Hello, Apparently it is big business for ETFs to lend out their shares (for short-selling, etc.). But what if the borrower gets in a jam and can't cover? It think the ETF shareholders (not BlackRock) are on the hook for the default. And if there is systemic default, the ETF shareholders could be wiped out through no fault of their own. I've been getting into ETFs to reduce risk. But I definitely don't want to sign myself up for "black swan" systemic risk. Any thoughts on this? Here is article that discusses the concern: https://www.investopedia.com/articles/stocks/09/securities-lending-concern.asp
I believe the cash collateral will blunt most of the loss (though you'd lose on the gains). But I'm not clear on this. Some follow up questions for individuals lending: 1. How often does this happen? 2. What circumstances is this likely to happen under? 3. And who's first in line for the liability for this (i.e. does the shorting parties broker assume the obligations of their client shorting, or would your own broker from whom you don't receive the borrow interest step in)?
The risk has shown up before. http://www.pionline.com/article/201...uri-fund-scores-big-securities-lending-payout