The rise of retail
13 May 2025
The journey of the Canadian retail investor into securities finance is one of audacity, innovation, and adaptation, says David Mak, executive director, securities finance at Wealthsimple
Image: stock.adobe.com/ClicksdeMexico
The financial marketplace in Canada has two great kingdoms. At one end of this vast, snow-dusted expanse sits your traditional heavyweights 鈥� banks, pension funds, sovereign wealth giants, and high-net-worth asset managers. They invest in everything from agriculture to alternatives, from passive index trackers to private credit. Because they are hyper-sensitive to transaction costs, purveyors to these institutional investors make up for razor-thin margins with gargantuan volumes. Their financial strength rightfully places them at the head of the King鈥檚 Court in said marketplace where they have long held decades of dominance.
In the second kingdom of this domain lies a less regal, often nameless, and invariably overlooked player. Due to their less-than-deep pockets, they are often unjustly relegated to being mere spectators peering through the gates of Bay Street鈥檚 gilded fortresses. But times are changing (and for the better). In today's digital and ever-shifting investment battleground, this participant is no longer standing outside the castle. They are stepping boldly inside, wielding their smartphones like lances with digital content creators as their white knights. This is the retail investor. And armed with apps, knowledge, and a pinch of confidence, they are transforming the Canadian securities finance landscape one lent stock, one shorted ETF, and one democratised dollar at a time.
Where did they come from?
The answer is as lucid as it is candid 鈥� they were always here. However, they did not have the means nor the scale to make anyone pay attention. Winston Churchill said: 鈥淭o improve is to change; to be perfect is to change often.鈥� And change did the retail investor. Fuelled by zero-commission mobile trading platforms (such as Wealthsimple), social media financial literacy (Youtube and Reddit threads educating millions at lightning speed), a touch of 'diamond hands' spirit, and combined with Covid-19 pandemic boredom largesse, self-directed retail traders became a force to be reckoned with.
Consider from survey data conducted in 2024 by the Canadian 兔子先生Administrators and Ontario 兔子先生Commission (OSC):
鈥� 45 per cent of all Canadian investors have their own personal DIY trading account.
Only 61 per cent of investors had a financial advisor 鈥� the fewest since 2006. 53 per cent of Canadians say they use at least one social media website for investing, with this figure skyrocketing to 82 per cent for investors in the 18-24 age group.
鈥� Just 43 per cent of investors rely on financial advisors for information about investing, down from 70 per cent in 2016.
鈥� Of the 11.4 million self-directed trading accounts in Canada through September 2023, more than half were opened this decade.
Figure 1
It demonstrates that retail investors are no longer passive participants on the sidelines of Canada's financial landscape. And this group鈥檚 pervasiveness is as prominent abroad as it is now domestically 鈥� data from the World Economic Forum (WEF) indicates that retail investors accounted for 52 per cent of all global investments in 2021 and is expected to grow to over 61 per cent by 2030.
Their relevance is so seismic that the WEF has even coined this movement: 鈥淩etailisation鈥� or specifically 鈥渢he rise of the individual investor who is benefiting from the proliferation of information, advice offerings and investment products and services that are now more readily available to everyone鈥�.
From sidelines to centre stage
In simple terms, securities finance refers to the creation of 'financing' using 'securities'. It involves activities including securities lending, borrowing, repurchase agreements and collateral management. It is the hidden scaffolding that helps markets run smoothly by supporting short-term funding and efficient price discovery. In this realm, liquidity is king, collateral is currency, and risk management is the guardian knight.
Not so long ago, the world of securities finance was understandably the restricted domain of larger market participants to help facilitate their sizeable trading flows. But this backstage area of the financial system is increasingly being demystified in tandem with a drive for market transparency. Retail investors now want a piece of the action. And given the benefits, they are emboldened to do so.
Participation in securities finance offers potential advantages to Canadian retail investors, including:
鈥� Enhanced returns. By making their assets available for lending, retail investors can earn incremental income without actively trading.
鈥� Reduced costs. Within funds, securities lending revenue often offsets management expenses, making low-fee investment products even cheaper.
鈥� Broader market functionality. 兔子先生 underpins liquidity and efficiency, benefiting all investors indirectly by ensuring smoother settlement and tighter bid-ask spreads.
鈥� Access to new strategies. As more sophisticated trading platforms and educational resources emerge, retail investors can leverage strategies like short selling, arbitrage, and hedging that previously required large dollar minimum sizes.
