Emerging Trends in Securities Finance

September 19,  2018

TREND 1: GLOBAL REPRESENTATION IN TOP 100 REVENUE-GENERATING SECURITIES

In June and July 2017, North America accounted for 60 of the top 100 revenue-generating securities. In the same two months in 2018, that number reduced to 44 securities, with many of 2017’s hottest names—RH, Under Armour and Sears Holdings, among others—cooling off the Consumer Discretionary sector. Europe had a modest gain from 28 to 32 securities, and Asia saw the largest improvement from 12 to 22 securities. Within the region, Hong Kong had a strong representation, accounting for 10 of the top 100 with newcomers such as Semiconductor Manufacturing Intl Co., Luye Pharma Group and the IPO of Xiaomi Corporation appearing on the list.

TREND 2: INCREASES ACROSS THE BOARD FOR EUROPEAN ETFS

Comparing June and July year over year from 2017 to 2018, there has been a 44% increase in the number of individual European ETFs traded, resulting in an increase of total revenue by 90% and on-loan balances by 140%. Average fees across all European ETFs decreased by 29 bps to an average of 105 bps.

TREND 3: GLOBAL GC REVENUE AND BALANCES ON THE RISE

General collateral (GC) balances increased 20% in June to July 2018, with GC revenue increasing 12% compared to the same period last year. On-loan balances and revenue in the specials space has remained virtually unchanged.

TREND 4: EQUITIES HEATING UP IN SOUTH AMERICA

The fee for South American equities has grown 118% from 102 basis points in the first five months of 2018 compared to 223 basis points in June and July of 2018 following political (Brazilian elections in October) and fiscal (Argentinian and Brazilian currencies weakening) concerns within the area. Some of the largest contributors were Raia Drogasil SA, Cielo SA, Magazine Luiza SA, Petrobras Distribuidora SA and Controladora Vuela Cia de Aviacion, all of which on average exceeded 750 basis points to borrow.

TREND 5: FISCAL POLICY IMPACT ON TURKEY’S FIXED INCOME MARKET

Prior to the heavy inflation experienced in the first two weeks of August, Turkey has seen a 92% increase in bond revenue in June and July of 2018 compared to 2017, with the total onloan value increasing by 32% to $48 billion. Utilization has been steadily increasing from 8.5% at the beginning of the year to over 13.3% on July 31.