Emerging Trends in Securities Finance

Emerging Trends in Securities Finance

October 2019

By Keith Min & Matthew Ross, Product Specialists, DataLend

As summer 2019 drew to a close, DataLend reviewed trends that emerged throughout the season to see if the securities lending industry heated up along with the temperatures. While overall revenue generated in the securities lending market continued its downward swing through July and August, a few areas resisted this trend in DataLend’s findings.


The first half of summer 2019 saw declines in European and North American equity lending volume, which dropped in July and August (down 25% and 5%, respectively, compared to the same period last year). However, the hardto- borrow equities space (trading at 500+ bps) gained momentum with fees in European hardto- borrows increasing by 15%. This jump resulted in revenue returns of $208 million, which accounted for 42% of all equity revenue in the region over the period, up from 32% the previous year. North America saw an increase in hard-toborrow loan balances and fees by 27% and 33%, respectively. This increase led to revenue returns of $416 million, accounting for more than half of all equity revenue in the region (66%), up from 41% the previous year.


In addition, July and August did not see positive movement in Asian equities, which experienced a 20% revenue decrease from the same period last year, though not all asset classes experienced the same downturn. In this period year over year, ETFs in the region saw increases in the number of securities lent (up 50%), average on-loan value (up 51%) as well as revenue generated (up 40%). Japan and Hong Kong hosted the bulk of the activity, with index ETFs for the NIKKEI 225, FTSE A50, CSI 300 and TOPIX all trading within the 75 bps to 350 bps fee range.


With Applied Optoelectronics, Sunpower and Ubiquiti Networks all declining from their 2018 peaks, the Information Technology sector saw a substantial dip in average fee from 74 bps to 51 bps during the same period in 2019. However, loan balances in the sector increased by 14% year on year leading up to pending acquisitions by both Fiserv and Fidelity National Information Services. In addition, the Energy sector cooled dramatically, from 68 bps to 50 bps, with Tecnicas Reunidas and Diamond Offshore Drilling more recently trading just outside the GC range. For higher fees, one would have to look at the Consumer Staples sector, where average fees doubled over the same period to 137 bps, led by newcomer Beyond Meat.


While July and August 2019 witnessed slowing lending activity in global sovereign debt, resulting in revenue decreasing by 26% compared to the same period last year, Australian sovereign debt lending increased considerably. Balances rose 12% in July and August amidst rate cuts, leading to a 163% increase in lending revenue in this asset. Coincidentally, a similar trend appears to be emerging in U.S. Treasurys, as balances have increased by 5% in August following the recent Fed rate cut.

The securities lending industry is showing progress in key areas, and with autumn now here, DataLend will continue to monitor where these trends lead and no doubt discover new ones along the way.

Keith Min

Product Specialist, DataLend
+1 646 767 4327