In a Turbulent H1 2023, Securities Lending Market Outperforms
July 21, 2023
As the second quarter concludes, we can reflect on an eventful first half of 2023 marked by a banking crisis, a resurgence in meme stock activity and persistent interest rate hikes to battle global inflation. Against the backdrop of market volatility, the securities lending market generated an impressive $5.76 billion in revenue over the first half of the year, an increase of 19.5% YoY. These numbers indicate a promising trajectory for 2023, setting pace to potentially surpass 2018’s record revenue of $9.96 billion – the highest figure seen since DataLend started tracking revenue – should the trend continue.
Regionally, North America continued its stellar performance over H1 2023. Revenue was up 26.3%, driven by a 28.6% YoY increase in the cost of borrowing. In EMEA, a 13.1% drop in on-loan balances was offset by a 31.2% increase in fees, culminating in a modest 14% increase in revenue for the region. Conversely, on-loan balances in the APAC region grew by 10%, although fees decreased by 4.36%, resulting in securities lending revenue in the region increasing by only 5.4%.
Equities played a major role in the global increase in lending revenue, responsible for $4.42 billion in first-half revenue. That was an increase of 18% YoY and was driven by a 15% increase in fees over the same period. Higher interest rates created a conducive environment for fixed income lending, which generated $1.34 billion in revenue in H1 2023 with fees up 32% YoY.
Continue reading for a deep dive into the data and to explore the trends of 2023 so far.
North America Equities
The North American equity lending market witnessed noteworthy performance over H1 2023, with securities lending revenue generating $2.57 billion, a substantial 27% increase YoY. While on-loan balances grew by a modest 4.87% compared to H1 2022, the main revenue driver for the period was a 21% increase in average fees YoY. Unsurprisingly, the bulk of the revenue came from lending activity in the United States, earning an impressive $2.37 billion in revenue, an increase of 26.7% YoY.
Consumer Discretionary and Communication Services dominated the top earners in the region and globally. Revenue for meme stock AMC Entertainment (AMC) earned more than the rest of the top five securities combined, coming in at $354 million over H1 2023. For more on top earners, visit our website for our article on the topic, “Q1 2023 for the Record Books,” from the last issue of The Purple. Familiar names make up the remainder of the leader board: Lucid Group (LCID), Beyond Meat (BYND), Upstart Holdings (UPST) and Gamestop (GME).
North America - Top 5 Revenue Generating Equities
EMEA and APAC Equities
The EMEA equities market continues the trend of an impressive first half of the year with lending revenue up by 12% YoY to $891 million. A 10% decrease in on-loan balances was counterbalanced by a 24% increase in fees over the same period. France topped the region, earning $195 million, up 100% compared to H2 2022 and 11% YoY, with Sweden and Germany following, earning $119 million and $117 million respectively.
Substantial lending activity of stocks in the Financials sector made it the top-performing sector in the region, earning $180 million in revenue. Leading the sector and the region was AXA SA (CS FP), generating $23 million in revenue, up 1,089% compared to H2 2022, but only up 2% YoY.
EMEA - Top 5 Revenue Generating Equities
Revenue generated from APAC equities came in at $944 million in H1 2023, up 3.5% compared to the same period last year, despite the cost of borrowing decreasing by 6% YoY. On-loan balances were up by 10.6% YoY, while lendable remained flat. The top revenue-generating markets within the region were Japan (+43% YoY), Taiwan (-12% YoY) and Hong Kong (+14% YoY), earning $306 million, $227 million and $173 million, respectively.
APAC - Top 5 Revenue Generating Equities
North America Fixed Income
The lending market in North American government debt observed a modest 8% growth in revenue YoY for H1 2023, earning $530 million. While on-loan balances remained roughly the same, sovereign debt inventory balances and average fees increased 13% and 7%, respectively, from the same period last year. U.S. sovereign debt, namely Treasurys, proved to be the main revenue driver of the region, as impending rate hikes may be looming. Government debt lending activity in the U.S. amassed $456 million in revenue alone in H1 2023, a 10.4% rise from the year prior.
North America - Top 5 Revenue Generating Government Debt
Corporate Debt performed notably well in North America during H1, as the securities lending market grossed $248 million in revenue, an extraordinary 77% increase YoY. Compared to H1 2022, the uptick in revenue was largely attributed to a 72% rise in fees, as well as corporate debt loan balances increasing by 2.64%. Corporate Debt activity for bonds issued by United States-based entities dominated the region as it accumulated $235 million in revenue, demonstrating a stunning 80% increase from the same period last year.
