The global securities finance industry generated $3.89 billion in revenue for lenders in the first six months of 2020, according to DataLend, the market data division of fintech EquiLend. The figure represents a 13.94% decrease from the $4.52 billion generated for lenders in the first half of 2019.
Securities lending revenue is calculated as the amount paid by borrowers, typically broker-dealers on behalf of their hedge fund clients, to temporarily borrow equity and fixed income securities from beneficial owners.
Global Q1 2020 lending revenue was down 13.31% year over year, reflecting an ongoing long-bias in the markets peppered with a few specials. As the COVID-19 pandemic ensued, lower market valuations and short-selling bans meant this trend continued into Q2, resulting in a 14.53% decline in revenue year over year for the period.
According to DataLend, the decline in revenue was experienced across both the equity and fixed income markets, as well as regionally across EMEA (-33%) and APAC (-25%). The only region to buck the trend was the Americas, where revenue increased 5.6%.
Nancy Allen, global product owner of DataLend, said in a statement: “In the Americas, while equity loan values declined 14% year over year, average fees increased by 22% driven by a number of special names, including four of the top-five revenue-generating securities and a number of COVID-related specials. Meanwhile, in EMEA, fees to borrow EMEA equities in mid-March averaged 43.67 bps, the lowest value at any point in the last three years, following large selloffs in the global equity markets coupled with short-selling bans. However, as bans have been lifted and equity markets have started to rebound, demand for EMEA equities has returned. Fees to borrow EMEA equities have steadily risen, with a dramatic climb throughout May and into June, resulting in an average fee of 76.42 bps for H1.”
The top five revenue-generating securities in the global securities lending market in the first half of 2020 were Match Group, Canopy Growth, Peloton Interactive, Wirecard and Aurora Cannabis, which together generated $349 million in lending revenue in H1 2020.