BlackRock has announced that its Canadian subsidiary has initiated securities lending for the iShares Bitcoin ETF effective August 25, following a mandatory 60-day notification to investors.
This decision comes after a revelation in the June 26 prospectus, which described the fund’s potential to engage in lending activities according to Canadian securities regulations. This action brings it in line with other iShares ETFs in Canada, many of which already utilize securities lending to generate additional income.
Securities lending permits a fund to lend out its assets, such as stocks or other securities, to borrowers—primarily financial institutions—in exchange for collateral and a fee for the lending service.
Borrowers often require these securities to address settlement gaps, fulfill collateral obligations, or facilitate short-selling strategies.
By allowing IBIT to participate in securities lending, BlackRock is effectively expanding the ETF’s revenue streams, while assuring that measures will be implemented to minimize risk.
BlackRock introduced its Bitcoin product to the Canadian market in January, allowing investors to gain exposure to this leading digital currency in both Canadian and US dollars. The fund manages approximately CAD $358.9 million (around US$257 million) in assets.
IBIT securities lending program
The prospectus indicates that BlackRock Canada has designated two affiliates as lending agents for the fund: BlackRock Institutional Trust Company (BTC) based in San Francisco and BlackRock Advisors (UK) Limited (BAL) in London.
Under this arrangement, borrowers are required to post collateral amounting to at least 102% of the loaned securities’ market value. This collateral can be provided in cash or other securities, which are re-evaluated at market value daily.
Additionally, BlackRock offers a borrower default indemnity, pledging to replace any securities not returned in case of borrower default.
To manage exposure, a maximum of 50% of the fund’s net asset value can be on loan at any given time. Cash collateral received can only be invested in highly liquid securities with maturities of 90 days or fewer.
The program will be backed by BlackRock’s internal risk management team, utilizing proprietary technology and quantitative models for monitoring exposures. The firm prioritizes quality, liquidity, and interest rate sensitivity when investing cash collateral, reflecting a strategy designed to protect against market volatility.
Risks and investor safeguards
Despite the safeguards implemented, securities lending carries risks that may affect holders.
Some of these risks include potential delays or failures from borrowers to return securities, which could hinder the ETF’s participation in corporate activities like mergers or dividend distributions.
Market fluctuations could also compel lending agents to reduce their activity, thus diminishing potential revenue. Moreover, changes in tax or regulatory frameworks may affect how loaned securities are treated, potentially delaying or decreasing payments owed to the fund.
Nonetheless, BlackRock emphasizes that collateralization above 100% and its indemnity program mitigate the likelihood of investor loss. This policy ensures that even in the event of a borrower default, BlackRock can recover its portfolio without substantial impact.
