How does securities lending work

If both of these were to occur, the lender would suffer a financial loss equal to the difference between the two. Fund managers must also consider other non-financial risks, such as ethical or reputational risks which can sometimes arise due to unforeseen events, or when investments do not perform as anticipated. We believe managing our securities lending operations in-house, on our proprietary platforms, is preferable to outsourcing this important function to third parties, as some other investment managers do.

To that end, we have built a robust infrastructure to help ensure that every element of our lending activity is executed in our clients' best interests and with prudent risk management. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to our clients. As a global investment manager and fiduciary to our clients, our purpose at BlackRock is to help everyone experience financial well-being.

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Why not simply buy it? This means they have to be ready to buy and sell those securities to any of their counterparties, such as pension funds or asset managers, at any time.

If they are asked to sell some that they do not currently have, they can borrow them at short notice in order to make the sale. Typically, securities are transferred two business days after a sale has been agreed. How does it work? First, a large financial institution asks to temporarily borrow a stock or bond from a fund.

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.

How do fund investors benefit from securities lending? Investors can benefit from securities lending in the form of better performance. The fund can generate additional income through the fee that it charges for lending securities. This has the equivalent effect of offsetting management fees. How much do investors benefit from securities lending? The performance contribution varies by fund and asset class.

BlackRock periodically benchmarks its securities lending performance versus competitors using data from independent third-party providers. Over three decades, BlackRock has focused on delivering competitive returns while balancing return, risk and cost.

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