Pipefitters Local No. 572 Pension Fund, of Nashville brought the suit against BlackRock in January, alleging that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation, Andrew Zajac reported for Bloomberg.

Some ETF sponsors loan shares of stocks held in their various funds to short-sellers in exchange for collateral, generating fees in the process. For example, the Guggenheim Solar ETF (NYSEArca: TAN) is able to offer its investors a solid dividend yield even though solar stocks are not big dividend payers because of fees earned by loaning shares of TAN’s components out to short-sellers. [Solar ETF Holdings See Short Interest Spike]

Proceeds from securities lending are dividend among the lender and a lending agent, but BlackRock has its own securities lending operation. The pension funds alleged that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation, according to Bloomberg.

In ruling against the pension funds, U.S. District Judge Aleta Trauger said no cause action existed and that the court could not create one. The judge gave the pension funds until September 17 to file an amended complaint.

BlackRock had $589.6 billion in U.S. ETF assets under management as of August 27. Five of the 10 largest U.S. ETFs by assets are iShares funds, a group that includes the iShares Core S&P 500 ETF (NYSEArca: IVV), the iShares MSCI EAFE ETF (NYSEArca: EFA) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).

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