tl;dr
BlackRock's Canadian division launches securities lending for its iShares Bitcoin ETF, creating new revenue opportunities while implementing strict risk management protocols to protect investors.
**BlackRock's Canadian Arm Launches Securities Lending for iShares Bitcoin ETF, Expanding Revenue Streams**
BlackRock, the world’s largest asset manager, has confirmed that its Canadian division has authorized securities lending for the iShares Bitcoin ETF (IBIT), effective August 25, following a 60-day notice period. This decision, outlined in the fund’s June 26 prospectus, marks a strategic move to generate additional income for investors while aligning with similar iShares ETFs in Canada that already utilize securities lending.
**Securities Lending Explained**
Securities lending allows funds to loan their holdings—such as shares or digital assets—to borrowers, typically financial institutions, in exchange for collateral and a fee. Borrowers often use these securities to cover settlement gaps, meet collateral requirements, or support short-selling strategies. By opening the iShares Bitcoin ETF to lending, BlackRock aims to diversify the fund’s revenue streams while maintaining robust risk management protocols.
**Program Structure and Safeguards**
BlackRock Canada has appointed two affiliates as lending agents for the fund: BlackRock Institutional Trust Company (BTC) in San Francisco and BlackRock Advisors (UK) Limited (BAL) in London. The program requires borrowers to post collateral valued at 102% of the loaned securities’ market value, which can include cash or other securities. These collateral holdings are marked to market daily to ensure adequacy.
To further mitigate risk, BlackRock provides a borrower default indemnity, guaranteeing replacement of any unreturned securities in case of a borrower’s failure. Additionally, no more than 50% of the fund’s net asset value may be on loan at any time, and cash collateral is restricted to highly liquid securities with maturities of 90 days or less. The firm’s internal risk management team oversees the program, leveraging proprietary technology and quantitative models to monitor exposures.
**Risks and Investor Protections**
While securities lending offers potential benefits, it also introduces risks. Delays or failures by borrowers to return securities could hinder the ETF’s ability to participate in corporate actions like mergers or dividends. Market volatility or regulatory changes might also impact lending activity or the treatment of loaned securities.
Despite these challenges, BlackRock emphasizes that its 102% collateralization requirement and indemnity arrangements significantly reduce the likelihood of investor losses. The firm asserts that even in the event of a borrower default, it can replenish the portfolio without material impact.
**Market Context and Significance**
Launched in January 2024, the iShares Bitcoin ETF manages approximately CAD $358.9 million (US$257 million) in assets, offering investors exposure to Bitcoin in both Canadian and U.S. dollars. This move underscores BlackRock’s commitment to innovation in the digital asset space while adhering to stringent regulatory standards.
As the cryptocurrency market evolves, BlackRock’s integration of securities lending into its Bitcoin ETF highlights a balance between maximizing returns and safeguarding investor interests—a strategy that could influence broader adoption of digital assets in traditional finance.