Stock lending: a relatively untapped market in Asia

ON A WORLDWIDE basis, some US$2 trillion worth of stocks and fixed-income securities have been lent out thus far this year. These securities-lending (or sec-lending) programmes enable institutional investors, who generally hold large portfolios, to earn income on their assets without active trading.

This passive income generation through stock lending thrives in the United States and Europe, where the majority of financial assets are held by institutions.

For example, lending out 10,000 "Company Z" shares that are currently trading at S$100 for a week, at a one per cent annualised rate, generates about S$200 (1%/52x10,000xS$100).

Lenders can also earn additional income, on top of such rates, when the borrower posts a collateral as a guarantee, which may be in the form of cash, bonds or shares. While the actual amount of collateral varies, a minimum 120 per cent (or 150 per cent in …