The engine behind the ETF growth story
15 October 2025
As the ETF market continues to expand into new asset classes and strategies, securities lending is expected to remain a pivotal driver, says Matt Chessum, director of Íø±¬³Ô¹Ï Finance, ETF, and Benchmarking Services at S&P Global Market Intelligence
Image: stock.adobe.com
Over the past three decades, exchange traded funds (ETFs) have transformed global capital markets, reshaping how institutions and retail investors allocate capital, access exposures, and manage portfolios. Nowhere has this growth been more pronounced than in the US, which remains the epicentre of ETF innovation and asset accumulation.
In the first half of 2025 alone, S&P Global Market Intelligence data shows that over US$540 billion flowed into ETFs, with a record 726 new funds forecasted to launch this year. For the first time, active ETFs now outnumber passive ones in the US — 2,226 versus 2,157 — a milestone that underscores both the diversification of ETF strategies and the increasing sophistication of investor demand.
Beneath this surge lies a critical, though often underappreciated, foundation: securities lending. By enabling liquidity, supporting capital markets efficiency, and directly generating incremental revenues, securities lending has both underpinned and accelerated the expansion of the ETF ecosystem. It has also been instrumental in facilitating innovation, helping complex strategies such as buffer ETFs, credit ETFs, leveraged and inverse ETFs, and synthetic ETFs to thrive.
The scale of ETF growth
The ETF industry has expanded at a pace few anticipated in the 1990s. The US market alone now comprises more than 4,300 ETFs across asset classes and strategies, with over 17 trillion in assets under management (AUM). In 2025, innovation is accelerating: funds tied to crypto, private credit, and outcome-based strategies expected to join traditional equity and bond ETFs on exchanges.
Active ETFs, a category once considered niche, have exploded. Importantly, most active ETFs today are not built on discretionary stock-picking but on rules-based or options-driven strategies, such as covered call or buffer ETFs. These approaches blur the lines between active and passive, underscoring how ETFs are increasingly a delivery mechanism for investment innovation.
This momentum is global. While the US leads in assets, EMEA and APAC ETF markets are also accelerating. ETF issuers worldwide are leveraging securities lending as both a revenue tool and a capital markets function to support fund efficiency and growth.
Íø±¬³Ô¹Ï lending: The quiet engine behind ETFs
At its core, securities lending allows ETF issuers to generate additional revenues by lending out the securities held within their funds to borrowers, typically market makers, hedge funds, or other institutional investors who need access to securities for short selling, arbitrage, or liquidity purposes.
For ETFs, the benefits of securities lending are two-fold:
Revenue generation for fund investors
• Lending generates additional income streams that flow back to ETF holders, improving fund performance net of fees.
• In H1 2025, ETFs globally generated US$521 million in securities lending revenues, with the Americas leading at US$451 million, up 82 per cent year-on-year (YoY).
• EMEA contributed US$53 million (+73 per cent YoY) and APAC US$17 million (+116 per cent YoY).
Capital markets function
• Íø±¬³Ô¹Ï lending supports liquidity and price efficiency in secondary markets, ensuring ETFs trade close to their net asset values (NAVs).
• For issuers, securities lending is an integral part of the ETF capital markets ecosystem, ensuring that authorised participants (APs) and market makers can efficiently create and redeem shares.
The scale of lending in US ETFs is impressive: US$483 billion in lendable assets in H1 2025 (+33 per cent YoY), with average fees of 81 basis points (+49 per cent YoY). This combination of higher balances and richer fees underscores both the demand for ETF securities in lending markets and the material contribution lending makes to the economics of ETFs.
Figure 1: Top five revenue-generating equity ETFs H1 2025
Supporting ETF innovation
The rise of non-traditional ETFs, buffer ETFs, leveraged and inverse ETFs, synthetic ETFs, and credit ETFs, has been enabled and reinforced by securities lending.
• Buffer ETFs. Options-driven structures that provide downside protection while capping upside depend heavily on efficient capital markets and hedging activity. Íø±¬³Ô¹Ï lending facilitates the liquidity of the underlying securities and options ecosystem that allows buffer strategies to operate effectively.
