“For too long, the passive income opportunities offered by securities lending have been out of reach for clients in Europe. Either their banks did not offer such a service, or they did not share any of the securities lending revenue with their clients.” said Jeremy Lauret, head of direct investing at Swissquote Bank Europe. Photo: Swissquote Bank Europe

“For too long, the passive income opportunities offered by securities lending have been out of reach for clients in Europe. Either their banks did not offer such a service, or they did not share any of the securities lending revenue with their clients.” said Jeremy Lauret, head of direct investing at Swissquote Bank Europe. Photo: Swissquote Bank Europe

The securities lending service Luxembourg-based Swissquote Bank Europe launched one year ago has now expanded worldwide, with its parent company, Swissquote Group Holding, introducing the programme in Switzerland. This service offers clients “from 0.5% to 4% but can also be much higher” annual returns on loaned stocks and exchange-traded funds.

Swissquote, a leading online bank headquartered in Switzerland and with a sizable presence in Luxembourg, announced on Thursday 25 January, a new service that allows its clients to lend their investment assets, including individual stocks and exchange-traded funds (ETFs), to reputable financial institutions. This initiative is already available for over a year at Luxembourg-based Swissquote Bank Europe, company representatives told Delano.

The  enables clients to generate income by temporarily lending out their assets while continuing to receive dividends and retaining the flexibility to sell their securities at any time. Swissquote Bank Europe has made this option accessible to all its private clients through their bank account and app, with no minimum deposit required for eligibility. Income is paid monthly to clients, who can opt in and out of the service at anytime.

“In return for lending their investments, clients can earn income that typically ranges from 0.5% to 4.0% but can also be much higher, depending on market demand for any given security,” commented Swissquote Bank Europe.

Swissquote clarified that the securities are only lent to top-tier global banks and financial institutions. These institutions typically borrow securities to facilitate the smooth functioning of capital markets, such as ensuring the timely settlement of trades or using them as collateral. During the loan period, customers continue to benefit from any increase in the value of their assets and receive any income generated by these assets, including dividends. However, they are not able to vote in shareholder meetings and may receive cash payments instead of (but equivalent to) regular dividends.

The demand for securities lending is primarily driven by the need for these assets among borrowers, stated Swissquote. Assets that are readily available typically have lower demand, while rarer assets are more likely to be lent out and can yield higher returns. Swissquote ensures the security of these transactions by holding collateral equivalent to 105% of the value of the loaned assets.

The termination of the loan can occur either by mutual decision of the involved parties or when the customer opts to sell the lent-out asset. “Our securities lending service provides clients with choice, control and transparency. Clients can opt in or out of the service at any time, and they can track their income in real time via our online platform,” added Jeremy Lauret, head of direct investing at Swissquote Bank Europe.

Editor's note, 25 January 2024 at 3:50pm: the article was updated with further details from Swissquote representatives in Luxembourg and to remove information that was specific to the Swiss market.

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