Securities Lending Australia 2025: Opportunities, Risks & Regulatory Updates

Securities lending has long been a behind-the-scenes mechanism powering Australian financial markets. But in 2025, new rules, technology platforms, and investor appetite are thrusting this practice into the spotlight. Whether you’re a retail investor, SMSF trustee, or institutional player, understanding securities lending can help you unlock portfolio returns, manage risks, and avoid compliance headaches.

What Is Securities Lending and Why Does It Matter?

At its core, securities lending involves temporarily transferring shares or bonds from a lender (often a large fund or institutional investor) to a borrower (such as a hedge fund or market maker) in exchange for a fee. The borrower provides collateral—usually cash or other securities—and agrees to return the assets on demand.

• Why do borrowers want your shares? Often to facilitate short selling, arbitrage, or to cover failed trades.

• Why do lenders participate? To earn extra income on otherwise idle assets, boosting portfolio returns.

• How big is the market? Globally, securities lending is a multi-trillion-dollar market. In Australia, the ASX and major custodians facilitate billions in lending daily.

For investors, securities lending can mean higher returns—but also new risks and responsibilities.

2025 Regulatory and Market Changes: What’s New?

This year, several changes are reshaping the securities lending landscape in Australia:

• APRA and ASIC oversight: Stricter reporting requirements and transparency measures for fund managers and super funds involved in lending programs.

• Tax treatment: The ATO clarified rules around franking credits and income from securities lending in late 2024, directly impacting how distributions are taxed for lenders in 2025.

• ESG and stewardship: Major super funds are reconsidering lending policies to ensure that voting rights and ESG stewardship are not compromised when shares are on loan, responding to member demands and global best practices.

• Technology platforms: The rise of automated lending marketplaces is making it easier for smaller funds and even some retail investors to participate, though minimum balances and risk controls still apply.

These shifts mean more opportunities for savvy investors—but also more scrutiny and the need to stay on top of changing rules.

Opportunities and Risks for Australian Investors

If you’re considering securities lending for your portfolio or SMSF, here’s what to weigh up in 2025:

Opportunities

• Extra income: Lending your shares can generate an additional yield—sometimes 0.1% to 0.5% per year, depending on demand and market conditions.

• Lower management fees: Some managed funds offset part of their management fees with income from securities lending, passing savings to investors.

• Market efficiency: Lending supports liquidity and price discovery, benefiting all market participants.

Risks

• Counterparty risk: If the borrower defaults, you could lose your shares, though collateral and indemnities reduce this risk.

• Loss of voting rights: When your shares are on loan, you may forfeit your right to vote at company meetings, which matters for active investors or ESG-focused funds.

• Tax and reporting complexity: Income from lending is taxed differently from dividends, and franking credits may be affected. Ensure your fund or broker provides clear reporting.

• Market volatility: In turbulent markets, demand for securities lending can spike or plummet, affecting returns and risk exposure.

It’s crucial to check with your fund, custodian, or platform about their lending policies, risk controls, and how income is distributed or disclosed.

Real-World Example: How a Super Fund Uses Securities Lending

Take AustralianSuper, one of the nation’s largest superannuation funds. In 2024, they reported earning over $40 million in additional income through securities lending, which helped offset member fees. The fund employs strict risk controls, only lends to vetted counterparties, and ensures members can opt out. As of 2025, new reporting rules mean members now receive quarterly updates on how much of their portfolio is on loan and what income it generated.

Retail investors using platforms like nabtrade or CommSec may also have the option to participate in securities lending, though usually with minimum portfolio sizes and additional disclosures.

Is Securities Lending Right for You?

Securities lending isn’t just for institutional giants—it’s increasingly accessible to sophisticated retail investors and SMSFs. But with potential benefits come real risks and the need for due diligence. Make sure you:

• Understand how your platform or fund manages lending and risk.

• Review the impact on your tax situation and franking credits.

• Stay informed about changing regulations and market practices.