WSJ Looks For Sunlight From the iShares Sec Lending Suit
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Tuesday, February 19, 2013

WSJ Looks For Sunlight From the iShares Sec Lending Suit

BlackRock [profile] is fighting a lawsuit over iShares' [profile] securities lending practices, and the Wall Street Journal wonders if the case will bring much-needed sunlight to the practice.

Last month two pension plans filed suit against the ETF titan, claiming that iShares systematically "looted" securities lending revenues by not passing along enough of the profits to the ETFs themselves (and thus the investors in the the ETFs). In today's issue of the WSJ, Ian Salisbury compares the case to the 401(k) fee disclosure lawsuits of the past few years.

"You want sunlight," Illinois Institute of Technology law professor William Birdthistle told the paper. "Lawsuits like this can provide an investor education."

Dave Nadig, director of research for IndexUniverse, weighed in to support BlackRock's contention that iShares' securities lending practices help its ETFs earn "above average returns." University of Texas professor John Adams, on the other hand, told the WSJ that, in his research of 226 mutual funds, he found that securities lending through affiliates lowered investors' returns by 70 percent between 2003 and 2009.

Earlier this month, Nadig penned an article wondering if the math behind the lawsuit is wrong.

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