Canada’s edge in securities lending: Innovation, alignment, and opportunity
13 May 2025
As a mature and globally integrated market, Canada continues to demonstrate why it plays a central role in global securities finance, says Lisa Tomada, vice president, global securities lending, CIBC Mellon
Image: Lisa Tomada
Canada’s securities lending market continues to stand out globally as a model of resilience, adaptability, and innovation. As we enter 2025, market participants are navigating a landscape shaped by macroeconomic volatility, elevated interest rates, regulatory developments, and a rapid acceleration in technology adoption. Canada’s market, the second largest in the Americas by revenue, has remained a consistent performer despite global headwinds.
The Canadian securities lending industry has evolved over the past year and there are several emerging themes that will shape its trajectory going forward — changing borrower and beneficial owner behaviour, regulatory shifts, liquidity and collateral innovation, the move to T+1 settlement, ESG considerations, and Canada’s positioning on the global stage.
Market trends and revenue shifts
Following a period of exceptional lending revenues in 2022 and early 2023, 2024 marked a period of recalibration. Securities lending revenues in Canada normalised amid softer demand for general collateral and the discontinuation of discounted Dividend Reinvestment Plans (DRIPs) by Canada’s major banks.
These DRIP-related trades had previously driven high-fee specials, particularly in financials. Their removal disproportionately affected Canadian beneficial owners, who tend to hold large positions in domestic bank equities. More recently, market volatility stemming from tariff uncertainty has not translated into a significant increase in specials in the Canadian equity market.
Beneficial owners: Strategy and sophistication
Canadian beneficial owners have become increasingly engaged and proactive in how they approach lending programmes. Many adjusted risk parameters, broadened collateral acceptance criteria, and embraced new tools to monitor performance. A growing number of institutions now consider securities lending a core portfolio strategy rather than a passive income generator. Beneficial owners are also seeking customised reporting and governance structures that align lending with broader investment objectives — signaling a permanent shift from commoditised lending to strategic asset optimisation.
Liquidity, collateral, and risk management
Collateral management is no longer a back-office concern, it is now a strategic differentiator. Canadian lenders have expanded the types of collateral they accept, including equities and ETFs, an important way to optimise margin terms and generate incremental revenues.
Term lending, collateral transformation, and liquidity coverage trades remained strong through 2024. Borrowers — particularly foreign counterparties — continued to tap into Canadian government and provincial bonds to meet their own liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) requirements. The rise in term-based loans also reflects market efforts to mitigate settlement fails under T+1, with lenders preferring more predictable loan maturities.
Technology, automation, and the impact of T+1
The transition to T+1 settlement across Canada, the US, and Mexico in 2024 was a milestone that pushed the industry to modernise. The compressed recall timelines and operational complexity drove rapid investments in automation, straight-through processing (STP), and exception management tools. Canada’s alignment with global market structures remains critical. The synchronised move to T+1 enabled cross-border trades and recalls to function with minimal disruption, showcasing the value of industry coordination.
Canadian agent lenders and beneficial owners alike adopted automated recall systems and real-time inventory tools to ensure timely trade settlement. These systems are not only enabling compliance with T+1 but have also improved operational accuracy and efficiency, resulting in better client service and risk reduction.
Beyond T+1, the industry continues to explore AI-powered pricing, predictive analytics for recall forecasting, and smart collateral routing to further streamline workflows and support faster, data-driven decisions.
Greater transparency into loans and lending activity is a cornerstone of strong governance over Canadian securities lending programmes. Beneficial owners are demanding clearer visibility into where, how, and to whom their securities are lent. Agent lenders have responded with enhanced reporting dashboards, opt-out frameworks, and policies that align with institutional mandates. While this can sometimes increase programme complexity, it builds trusted partnerships with clients that enable more meaningful discussions on opportunities and programme optimisation.
Looking ahead, Canadian institutions are preparing for the US Securities and Exchange Commission’s (SEC’s) Rule 10c-1 reporting requirements, expected to take effect in the near term. These rules, which mandate real-time disclosure of securities loans, represent a major shift toward transparency. Canadian participants are also closely watching Basel Endgame’s implementation, recognising that increased capital and risk-weighted requirements will affect indemnification and liquidity provision strategies.
Canadian institutions are investing in technology, broadening client engagement, and strengthening governance to stay ahead of market and regulatory changes. However, challenges persist from economic uncertainty and high funding costs to operational risks under T+1.
