Exploring the securities lending opportunities of UCITS ETFs
- Relying on the expense ratio to assess the total cost of an ETF is limiting, it is important to also consider other factors like securities lending potential.
- Securities lending, an essential component of capital markets activity, facilitates settlement, injects liquidity and fosters confidence amongst price makers.
- European UCITS ETFs have seen positive growth in both availability and demand since 2012, a trend which looks like continuing into 2025 and beyond.
Securities lending, or the exercise of loaning securities to other market participants, is a key aspect of capital markets activity that facilitates settlement, injects liquidity, and fosters confidence amongst price makers. These benefits are accessible to all types of investors, from long-term stable asset base investors to more transactional participants, such as market makers and hedge funds.
Securities lending with ETFs
UCITS ETF securities lending has grown alongside broader adoption of the ETF structure in Europe, with lendable values, and values on loan increasing over the time horizon detailed in Figure 1 below.
Many investors may be familiar with “inside” lending, or the practice in which ETF issuers (or their appointed agents) lend out the constituents of the ETF to the benefit of all investors. “Outside” lending, however, refers to when ETF beneficial owners make their ETF shares available for borrowing. Under this scenario, the investor retains the choice and control of their securities lending activities and directly benefit from any returns that may be generated as the result of lending out ETF units.
In some cases, “outside” lending can actually serve as a more relevant driver of returns, with the potential to earn lending returns that can help offset the Total Expense Ratio of the fund.
Why Market Participants Borrow ETF Units
There are numerous reasons driving the demand to borrow, the most common reasons include: investors wishing to hedge assets tracked by an ETF, market making activity in the funds themselves, and the small, but growing lists of derivatives that track them. Borrowers of ETF units are typically: market makers, investment managers, options traders and hedge fund managers that are seeking to cover pending settlements to satisfy delivery, hedge, short and create arbitrage opportunities.
Potential Yield from Lending ETFs?
When evaluating the potential yield generated from securities lending, we can look at the volume-weighted average fee (“VWAF”) and the utilisation rate percentage:
- The VWAF represents the average fee charged by a lender to a counterparty expressed in annualised terms.
- The utilisation rate is the shares on-loan as a percentage of shares made available for loan.
To demonstrate the potential return on shares made available, we can multiply the VWAF by the utilisation rate to determine the historical return on lendable assets, as shown below. Note fees and utilisation can vary significantly across periods so the below is indicatively only.
| Ticker | Fund name | Trailing 12 Month Average | ||
| VWAF (bps) | Utilization rate % | Gross return on lendable assets (bps)¹ | ||
SPY5 LN | State Street SPDR S&P 500 UCITS ETF (Dist.) | 131 | 8.0% | 10.4 |
SPYL NA | State Street SPDR S&P 500 UCITS ETF (Acc.) | 133 | 34.0% | 45.1 |
SSPY EY | State Street SPDR S&P 500 Leaders UCITS ETF | 210 | 39.7% | 83.5 |
Source: S&P Global Market Intelligence as of 30 June 2026. Estimates are for illustrative purposes only and do not include additional return factors such as agency lending fees, re-investment rates, or other considerations. The performance data quoted represents past performance. Past performance does not guarantee future results. All information contained above is for illustrative purposes only.
Connect with the SPDR Capital Markets Team
Through strong relationships with Authorised Participants, market makers, liquidity providers, execution trading desks/platforms and stock exchanges, the SPDR Capital Markets team plays an active role in supporting competitive markets and maintaining the SPDR ETF liquidity ecosystem. The team’s insight into primary and secondary market activity, as well as access to numerous proprietary data points, can help investors to evaluate their execution strategies and meet end objectives, even in volatile markets.
Connect with the Team to learn more about the lending potential of SPDR UCITS ETFs or for any general execution related questions.