BlackRock Canada expands IBIT with securities lending

BlackRock has confirmed that its Canadian arm has granted securities lending for the iShares Bitcoin ETF from Aug. 25 after providing investors with the required 60-day notice.

The move follows disclosure in the June 26 prospectus, which outlined how the fund may engage in lending transactions in accordance with Canadian securities laws. The decision aligns it with other iShares ETFs in Canada, many of which already rely on securities lending to generate incremental income.

Securities lending allows a fund to loan its holdings, such as shares or other securities, to borrowers, typically financial institutions, in exchange for collateral and a lending fee.

Borrowers often use these securities to cover settlement gaps, meet collateral requirements, or support short-selling strategies.

By opening IBIT to securities lending, BlackRock is effectively broadening the ETF’s revenue sources while emphasizing that protections will be in place to mitigate risk.

BlackRock launched its Bitcoin product in the Canadian market in January. The fund allows investors to hold exposure to the flagship digital asset in Canadian and US dollars. It manages around CAD $358.9 million (equivalent to US$257 million) in assets.

IBIT securities lending program

According to the prospectus, BlackRock Canada has appointed two affiliates as lending agents for the fund, including BlackRock Institutional Trust Company (BTC), based in San Francisco, and BlackRock Advisors (UK) Limited (BAL), headquartered in London.

Under the structure, borrowers must post collateral worth at least 102% of the market value of the loaned securities. That collateral may take the form of cash or other securities, which are marked to market daily.

BlackRock also provides a borrower default indemnity, committing to replace any securities not returned in the event of borrower failure.

To limit exposure, no more than 50% of a fund’s net asset value may be on loan at any time. Cash collateral, when received, can only be invested in highly liquid securities with maturities of 90 days or less.

The program will be supported by BlackRock’s internal risk management team, which uses proprietary technology and quantitative models to monitor exposures. The firm emphasizes quality, liquidity, and interest rate sensitivity when investing cash collateral, reflecting an approach designed to safeguard against market disruptions.

Risks and investor safeguards

Despite the safeguards, securities lending introduces risks that could impact holders.

Some of these include borrowers’ delays or failures to return securities, potentially preventing the ETF from participating in corporate actions such as mergers or dividends.

Market conditions could also lead lending agents to scale back activity, reducing potential revenue. Furthermore, shifts in tax or regulatory rules may alter the treatment of loaned securities, delaying or reducing payments owed to the fund.

Still, BlackRock stresses that collateralization above 100% and its indemnity arrangement reduce the chance of investor loss. The policy ensures that, even if a borrower defaults, BlackRock should be able to restore its portfolio without a material impact.

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