European ETFs and the Securities Lending Market

Abstract

Why should institutional investors in exchange-traded funds (ETFs) learn the basics of securities lending? ETF providers are using securities lending to generate revenue that may or may not affect the management charge of the ETF. The ETF holder who engages in securities lending is in a position to generate revenue that may help to reduce any tracking risk between the ETF and the underlying basket of securities. This article gives an overview of the securities lending market, including the unique “create-to-lend” characteristics of ETFs.