• Credit ETFs. Bond ETFs, particularly those focused on investment-grade and high-yield credit, rely on securities lending to improve liquidity in markets that can otherwise be fragmented or opaque. Lending enables market makers to hedge exposures and keeps ETF spreads tight relative to their NAVs.
• Leveraged and inverse ETFs. These products use derivatives to magnify or invert daily index returns. The functioning of these funds requires an active and liquid securities lending market so counterparties can source borrow, short securities, and manage exposures efficiently.
• Synthetic ETFs. ETFs that use swaps or derivatives to replicate index performance benefit from securities lending indirectly by ensuring that the underlying reference securities are liquid, borrowable, and available for hedging counterparties.
In all these cases, securities lending does not just add incremental yield, it underpins the liquidity and efficiency that make these complex ETFs investable at scale.
The revenue leaders
The contribution of securities lending is particularly visible in the revenue generation of leading ETFs. According to S&P Global Market Intelligence Íø±¬³Ô¹Ï Finance data, the top revenue-generating ETFs span both equity and fixed income, illustrating the breadth of lending demand.
These figures underscore how both equity and fixed income ETFs are active participants in lending markets, generating meaningful income for investors while reinforcing the liquidity that underpins their tradability.
A global growth story
While the US remains the largest ETF market by assets, the global picture highlights the increasingly interconnected nature of ETFs and securities lending.
• EMEA saw US$53 million in ETF lending revenues in H1 2025, a 73 per cent YoY increase. Demand for UCITS ETFs, particularly those providing access to European equities and emerging market exposures, continues to rise.
• APAC generated US$17 million (+116 per cent YoY), reflecting both the smaller base and the rapid growth trajectory in the region. The expansion of ETF adoption in Japan, Australia, and Hong Kong has been notable, with securities lending revenues rising in parallel.
This global growth reflects a reinforcing cycle: as ETFs scale, their securities become more attractive for lending, which generates additional revenue and liquidity, which in turn attracts more investors.
Figure 2: Top five revenue-generating fixed income ETFs H1 2025
The critical role of securities lending in capital markets
Íø±¬³Ô¹Ï lending plays a dual role in ETF markets:
Direct performance enhancement. Lending revenues flow back to ETFs, enhancing investor returns. This is particularly important in competitive asset classes where fee compression is intense, every additional basis point of return matters.
Market structure support. The ETF primary and secondary markets rely on liquidity. By enabling borrowing and shorting, securities lending ensures efficient arbitrage and hedging, helping ETFs trade in line with their NAVs. This function is critical to the credibility of ETFs as investment vehicles.
Without robust securities lending markets, many of the most innovative ETFs would struggle to function effectively. The capital market’s role of lending is as important as the incremental revenues it generates.
Figure 3: ETF revenues
Looking ahead: The next chapter
ETF growth continues its strong momentum with over US$540 billion of inflows in H1 2025 alone, a record year of product launches underway, and active strategies now overtaking passive in count, the landscape is expanding in both depth and breadth.
Íø±¬³Ô¹Ï lending will remain central to this growth story. It provides:
• The incremental revenues that enhance returns and reduce net expense ratios.
• The liquidity that ensures ETF markets function smoothly.
• The infrastructure support that allows complex ETF strategies to scale.
Whether in buffer ETFs hedging downside risks, credit ETFs accessing fragmented bond markets, or synthetic ETFs delivering index exposure, securities lending is the quiet but essential enabler.
The symbiotic relationship between ETFs and securities lending is likely to strengthen further as ETFs push into new frontiers such as private credit, outcome-based strategies, and digital assets.
The future: ETFs fueled by securities lending
The growth of ETFs in the US, and globally, has been extraordinary, fuelled by innovation, investor demand, and structural efficiency. At the heart of this success lies securities lending, a function that both generates meaningful revenues and underpins the capital markets ecosystem on which ETFs depend.
The data from the first half of 2025 tells a compelling story: US$451 million in securities lending revenues from Americas ETFs, significant growth in EMEA and APAC, and rising fees and balances across the board. This is not just ancillary income; it is a critical component of the ETF business model.
