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Blackrock to Limit Securities Lending to 50%

ETF TIMES June 18-22: ETF providers are moving to shed more light on lending practices in an effort to improve investor confidence

Lee Davidson 22 June, 2012 | 4:54PM

Blackrock to Limit Securities Lending to 50%
In a CityWire article published this week, Blackrock for the first time publicly announced that the amount of securities loaned out from its physical replication iShares exchange-traded funds (ETFs) would be capped at 50% of each fund's net assets. Securities lending refers to when an asset owner or manager loans shares to other investors, usually hedge funds, who want to sell it short. Within a securities lending programme, the asset owner is exposed to some level of counterparty risk though does receive revenue for assuming that risk. Over the past year, counterparty risk from both the practice of securities lending and synthetic ETF replication has received heightened regulatory and investor attention in the European ETF marketplace. As a result, some ETF providers, like iShares, have moved to shore up and shed more light on these practices in an effort to improve investor confidence.

In October 2011, Blackrock announced that they would provide a daily snapshot of their iShares ETFs’ securities lending operations, disclosing underlying collateral holdings for each iShares fund with loaned securities. Furthermore, Blackrock would compile reports revealing annual revenue received from the practice of securities lending for investors to gauge the relative reward of the practice. With this week's decision to limit securities lending to 50% of fund assets for all iShares funds, Blackrock cited investor feedback stating it was responding to client concerns.

For more information on the practice of securities lending at European ETF providers, please read one of Morningstar's previous reports.

UBS Expands ETF Range in Switzerland
Last Friday, UBS launched two exchange-traded funds (ETFs) tracking US infrastructure stocks on the SIX Swiss exchange. The UBS ETFs both track the MSCI USA Infrastructure index--offered in “A” and “I” share classes. The “A” share class is meant for retail investors, while the “I” share class is intended for institutional investors. Broadly-speaking, the largest firms by market-cap from the Telecommunication Services, Utilities, Energy, Transportation and Social Infrastructure sectors are included in this index. Here are the details for the new UBS ETFs:

iShares Launches ETF in Germany
On Thursday, iShares launched an exchange-traded fund (ETF) tracking companies from emerging market countries with stable dividends on the Xetra exchange. The iShares ETF follows the Dow-Jones Emerging Markets Select Dividend index, which stipulates that the index only contain companies that have displayed positive earnings per share in the past twelve months and distributed dividends in each of the last three years. Here are the details for the new iShares ETF:

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Lee Davidson

Lee Davidson  is an ETF analyst with Morningstar Europe.

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