Two-Sided Markets in Asset Management: Exchange-Traded Funds and Securities Lending
46 Pages Posted: 2 Aug 2014 Last revised: 28 Sep 2016
Date Written: May 4, 2016
Asset management has long been a simple, fee-for-service business. Recently, however, exchange-traded funds (ETFs) have become increasingly engaged in two-sided markets between investors and stock borrowers. We show that ETF fees from lending securities match expense ratios on average and, in some cases, are much higher. We also show that managers tend to slant their holdings toward stocks with higher lending fees. Finally, we test for two-sidedness by showing that the ratio of lending fees to expense ratio drives asset growth. The results should be important to investors, who are no longer the customer buying service but are the product being sold.
Keywords: Exchange Traded Funds, Securities Lending, Two Sided Markets, Index Funds
JEL Classification: G23, G12
Suggested Citation: Suggested Citation