As the ETF market continues to expand into new asset classes and strategies, securities lending is expected to remain a pivotal driver, supporting liquidity, innovation, and ultimately investor outcomes. Far from being a background function, securities lending has emerged as a central pillar in the ongoing evolution of ETFs worldwide.
In the first half of 2025 alone, S&P Global Market Intelligence data shows that over US$540 billion flowed into ETFs, with a record 726 new funds forecasted to launch this year. For the first time, active ETFs now outnumber passive ones in the US — 2,226 versus 2,157 — a milestone that underscores both the diversification of ETF strategies and the increasing sophistication of investor demand.
Beneath this surge lies a critical, though often underappreciated, foundation: securities lending. By enabling liquidity, supporting capital markets efficiency, and directly generating incremental revenues, securities lending has both underpinned and accelerated the expansion of the ETF ecosystem. It has also been instrumental in facilitating innovation, helping complex strategies such as buffer ETFs, credit ETFs, leveraged and inverse ETFs, and synthetic ETFs to thrive.
The scale of ETF growth
The ETF industry has expanded at a pace few anticipated in the 1990s. The US market alone now comprises more than 4,300 ETFs across asset classes and strategies, with over 17 trillion in assets under management (AUM). In 2025, innovation is accelerating: funds tied to crypto, private credit, and outcome-based strategies expected to join traditional equity and bond ETFs on exchanges.
Active ETFs, a category once considered niche, have exploded. Importantly, most active ETFs today are not built on discretionary stock-picking but on rules-based or options-driven strategies, such as covered call or buffer ETFs. These approaches blur the lines between active and passive, underscoring how ETFs are increasingly a delivery mechanism for investment innovation.
This momentum is global. While the US leads in assets, EMEA and APAC ETF markets are also accelerating. ETF issuers worldwide are leveraging securities lending as both a revenue tool and a capital markets function to support fund efficiency and growth.
Íø±¬³Ô¹Ï lending: The quiet engine behind ETFs
At its core, securities lending allows ETF issuers to generate additional revenues by lending out the securities held within their funds to borrowers, typically market makers, hedge funds, or other institutional investors who need access to securities for short selling, arbitrage, or liquidity purposes.
For ETFs, the benefits of securities lending are two-fold:
Revenue generation for fund investors
• Lending generates additional income streams that flow back to ETF holders, improving fund performance net of fees.
• In H1 2025, ETFs globally generated US$521 million in securities lending revenues, with the Americas leading at US$451 million, up 82 per cent year-on-year (YoY).
• EMEA contributed US$53 million (+73 per cent YoY) and APAC US$17 million (+116 per cent YoY).
Capital markets function
• Íø±¬³Ô¹Ï lending supports liquidity and price efficiency in secondary markets, ensuring ETFs trade close to their net asset values (NAVs).
• For issuers, securities lending is an integral part of the ETF capital markets ecosystem, ensuring that authorised participants (APs) and market makers can efficiently create and redeem shares.
The scale of lending in US ETFs is impressive: US$483 billion in lendable assets in H1 2025 (+33 per cent YoY), with average fees of 81 basis points (+49 per cent YoY). This combination of higher balances and richer fees underscores both the demand for ETF securities in lending markets and the material contribution lending makes to the economics of ETFs.
Figure 1: Top five revenue-generating equity ETFs H1 2025
Supporting ETF innovation
The rise of non-traditional ETFs, buffer ETFs, leveraged and inverse ETFs, synthetic ETFs, and credit ETFs, has been enabled and reinforced by securities lending.
• Buffer ETFs. Options-driven structures that provide downside protection while capping upside depend heavily on efficient capital markets and hedging activity. Íø±¬³Ô¹Ï lending facilitates the liquidity of the underlying securities and options ecosystem that allows buffer strategies to operate effectively.
• Credit ETFs. Bond ETFs, particularly those focused on investment-grade and high-yield credit, rely on securities lending to improve liquidity in markets that can otherwise be fragmented or opaque. Lending enables market makers to hedge exposures and keeps ETF spreads tight relative to their NAVs.
