During Q1, financial markets were characterised by elevated volatility driven by shifting interest‑rate expectations, uneven inflation data, and heightened geopolitical and macroeconomic uncertainty. Equity markets experienced sharp sector and regional dispersion, while bond markets adjusted to changing views on the timing and pace of policy easing, leading to increased securities lending trading activity across asset classes. These conditions were beneficial for securities lenders as higher volatility and dispersion typically increase demand for short selling, hedging and relative‑value strategies, supporting stronger utilisation levels and lending spreads. In addition, continued balance‑sheet constraints on broker‑dealers and tighter supply in certain high‑demand securities further enhanced revenue opportunities for lenders.

Q1 saw the first cycle of board reporting for regulated funds, which would include analysis of their securities lending activity.  Independent board oversight of securities lending programs for regulated funds has become increasingly important. Boards are expected to maintain accountability for the program’s objectives, risk limits, and eligible collateral, even when operations are outsourced. Enhanced oversight practices now include regular review of counterparty exposures, indemnity terms, and agent performance, as well as benchmarking against peer groups. Boards are also commissioning independent third-party reviews of lending programs to ensure robust controls and competitive outcomes.

Fee split analysis between asset owners and lending agents is under greater scrutiny, with boards demanding transparency around Fund compensation and a clear breakdown of services provided. Boards are increasingly benchmarking these splits and outcomes against industry standards to ensure that the fund’s interests are prioritized and that they are receiving fair value.

Overall, asset managers are facing heightened expectations to provide evidence-based oversight of delegated securities lending activities. This includes comprehensive board reporting on revenue, utilization, counterparty risk, and operational incidents, as well as clear documentation of fee arrangements and stewardship practices. These measures are designed to safeguard fund assets, ensure regulatory compliance, and demonstrate that the board is actively managing the risks and rewards associated with securities lending.

To learn more about how S&P Global Market Intelligence can support your securities lending strategies, please reach out to your regional expert, the details of which can be found on the report.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.