Blog — 21 May, 2026

Canada’s Securities Lending Market: Balance Growth Meets Fee Compression

Over the past year, Canada’s securities lending market has continued to exhibit a clear trend: expanding balances alongside sustained pressure on fees.

All values in USD

Over the past year, the Canadian securities lending market has presented a familiar but increasingly pronounced dynamic: strong balance growth, offset by persistent pressure on fees and a decline in specials activity (any loan traded at over 500bps fee). This divergence has become a defining feature of the market, reflecting broader shifts in the global macroeconomic backdrop.

A Market Defined by Scale, Not Pricing

At a headline level, Canadian securities lending activity has grown in scale but not in profitability. Year-to-date (January to April) revenues for 2026 stand at $129.4 million, a decline of 9.5% YoY versus the equivalent 2025 total of $133.55 million.

This relatively modest decline in revenues contrasts with the underlying expansion in market size. Average balances increased to $61.9 billion in Q1 2026, up 20% YoY, while the broader lendable universe has expanded to $1.14 trillion, up 45% YoY. At the same time, utilization has softened to 4.68% (down from 5.16%), highlighting that supply growth is outpacing incremental demand.

The key takeaway for Canadian equities is clear: the Canadian lending market is growing structurally, but excess inventory, in the current environment, is compressing returns. Average fees have declined to 0.62% in Q1 2026, down from 0.77% in Q1 2025, a 19% contraction that explains the disconnect between balances and revenue.

Utilization and Lendable Supply: A Growing Imbalance

The relationship between lendable supply, utilization, and balances provides further insight into market structure.

  • Lendable assets: $1.14 trillion (+45% YoY in Q1 2026)
  • Utilization: 4.68% (-9% YoY in Q1 2026)
  • Balances: $61.9 billion (+20% YoY in Q1 2026)

This imbalance highlights a key structural issue: supply growth is significantly outpacing demand.

As the supply base widens, a smaller proportion of assets is being actively borrowed, leading to lower utilization rates and downward pressure on fees.

From a market microstructure perspective, this creates a self-reinforcing cycle: lower utilization reduces scarcity, which in turn suppresses fees and can sometimes discourage further incremental borrowing.

Monthly Trends: Early-Year Stability Masking Underlying Weakness

A closer look at monthly data shows a relatively stable start to 2026, but with subtle signs of weakening fee dynamics:

  • January 2026: Revenues of $32.1 million (+3.3% YoY), supported by relatively stable fees (0.63%)
  • February 2026: Revenues declined slightly to $28.3 million (-3.3% YoY), with fees falling to 0.60%
  • March 2026: Revenues recovered to $36.8 million (-9.7% YoY), though fees remained under pressure at 0.63% versus 0.87% a year earlier
  • April 2026: Revenues of 32.2 million (-1% YoY), with average fees of 0.64% versus 0.80% a year earlier

Balances rose steadily throughout the first quarter, peaking at $67.7 billion in March (+26% YoY), but this expansion did not translate into pricing power. Instead, it confirms that the increased level of supply entering the lending market is increasingly deployed at general collateral rates rather than specials fees (>500bps).

Sector Concentration: Banks and Energy Dominate Demand

Canadian securities lending activity continues to be highly concentrated across domestic macro sectors, particularly financials and energy.

The top revenue generators in Q1 2026 reflect this:

  • Enbridge (Energy): $8.8M
  • Toronto-Dominion Bank (Banks): $5.3M
  • Bank of Nova Scotia (Banks): $4.7M
  • TC Energy (Energy): $3.9M
  • Canadian Natural Resources (Energy): $3.8M

Financials remain structurally important due to their high index weight, liquidity, and consistent use in hedging and relative value strategies. Meanwhile, energy names dominate due to ongoing macro uncertainty around commodity prices, geopolitical disruptions, and inflation-linked exposures.

However, when compared to 2025, there has been a marked compression in revenue intensity in some of these stocks. For example, Enbridge generated over $12 million in Q1 2025 versus $8.8 million in Q1 2026, indicating lower fee capture (13.2bps in 2026 vs 60.1bps in 2025) among the most in-demand securities.

All values in USD

This reinforces a broader theme: demand remains present, but pricing is weaker across almost all segments.