• Leveraged and inverse ETFs. These products use derivatives to magnify or invert daily index returns. The functioning of these funds requires an active and liquid securities lending market so counterparties can source borrow, short securities, and manage exposures efficiently.
• Synthetic ETFs. ETFs that use swaps or derivatives to replicate index performance benefit from securities lending indirectly by ensuring that the underlying reference securities are liquid, borrowable, and available for hedging counterparties.
In all these cases, securities lending does not just add incremental yield, it underpins the liquidity and efficiency that make these complex ETFs investable at scale.
The revenue leaders
The contribution of securities lending is particularly visible in the revenue generation of leading ETFs. According to S&P Global Market Intelligence Íø±¬³Ô¹Ï Finance data, the top revenue-generating ETFs span both equity and fixed income, illustrating the breadth of lending demand.
These figures underscore how both equity and fixed income ETFs are active participants in lending markets, generating meaningful income for investors while reinforcing the liquidity that underpins their tradability.
A global growth story
While the US remains the largest ETF market by assets, the global picture highlights the increasingly interconnected nature of ETFs and securities lending.
• EMEA saw US$53 million in ETF lending revenues in H1 2025, a 73 per cent YoY increase. Demand for UCITS ETFs, particularly those providing access to European equities and emerging market exposures, continues to rise.
• APAC generated US$17 million (+116 per cent YoY), reflecting both the smaller base and the rapid growth trajectory in the region. The expansion of ETF adoption in Japan, Australia, and Hong Kong has been notable, with securities lending revenues rising in parallel.
This global growth reflects a reinforcing cycle: as ETFs scale, their securities become more attractive for lending, which generates additional revenue and liquidity, which in turn attracts more investors.
Figure 2: Top five revenue-generating fixed income ETFs H1 2025
The critical role of securities lending in capital markets
Íø±¬³Ô¹Ï lending plays a dual role in ETF markets:
Direct performance enhancement. Lending revenues flow back to ETFs, enhancing investor returns. This is particularly important in competitive asset classes where fee compression is intense, every additional basis point of return matters.
Market structure support. The ETF primary and secondary markets rely on liquidity. By enabling borrowing and shorting, securities lending ensures efficient arbitrage and hedging, helping ETFs trade in line with their NAVs. This function is critical to the credibility of ETFs as investment vehicles.
Without robust securities lending markets, many of the most innovative ETFs would struggle to function effectively. The capital market’s role of lending is as important as the incremental revenues it generates.
Figure 3: ETF revenues
Looking ahead: The next chapter
ETF growth continues its strong momentum with over US$540 billion of inflows in H1 2025 alone, a record year of product launches underway, and active strategies now overtaking passive in count, the landscape is expanding in both depth and breadth.
Íø±¬³Ô¹Ï lending will remain central to this growth story. It provides:
• The incremental revenues that enhance returns and reduce net expense ratios.
• The liquidity that ensures ETF markets function smoothly.
• The infrastructure support that allows complex ETF strategies to scale.
Whether in buffer ETFs hedging downside risks, credit ETFs accessing fragmented bond markets, or synthetic ETFs delivering index exposure, securities lending is the quiet but essential enabler.
The symbiotic relationship between ETFs and securities lending is likely to strengthen further as ETFs push into new frontiers such as private credit, outcome-based strategies, and digital assets.
The future: ETFs fueled by securities lending
The growth of ETFs in the US, and globally, has been extraordinary, fuelled by innovation, investor demand, and structural efficiency. At the heart of this success lies securities lending, a function that both generates meaningful revenues and underpins the capital markets ecosystem on which ETFs depend.
The data from the first half of 2025 tells a compelling story: US$451 million in securities lending revenues from Americas ETFs, significant growth in EMEA and APAC, and rising fees and balances across the board. This is not just ancillary income; it is a critical component of the ETF business model.
As the ETF market continues to expand into new asset classes and strategies, securities lending is expected to remain a pivotal driver, supporting liquidity, innovation, and ultimately investor outcomes. Far from being a background function, securities lending has emerged as a central pillar in the ongoing evolution of ETFs worldwide.
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