First Half Headline Names Stand Out in the Lending Market
July 19, 2024
The first half of 2024 offered a host of trending securities which helped drive volumes and ultimately revenue in the securities finance market. Among the standouts were names familiar to both stock loan experts and front pages alike.
DJT Runs White Hot
GME Returns with a Roar
In what was a serious case of deja vu, Keith Gill (aka) “Roaring Kitty,” returned to social media for the first time in over three years to promote a bullish case for GameStop (GME). The meme stock originator fired off a round of cryptic tweets and posted a screenshot showing a sizable long position in the company. The ensuing boom for GME saw the stock hit a high of $64.83 and the New York Stock Exchange halt trading for volatility.
The initial volley from Gill was followed by a scheduled livestream which helped extend the rally. However, this time around, it seems as if short sellers were not apt to bet against the flurry of retail investors. While GME had hovered between 55 and 70 million shares on-loan over the previous year, the volatility in the cash market sparked increased returns and a decline in loan balances, an indication that short investors closed their positions.
Similarly, while spot rates for new loans did see a marked spike between May 8 and May 16, volumes of new executions did not see a corresponding increase.
EV Winners and Losers
1 The ratio of total shares on loan relative to the public float of the security.
Perhaps most definitively, Fisker Inc. filed for bankruptcy in June with the intention to liquidate its assets and wind down operations. The announcement was the death knell for a company that toiled in the space for seven years but struggled to manufacture a consumer-level product.
Fisker held talks with major automakers in the early part of the year in an attempt to secure a production partnership, a move that coincided with on-loan quantities rising from 77 million shares on January 1 to over 155 million shares by March 26. The negotiations concluded without an agreement and NYSE moved to delist the stock.
Despite its peers struggling to get off the ground, Tesla Motors (TSLA) has become the most valuable auto manufacturer globally, soaring to the upper echelon of mega-cap firms. With its commercial success, it’s not surprising that the securities lending market, primarily driven by short selling, has been all quiet on the Tesla front as of late (TSLA had featured prominently in the past and was the top earning security in 2018). Tesla’s average utilization has been just 3.1% since the start of 2022. Compare that figure to Lucid Motors (LCID), one of Tesla’s competitors in the luxury EV space, which on average was 97% utilized over the same period. Similarly, when looking at financing costs, Tesla is an easy-to-borrow name with continuous GC rates since 2020.
2024 has so far been a roller coaster ride for Tesla investors, and one with more valleys than peaks. With slowing growth in EV sales and fierce international competition, Tesla reported a 9% drop in Q1 revenue, the worst such decline for the firm in over a decade. At its lowest, Tesla stock was down over 40% YTD as CEO Elon Musk cut jobs and sales forecasts.
With the US in an election year, there are sure to be more newsworthy names active in the securities finance market in the second half of 2024.