The Decline in Specials Revenues: A Structural Reset

One of the most important structural changes in the Canadian securities lending market has been the sustained decline in specials activity.

Historically, specials (loans priced above 500bps) have been a key driver of excess returns. However, data shows that Canadian specials revenues have steadily deteriorated.

This decline reflects a structural shift away from scarcity-driven lending toward a more commoditized market dominated by general collateral flows.

Several factors may underpin this trend:

    All values in USD

  1. Increased lendable supply as passive funds and ETFs expand
  2. Lower volatility, reducing the need for directional shorts
  3. Fewer corporate actions and dislocations, limiting catalysts for high-fee trades

Reduced speculative activity across the market has contributed to the decline in high-fee opportunities, with the market increasingly dominated by low-margin general collateral lending.

The result is a less volatile but also less lucrative lending environment, particularly for beneficial owners reliant on special-driven revenues.

Linking Lending to the Real Economy

Canadian securities lending trends also reflect broader economic themes, particularly sector exposure and cyclical sensitivity.

The dominance of banks and energy stocks in lending revenues aligns closely with Canada’s economic structure. These sectors are highly sensitive to:

  • Interest rate expectations (financials)
  • Commodity price cycles (energy)
  • Global trade dynamics

When macro uncertainty increases, whether due to inflation volatility or geopolitical shocks, these sectors typically see increased hedging activity, supporting lending demand.

At the same time, the absence of a large technology sector (relative to the US) limits exposure to high-growth, high-volatility names that typically generate specials activity. This structural characteristic helps explain why Canada’s lending market exhibits lower fee dispersion and fewer high-fee opportunities when viewed in the broader context of record global securities lending market revenues in 2025.

Canadian Government Bond Lending: Stable Demand, Limited Revenue Growth

Fixed income lending across Canadian government bonds remained a steady but relatively low‑fee contributor in Q1 2026, reflecting the broader macro relationship between inflation expectations and interest rate volatility. The top revenue‑generating bonds were concentrated in on‑the‑run sovereign issuances across the front and intermediate curve, with significant balances, such as the 0.50% Dec‑2030 ($1.86bn on loan, generating $3.1m) and the 3.50% Sep‑2029 ($4.1bn on loan, generating $1.1m), but relatively modest average fees, typically ranging between 3bps and 6bps, with only select shorter‑dated securities (e.g. 4% May‑2026 at 9.45bps) showing elevated demand. This pattern reflects a market driven less by directional shorting and more by collateral transformation, hedging, and relative‑value positioning, particularly as interest rate expectations shifted through Q1.

Following the rate volatility seen in late 2025 and early 2026, where inflation proved more persistent than expected and central banks delayed easing cycles, government bonds became increasingly important as both liquidity buffers and hedging instruments, supporting lending balances but not materially increasing lending fees.

Looking ahead, revenue growth in Canadian government bond lending is likely to remain modest and balance-driven rather than fee-driven: unless inflation surprises or rate volatility increase meaningfully, demand for sovereign collateral will remain stable, but limited specials activity and ample supply is expected to continue to cap returns, likely keeping fees anchored in low single-digit basis point ranges.

All values in USD

A Market in Transition

The Canadian securities lending market is not in decline, it is evolving.

The data points to a market that is:

  • Larger in scale, driven by structural growth in lendable assets
  • More liquid, with strong participation across institutional lenders
  • Less volatile, with fewer high-fee dislocations
  • Lower yielding, due to sustained fee compression

This evolution reflects broader global trends in securities finance but is particularly pronounced in Canada due to the structure of its equity market and macroeconomic backdrop.

Outlook: Volume Over Value

Looking ahead, the key question for market participants is whether this low-fee, high-balance environment will persist.

Current indicators suggest that:

  • Fee pressure is likely to remain, absent a significant increase in underlying volatility across the TSX60
  • Balance growth will continue, supported by increased asset valuations and new supply
  • Specials activity is likely to remain structurally constrained

However, there are potential catalysts for a shift:

  • A resurgence in market volatility could drive increased demand
  • Commodity price shocks could create sector-specific dislocations
  • Policy changes or regulatory shifts could alter borrowing behavior

Until then, it is our opinion that the Canadian securities lending market is likely to remain a scale-driven business, where revenue growth depends more on increasing balances than improving pricing.

Location

Global