The top earners of the region included MICRO 0.125% 15/11/24, MPH A LLC 5.75% 01/11/28 and 3M COMPANY 4% 14/09/48, together generating almost $16 million in revenue. 3M COMPANY 4% 14/09/48 also topped the rankings for investment-grade debt as it grossed $5.2 million in revenue, a massive 1,403% increase compared to H1 2022. Across the region, revenue for high-yield debt soared 82% YoY, amassing $146 million over H1 2023. This revenue growth can largely be credited to an 84% spike in high-yield fees as well as a moderate 19% increase in lendable balances YoY.
North America - Top 5 Revenue Generating Investment Grade vs. High Yield Corporates
EMEA and APAC Fixed Income
Lending activity in EMEA government debt generated $260 million in revenue this H1, a minor 3% improvement YoY. A 28% surge in fees was the main revenue driver for the period as it helped offset the 17% decline in loan balances compared to H1 2022. UK sovereign debt earned the most revenue of the region, grossing $70 million, up 16% YoY. Trailing behind, French and German debt were the next highest earners, generating $64 million and $54 million, respectively.
EMEA - Top 5 Revenue Generating Government Debt
The Corporate Debt market also performed strongly in EMEA, as revenue grew 56% from H1 2022 at $188 million. A 51% surge in fees YoY proved to be the main revenue driver combined with a boost in on-loan balances at 3.4%. The region’s highest revenue-grossing markets were France, Germany and the United Kingdom, with combined revenue of $81 million making up 43% of the region’s total revenue.
EMEA saw a significant increase in investment-grade corporate debt, accumulating $94 million in revenue, up 69% from H1 2022. The Materials and Financials sectors commanded investment-grade debt with top earners including ARCELORMITTAL 4.25% 16/07/29, SCHNEIDER ELECTRIC 0% 15/06/2026 and STANDARD CHARTERED PLC 4.3% SUB 19/02/27, together totaling $2.9 million in revenue for H1 2023. Impressively, high-yield corporates amassed a spike in revenue to $94.1 million, representing a 45% increase from the year prior. TEVA PHARMACEUTICAL FIN NETH III B 5.125% GTD SNR 09/05/29 USD was the top contributor, earning $1.6 million in revenue over the period.
EMEA - Top 5 Revenue Generating Investment Grade vs. High Yield Corporates
Government debt activity in APAC soared during H1 2023, as generated revenue grew over 50% YoY at $33 million. A combination of average fees spiking 37% and sovereign loan balances growing 22% YoY contributed to the massive increase in revenue. Australia, Japan and Indonesia were the top earning markets of the region as well as some of the markets that experienced the most significant revenue increases YoY – 24.7%, 95% and 58% respectively.
APAC - Top 5 Revenue Generating Government Debt
The APAC region witnessed a growth in corporate-debt activity as well, as $49 million in revenue was accumulated, reflecting a 23% increase YoY. Despite on-loan and lendable balances falling in the first half of the year, a 45% increase in fees helped to counteract, accounting for the overall increase in revenue. China led the pack of top earners, grossing $22.9 million, almost half of the region’s total revenue. Following behind, lending activity in Japan and India generated the next highest revenue of the region, with each earning $5.8 million and $4.5 million respectively.
Over H1 2023, revenue across APAC’s investment-grade debt swelled 117% YoY at $20.7 million. While both on-loan and lendable balances experienced a decline, investment-grade fees spiked 91% compared to last year. ALIBABA GROUP HOLDING, MEITUAN 2.125% SNR 28/10/25 and TSMC ARIZONA CORPORATION 3.25% 25/10/51 ranked as the highest earners, together grossing more than $2.6 million in revenue. Conversely, high-yield debt trended slightly downward at a mild 3% YoY for a total of $27.8 million in revenue.
APAC - Top 5 Revenue Generating Investment Grade vs. High Yield Corporates
As witnessed throughout H1 2023, securities lending activity has continued to outperform across global equity and fixed income markets. The turbulent macro-economic landscape has persisted, which may continue to drive securities lending revenue to record levels.
About DataLend
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
About EquiLend
EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe. www.equilend.com