According to recent data from S&P Global Market Intelligence and Statistics Canada, the size of the global securities finance industry is approximately CA$58 trillion (US$42 trillion), with Canada accounting for less than five per cent of the market. Domestic securities finance utilisation stood at just CA$250 billion versus the CA$10.8 trillion in Canadian households鈥� financial assets and marketable securities. Simply put, there is more than enough room for Canada's new generation of investors to engage in securities finance and leverage opportunities that were once reserved for institutional giants.
Everyone鈥檚 a lender now
So now that we know the why, the question becomes: how can the retail investor crack open the gates and walk right into the Canadian securities finance gauntlet with curiosity and confidence?
1. Brokerage securities lending programmes
Retail investors traditionally bought and held stocks, earning returns through dividends or capital gains. Today, brokerages like Wealthsimple offer fully paid securities lending (FPSL) programmes, tapping into Canadians鈥� desire for smarter, more efficient wealth building. Here is how it works:
鈥� Investors lend out stocks they own (fully collateralised to protect against counterparty risk).
鈥� Earn a slice of the loan fee (anywhere from pennies to percentages of total fee revenue).
鈥� Retain full market exposure; dividends and price movements remain their entitlements while preserving the unequivocal right to indiscriminately trade in and out of positions.
鈥� Investors can opt-in and out daily while earning a passive income stream that is virtually effortless. Their only job? Tap 'yes' to participate.
Fun fact: retail-originated loaned securities often command higher fees, as their inventory is sometimes harder for institutions to locate.
2. Margin borrowing and short selling
For the more adventurous retail crowd, margin trading adds complexity (and risk) but it also opens the door to participating in lending markets indirectly, as many brokerages disclose in their agreements that they can lend out your shares to cover others鈥� obligations. Leveraging positions for amplified returns or losses is not for the faint of heart. But for seasoned retail investors, it is a way to let your assets multitask.
Canadian Investment Regulatory Organization (CIRO) data ending 2024, indicates that margin debt balances across Canadian brokers was CA$39 billion and up 52 per cent from pre-pandemic. As this figure moves higher, the ability to engage in trading strategies involving short selling invariably rises due to the increased supply of loanable securities 鈥� especially during meme stock frenzies, where an uptick in volatility and leveraged trading (via margin or options) is amplified.
3. Participation in securities lending ETFs
Another doorway into the world of securities lending is through ETFs and mutual funds that actively lend out their holdings. Fund providers like iShares and Invesco collect lending fees on their underlying holdings within the fund and split a portion of revenue with unitholders, adding to overall returns or lowering fund expenses. The yield enhancement may be small but steady extra gains accrete over time with zero effort. Investors are therefore indirectly participating in lending activities, an ideal scenario for passive income seekers.
Figure 2
Figure 3
Protections and perils
Retail investor participation is not just about new financial products 鈥� it is about a cultural shift in how Canadians talk about money. Social media has revolutionised and changed how financial markets move, with even a single influential post (legitimate or false) potentially unleashing a wave of volatility.
While the proliferation of TikTok 'finfluencers', Reddit threads, and gamification badges can all keep investors engaged, it may at many times also encourage risky short-term behaviour. In the quieter, behind-the-scenes world of securities finance, the rise of social media is a double-edged sword. It has broadened access to information, but can also create real problems and ripple effects in this critical corner of the financial market.
1. Misinformation and hype
兔子先生 is a technical, nuanced process 鈥� investors lend out their assets in exchange for a fee, and borrowers use those securities for various strategies. Taken literally, it is simplistic. But technically, it is sophisticated. Yet on social media, complex subjects often get flattened into catchy but misleading narratives.
One viral post accusing brokers or institutions of 'stealing shares' could send waves of distrust across Canada鈥檚 retail investing community. In reality, securities lending is heavily regulated and typically benefits long-term investors through added revenue. Still, misinformation can lead retail investors to opt out of lending programmes, hurting liquidity in the Canadian securities finance market and driving up borrowing costs unnecessarily.
2. Herd behaviour and market instability
Remember the GameStop saga? When retail investors band together online to squeeze short sellers, they inadvertently put securities lending systems under massive stress. In a short squeeze, borrowers must scramble to return shares 鈥� and if lenders panic and pull shares back early (influenced by social media buzz), it can cause extreme volatility.
