Cross-market participation narrows securities lending price gaps
Bank of England research finds smaller securities lending price gaps when non-dealers trade across collateral regimes. From April 2022 through December 2025, the absolute return gap averaged 23.09 basis points, with a median of 9.54 basis points.
Same equity, different returns
Evangelos Benos, Gerardo Ferrara, Angelo Ranaldo and Vittorio Vergano compare lending the same equity against cash or securities collateral.
Their sample contains approximately 16.5 million new USD equity loans across 21,947 securities and 869 trading days, from April 1, 2022 through December 31, 2025.
UK Securities Financing Transactions Regulation reports require at least one UK-based counterparty, limiting global coverage.
Risk, illiquidity and dealer balance-sheet constraints generally raise lending returns and widen absolute cross-regime gaps.
Collateral reusability also widens gaps, while greater non-dealer participation in both regimes narrows them.
Risk loses statistical significance in the fullest dynamic wedge specifications.
Reuse value meets balance-sheet costs
Cash-collateral lenders earn reinvestment income minus a borrower rebate; securities-collateral lenders receive an explicit fee.
Reuse rights reduce fees when dealer constraints are weak, but that discount diminishes as capacity tightens.
Contracts without reuse rights show a negative relationship between leverage and fees in split-sample tests.
Across the sample, median securities-collateral fees stayed near 15 basis points.
Median net cash returns were generally 4–5 basis points lower, outside temporary policy-announcement adjustment episodes.
Price gaps are not free profits
The return gap is not a pure arbitrage opportunity: collateral value and intermediation costs explain part of it.
The absolute-gap measure cannot identify which regime prices risk more heavily.
These are the authors' research findings, not Bank of England policy.
Source: Price efficiency in securities lending
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