As a mature and globally integrated market, Canada continues to demonstrate why it plays a central role in global securities finance. With its strong regulatory framework, trusted infrastructure, and culture of innovation and transparency, the Canadian securities lending industry is well-positioned for long-term growth. By embracing technology, aligning with global best practices, and fostering responsible governance, Canadian participants are not just adapting — they are helping shape the future of the industry.
The Canadian securities lending industry has evolved over the past year and there are several emerging themes that will shape its trajectory going forward — changing borrower and beneficial owner behaviour, regulatory shifts, liquidity and collateral innovation, the move to T+1 settlement, ESG considerations, and Canada’s positioning on the global stage.
Market trends and revenue shifts
Following a period of exceptional lending revenues in 2022 and early 2023, 2024 marked a period of recalibration. Securities lending revenues in Canada normalised amid softer demand for general collateral and the discontinuation of discounted Dividend Reinvestment Plans (DRIPs) by Canada’s major banks.
These DRIP-related trades had previously driven high-fee specials, particularly in financials. Their removal disproportionately affected Canadian beneficial owners, who tend to hold large positions in domestic bank equities. More recently, market volatility stemming from tariff uncertainty has not translated into a significant increase in specials in the Canadian equity market.
Beneficial owners: Strategy and sophistication
Canadian beneficial owners have become increasingly engaged and proactive in how they approach lending programmes. Many adjusted risk parameters, broadened collateral acceptance criteria, and embraced new tools to monitor performance. A growing number of institutions now consider securities lending a core portfolio strategy rather than a passive income generator. Beneficial owners are also seeking customised reporting and governance structures that align lending with broader investment objectives — signaling a permanent shift from commoditised lending to strategic asset optimisation.
Liquidity, collateral, and risk management
Collateral management is no longer a back-office concern, it is now a strategic differentiator. Canadian lenders have expanded the types of collateral they accept, including equities and ETFs, an important way to optimise margin terms and generate incremental revenues.
Term lending, collateral transformation, and liquidity coverage trades remained strong through 2024. Borrowers — particularly foreign counterparties — continued to tap into Canadian government and provincial bonds to meet their own liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) requirements. The rise in term-based loans also reflects market efforts to mitigate settlement fails under T+1, with lenders preferring more predictable loan maturities.
Technology, automation, and the impact of T+1
The transition to T+1 settlement across Canada, the US, and Mexico in 2024 was a milestone that pushed the industry to modernise. The compressed recall timelines and operational complexity drove rapid investments in automation, straight-through processing (STP), and exception management tools. Canada’s alignment with global market structures remains critical. The synchronised move to T+1 enabled cross-border trades and recalls to function with minimal disruption, showcasing the value of industry coordination.
Canadian agent lenders and beneficial owners alike adopted automated recall systems and real-time inventory tools to ensure timely trade settlement. These systems are not only enabling compliance with T+1 but have also improved operational accuracy and efficiency, resulting in better client service and risk reduction.
Beyond T+1, the industry continues to explore AI-powered pricing, predictive analytics for recall forecasting, and smart collateral routing to further streamline workflows and support faster, data-driven decisions.
Greater transparency into loans and lending activity is a cornerstone of strong governance over Canadian securities lending programmes. Beneficial owners are demanding clearer visibility into where, how, and to whom their securities are lent. Agent lenders have responded with enhanced reporting dashboards, opt-out frameworks, and policies that align with institutional mandates. While this can sometimes increase programme complexity, it builds trusted partnerships with clients that enable more meaningful discussions on opportunities and programme optimisation.
Looking ahead, Canadian institutions are preparing for the US Securities and Exchange Commission’s (SEC’s) Rule 10c-1 reporting requirements, expected to take effect in the near term. These rules, which mandate real-time disclosure of securities loans, represent a major shift toward transparency. Canadian participants are also closely watching Basel Endgame’s implementation, recognising that increased capital and risk-weighted requirements will affect indemnification and liquidity provision strategies.
Canadian institutions are investing in technology, broadening client engagement, and strengthening governance to stay ahead of market and regulatory changes. However, challenges persist from economic uncertainty and high funding costs to operational risks under T+1.
As a mature and globally integrated market, Canada continues to demonstrate why it plays a central role in global securities finance. With its strong regulatory framework, trusted infrastructure, and culture of innovation and transparency, the Canadian securities lending industry is well-positioned for long-term growth. By embracing technology, aligning with global best practices, and fostering responsible governance, Canadian participants are not just adapting — they are helping shape the future of the industry.
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