In Canada, where the securities lending market depends on stability and predictability, sudden, social media鈥揻ueled movements can disrupt lending chains. The result? Natural market functions are disrupted, settlement cycles become delayed, and liquidity can dissolve from market makers, resulting in wider price spreads. All of which leads to higher risk for investors and participants alike.
3. Privacy and data vulnerabilities
Social media platforms thrive on data sharing 鈥� often a little too much. Retail investors discussing their portfolios publicly can unintentionally expose positions that sophisticated traders can exploit. If information about which shares are heavily loaned or about to be recalled spreads too widely, it can distort normal market behaviour. Professional borrowers might adjust strategies based on leaked info, potentially creating unfair advantages and unbalancing natural market conditions in Canadian securities lending.
4. Regulatory challenges
Domestic financial regulators, like the CIRO and OSC, work hard to monitor and ensure fair practices in securities finance. But social media is a moving target. False claims, pump-and-dump schemes, or coordinated short squeezes often happen too quickly for regulators to contain it in real-time. The decentralised, borderless nature of online platforms makes it even harder to maintain transparency and trust in Canada鈥檚 tightly-knit securities finance market.
Canada鈥檚 forward-looking regulatory bodies and market participants have created an array of policies, education programmes, and working groups to support the growing retail investor base and boost the public understanding of financial products, including the often-overlooked nuances of securities lending. These include:
鈥� Canadian 兔子先生Administrators (CSA) initiatives: Proposed modernisation of fund risk disclosures includes highlighting the use of securities lending.
鈥� CIRO Investor Education Fund: Free courses on securities finance fundamentals.
鈥� OSC鈥檚 Investing Academy: A series of interactive courses that teach people about money and investing.
鈥� Enhanced disclosure: Funds must disclose their securities lending practices, revenues, and risks in prospectuses and annual reports.
鈥� Explicit disclosure requirements: FPSL programmes must illustrate clear terms and risks.
鈥� Collateral standards: Strict rules govern the collateral accepted in securities lending transactions to minimise systemic risk exposure.
鈥� Increased brokerage education platforms: Wealthsimple Learn articles and guides.
Conclusion
The journey of the Canadian retail investor into securities finance is one of audacity, innovation, and adaptation. Once an afterthought, they are now boldly shaping liquidity dynamics, influencing fee structures, and redefining what it means to be in the spotlight of active markets.
They are tech-savvy, own the social-media stage, and have become a force to be reckoned with by not just buying and selling stocks, but also dipping their toe into securities finance to lend, borrow and optimise. Today鈥檚 vibrant, colourful canvas of Canadian finance is being redrawn with bold new brush strokes 鈥� and retail investors are holding the paint brush.
In the second kingdom of this domain lies a less regal, often nameless, and invariably overlooked player. Due to their less-than-deep pockets, they are often unjustly relegated to being mere spectators peering through the gates of Bay Street鈥檚 gilded fortresses. But times are changing (and for the better). In today's digital and ever-shifting investment battleground, this participant is no longer standing outside the castle. They are stepping boldly inside, wielding their smartphones like lances with digital content creators as their white knights. This is the retail investor. And armed with apps, knowledge, and a pinch of confidence, they are transforming the Canadian securities finance landscape one lent stock, one shorted ETF, and one democratised dollar at a time.
Where did they come from?
The answer is as lucid as it is candid 鈥� they were always here. However, they did not have the means nor the scale to make anyone pay attention. Winston Churchill said: 鈥淭o improve is to change; to be perfect is to change often.鈥� And change did the retail investor. Fuelled by zero-commission mobile trading platforms (such as Wealthsimple), social media financial literacy (Youtube and Reddit threads educating millions at lightning speed), a touch of 'diamond hands' spirit, and combined with Covid-19 pandemic boredom largesse, self-directed retail traders became a force to be reckoned with.
Consider from survey data conducted in 2024 by the Canadian 兔子先生Administrators and Ontario 兔子先生Commission (OSC):
鈥� 45 per cent of all Canadian investors have their own personal DIY trading account.
Only 61 per cent of investors had a financial advisor 鈥� the fewest since 2006. 53 per cent of Canadians say they use at least one social media website for investing, with this figure skyrocketing to 82 per cent for investors in the 18-24 age group.
鈥� Just 43 per cent of investors rely on financial advisors for information about investing, down from 70 per cent in 2016.
鈥� Of the 11.4 million self-directed trading accounts in Canada through September 2023, more than half were opened this decade.
