EquiLend Data & Analytics: Q3 Insights in Securities Lending
Rebecca Branca, Cameron Cole, Alec Rhodes, Keith Min, Data & Analytics Product Specialists
October 21, 2022
With Q3 in our rear view, a wide variety of asset classes were in play as volatile market conditions continued and recession concerns joined inflation headlines. In this past quarter, the securities lending market generated $2.63 billion, an increase of 12% over the same period in 2021. The third quarter’s performance brings the year-to-date revenue for 2022 to $7.45 billion, tracking 8% greater than 2021. As North American equities played a major role in the increase from prior quarters, both corporate and government debt impressed with Q3 revenue gains of 89% and 16%, respectively. Equities in EMEA and Asia fell behind compared to Q3 2021 by approximately 20% with new regulations casting a large shadow over Asia’s Q4 outlook. Join EquiLend’s Data and Analytics team as we navigate the developments of the third quarter.
North American Equities
For North American equities, the securities lending industry generated $1.3 billion in revenue in Q3. The 35% increase over last year was attributed to a surge in average fees of 37%.
While revenue grew across most sectors, communications services, consumer discretionary and consumer staples had the largest increases over Q3 2021. Driven by meme stock AMC Entertainment (AMC) and the return of a 2018 top earner, Sirius XM (SIRI), communication services revenue increased 137% over the same period in 2021. Consumer discretionary, led by GameStop (GME) and Lucid (LCID), observed an 80% increase in lending revenue. Finally, consumer staples, led by Beyond Meat (BYND), saw a year-over-year increase of 295% in revenue.
A split-off exchange on September 1 capped off Q3 with more than $31 million in lending revenue generated by 3M Company (MMM) and Neogen Corporation (NEOG).
Corporate debt continued its strong performance, generating $182 million in revenue in Q3, driven by a 79% increase in average fees. This impressive performance came in the midst of market volatility, with recessionary fears and increasing interest rates driving strong demand. Similarly, iShares iBoxx $ High Yield Corporate Bond ETF (HYG) also exhibited strong lending activity, being the 11th top earner for the quarter.
The increase in revenue was seen across both high-yield and investment-grade debt, where revenue was up 100%and 73%, respectively. Regionally, the bulk of the revenue increase came from bonds issued by North American corporations, up by $46 million compared to Q3 2021, with EMEA issuances seeing an increase of $26 million over the same period.
Revenue for government debt lending was up 16% year-over-year in Q3 as central banks acted to combat global inflation. Continued market volatility and diverging monetary policy led to cross-currency and duration-mismatch opportunities for investors. The uptick in revenue was driven by an overall increase of 18% in lending fees, despite yields on the secondary market declining in comparison to new issuances.
Fee increases offset a more modest 11% drop in loan balances for government securities, with U.S., UK and German debt all generating significantly increased revenue year-over-year—16%, 43% and 36%, respectively—as lenders took advantage of special opportunities. Notably, the slice of the U.S. debt market which carried fees greater than 20 bps swelled from 1% to 4%.
EMEA and APAC Equities
Although the average loan balance increased in EMEA by 19%, a major decline in the average fees resulted in a decrease in revenue over Q3 last year. EMEA, down 26% in revenue and 43% in average fees, lost ground over the prior year; equity lending revenue in 2021 had been bolstered by corporate events from Naspers (NPN SJ) in mid-August and Vivendi (VIV FP) in late September.
APAC, down 19% in revenue and 14% in average fees for Q3 year-over-year, saw lending revenue decrease across all markets except for Australia, where revenue rose 65%. Major revenue contributors of 2021 and tech-heavy markets, Taiwan and Korea, have since declined. Loan balances fell by 22% in Taiwan as demand for semiconductor and technology firms Novatek (3034 TT), InnoLux (3481 TT) and AU Optronics (2409 TT) decreased dramatically from over 80% utilized at the end of Q3 of last year to single digits at the end of Q3 this year. South Korean equities observed a 28% decrease in average fee as Q3 2021 top earners LG Display (034220 KS) and KMW (032500 KS) fell in share price by 33% from the beginning of Q4 2021 to the end of Q3 2022, which resulted in a greater than 80% average fee decline for both.
Regulatory bodies in both Taiwan and Korea have paid close attention to the short-selling markets of late, with the former applying securities lending volume limitations. We will be watching for further developments and any impact on activity in these markets.
DataLend, the market data service within EquiLend’s Data & Analytics Solutions group, tracks daily market movements across more than 62,000 unique securities in the $2.5 trillion securities finance market. www.datalend.com
EquiLend is a global financial technology, data and analytics firm offering Trading, Post-Trade, Data & Analytics, RegTech and Securities Finance Platform Solutions for the securities finance industry. EquiLend has offices in New York, New Jersey, Boston, Toronto, London, Dublin, India, Hong Kong and Tokyo and is regulated in jurisdictions around the globe. www.equilend.com