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Securities Lending Income Remains Strong as Industry Adapts to Change

  • The SEC has adopted Rule 10c-1a, a new rule that will require lending agents and broker/dealers to send securities lending data to FINRA at the end of the day, intended to “increase the transparency and efficiency of the securities lending market.” The new rule will likely increase costs for many funds.
  • Open-end funds and ETFs generated a combined $2.3 billion in securities lending income during 2022—an 11.4% increase from the prior year. With rates remaining elevated on short-term liquid instruments, the interest earned on reinvested collateral is likely to produce another strong year in 2023.
  • According to Ignites, lending agent services have expanded to satisfy complex securities lending needs, allowing them to take a larger share of the revenue earned from lent securities. The heightened scrutiny from regulators and greater capital investment needed for new technology/data will require asset managers to consider whether the potential reward is lucrative enough to justify growing costs.

Securities Lending Income, Open End Funds & ETFs ($M)

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Source: Morningstar, FUSE Research Network