Figure 1
It demonstrates that retail investors are no longer passive participants on the sidelines of Canada's financial landscape. And this group鈥檚 pervasiveness is as prominent abroad as it is now domestically 鈥� data from the World Economic Forum (WEF) indicates that retail investors accounted for 52 per cent of all global investments in 2021 and is expected to grow to over 61 per cent by 2030.
Their relevance is so seismic that the WEF has even coined this movement: 鈥淩etailisation鈥� or specifically 鈥渢he rise of the individual investor who is benefiting from the proliferation of information, advice offerings and investment products and services that are now more readily available to everyone鈥�.
From sidelines to centre stage
In simple terms, securities finance refers to the creation of 'financing' using 'securities'. It involves activities including securities lending, borrowing, repurchase agreements and collateral management. It is the hidden scaffolding that helps markets run smoothly by supporting short-term funding and efficient price discovery. In this realm, liquidity is king, collateral is currency, and risk management is the guardian knight.
Not so long ago, the world of securities finance was understandably the restricted domain of larger market participants to help facilitate their sizeable trading flows. But this backstage area of the financial system is increasingly being demystified in tandem with a drive for market transparency. Retail investors now want a piece of the action. And given the benefits, they are emboldened to do so.
Participation in securities finance offers potential advantages to Canadian retail investors, including:
鈥� Enhanced returns. By making their assets available for lending, retail investors can earn incremental income without actively trading.
鈥� Reduced costs. Within funds, securities lending revenue often offsets management expenses, making low-fee investment products even cheaper.
鈥� Broader market functionality. 兔子先生 underpins liquidity and efficiency, benefiting all investors indirectly by ensuring smoother settlement and tighter bid-ask spreads.
鈥� Access to new strategies. As more sophisticated trading platforms and educational resources emerge, retail investors can leverage strategies like short selling, arbitrage, and hedging that previously required large dollar minimum sizes.
According to recent data from S&P Global Market Intelligence and Statistics Canada, the size of the global securities finance industry is approximately CA$58 trillion (US$42 trillion), with Canada accounting for less than five per cent of the market. Domestic securities finance utilisation stood at just CA$250 billion versus the CA$10.8 trillion in Canadian households鈥� financial assets and marketable securities. Simply put, there is more than enough room for Canada's new generation of investors to engage in securities finance and leverage opportunities that were once reserved for institutional giants.
Everyone鈥檚 a lender now
So now that we know the why, the question becomes: how can the retail investor crack open the gates and walk right into the Canadian securities finance gauntlet with curiosity and confidence?
1. Brokerage securities lending programmes
Retail investors traditionally bought and held stocks, earning returns through dividends or capital gains. Today, brokerages like Wealthsimple offer fully paid securities lending (FPSL) programmes, tapping into Canadians鈥� desire for smarter, more efficient wealth building. Here is how it works:
鈥� Investors lend out stocks they own (fully collateralised to protect against counterparty risk).
鈥� Earn a slice of the loan fee (anywhere from pennies to percentages of total fee revenue).
鈥� Retain full market exposure; dividends and price movements remain their entitlements while preserving the unequivocal right to indiscriminately trade in and out of positions.
鈥� Investors can opt-in and out daily while earning a passive income stream that is virtually effortless. Their only job? Tap 'yes' to participate.
Fun fact: retail-originated loaned securities often command higher fees, as their inventory is sometimes harder for institutions to locate.
2. Margin borrowing and short selling
For the more adventurous retail crowd, margin trading adds complexity (and risk) but it also opens the door to participating in lending markets indirectly, as many brokerages disclose in their agreements that they can lend out your shares to cover others鈥� obligations. Leveraging positions for amplified returns or losses is not for the faint of heart. But for seasoned retail investors, it is a way to let your assets multitask.
Canadian Investment Regulatory Organization (CIRO) data ending 2024, indicates that margin debt balances across Canadian brokers was CA$39 billion and up 52 per cent from pre-pandemic. As this figure moves higher, the ability to engage in trading strategies involving short selling invariably rises due to the increased supply of loanable securities 鈥� especially during meme stock frenzies, where an uptick in volatility and leveraged trading (via margin or options) is amplified.
3. Participation in securities lending ETFs
Another doorway into the world of securities lending is through ETFs and mutual funds that actively lend out their holdings. Fund providers like iShares and Invesco collect lending fees on their underlying holdings within the fund and split a portion of revenue with unitholders, adding to overall returns or lowering fund expenses. The yield enhancement may be small but steady extra gains accrete over time with zero effort. Investors are therefore indirectly participating in lending activities, an ideal scenario for passive income seekers.
Figure 2
Figure 3
Protections and perils
Retail investor participation is not just about new financial products 鈥� it is about a cultural shift in how Canadians talk about money. Social media has revolutionised and changed how financial markets move, with even a single influential post (legitimate or false) potentially unleashing a wave of volatility.
While the proliferation of TikTok 'finfluencers', Reddit threads, and gamification badges can all keep investors engaged, it may at many times also encourage risky short-term behaviour. In the quieter, behind-the-scenes world of securities finance, the rise of social media is a double-edged sword. It has broadened access to information, but can also create real problems and ripple effects in this critical corner of the financial market.
1. Misinformation and hype
兔子先生 is a technical, nuanced process 鈥� investors lend out their assets in exchange for a fee, and borrowers use those securities for various strategies. Taken literally, it is simplistic. But technically, it is sophisticated. Yet on social media, complex subjects often get flattened into catchy but misleading narratives.
One viral post accusing brokers or institutions of 'stealing shares' could send waves of distrust across Canada鈥檚 retail investing community. In reality, securities lending is heavily regulated and typically benefits long-term investors through added revenue. Still, misinformation can lead retail investors to opt out of lending programmes, hurting liquidity in the Canadian securities finance market and driving up borrowing costs unnecessarily.
2. Herd behaviour and market instability
Remember the GameStop saga? When retail investors band together online to squeeze short sellers, they inadvertently put securities lending systems under massive stress. In a short squeeze, borrowers must scramble to return shares 鈥� and if lenders panic and pull shares back early (influenced by social media buzz), it can cause extreme volatility.
In Canada, where the securities lending market depends on stability and predictability, sudden, social media鈥揻ueled movements can disrupt lending chains. The result? Natural market functions are disrupted, settlement cycles become delayed, and liquidity can dissolve from market makers, resulting in wider price spreads. All of which leads to higher risk for investors and participants alike.
3. Privacy and data vulnerabilities
Social media platforms thrive on data sharing 鈥� often a little too much. Retail investors discussing their portfolios publicly can unintentionally expose positions that sophisticated traders can exploit. If information about which shares are heavily loaned or about to be recalled spreads too widely, it can distort normal market behaviour. Professional borrowers might adjust strategies based on leaked info, potentially creating unfair advantages and unbalancing natural market conditions in Canadian securities lending.
4. Regulatory challenges
Domestic financial regulators, like the CIRO and OSC, work hard to monitor and ensure fair practices in securities finance. But social media is a moving target. False claims, pump-and-dump schemes, or coordinated short squeezes often happen too quickly for regulators to contain it in real-time. The decentralised, borderless nature of online platforms makes it even harder to maintain transparency and trust in Canada鈥檚 tightly-knit securities finance market.
Canada鈥檚 forward-looking regulatory bodies and market participants have created an array of policies, education programmes, and working groups to support the growing retail investor base and boost the public understanding of financial products, including the often-overlooked nuances of securities lending. These include:
鈥� Canadian 兔子先生Administrators (CSA) initiatives: Proposed modernisation of fund risk disclosures includes highlighting the use of securities lending.
鈥� CIRO Investor Education Fund: Free courses on securities finance fundamentals.
鈥� OSC鈥檚 Investing Academy: A series of interactive courses that teach people about money and investing.
鈥� Enhanced disclosure: Funds must disclose their securities lending practices, revenues, and risks in prospectuses and annual reports.
鈥� Explicit disclosure requirements: FPSL programmes must illustrate clear terms and risks.
鈥� Collateral standards: Strict rules govern the collateral accepted in securities lending transactions to minimise systemic risk exposure.
鈥� Increased brokerage education platforms: Wealthsimple Learn articles and guides.
Conclusion
The journey of the Canadian retail investor into securities finance is one of audacity, innovation, and adaptation. Once an afterthought, they are now boldly shaping liquidity dynamics, influencing fee structures, and redefining what it means to be in the spotlight of active markets.
They are tech-savvy, own the social-media stage, and have become a force to be reckoned with by not just buying and selling stocks, but also dipping their toe into securities finance to lend, borrow and optimise. Today鈥檚 vibrant, colourful canvas of Canadian finance is being redrawn with bold new brush strokes 鈥� and retail investors are holding the paint brush.
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100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 兔子先生Finance Times
