The global securities finance industry generated $1.77 billion in revenue in the lender-to-broker market in the third quarter of 2020, according to DataLend, the market data division of EquiLend. This figure represents a 17% year-over-year decrease from the $2.13 billion generated for lenders in Q3 2019. Year to date, lender-to-broker revenue has totaled $5.67 billion, a 14.7% decrease over the $6.65 billion generated for lenders in the first three quarters of 2019.
Lender-to-broker 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 long-holders of these assets, known as beneficial owners.
Global broker-to-broker activity, where broker-dealers lend and borrow securities from each other, totaled an additional $494 million in revenue in Q3, a 22.5% decrease year over year. Revenue in the broker-to-broker market has totaled $1.58 billion in 2020 through the end of Q3, a 4.6% increase from the same time period in 2019.
The downturn in revenue for Q3 was largely driven by American and Asian equities, which declined 28% and 26% respectively. These declines were offset slightly by equities in EMEA, where revenue increased 9.8% year on year in Q3, and fixed income in the Americas, where revenue increased 4.7%.
Nancy Allen, global product owner at DataLend, said in a statement: “Over the first half of this year, North American equities experienced increased fees relative to the same period in 2019 driven by a number of special names, including four of the top-five revenue-generating securities and a number of COVID-related specials. However, as the year progressed, short positions in US equities dropped to significant lows as markets rebounded and the S&P reached a record closing high. As a result, we saw lower fees and on-loan balances in the lending market, which drove the considerable decline in revenue.”
The top five revenue-generating securities in the global securities lending market in Q3 2020 were Varta, Nikola, Carnival, Canopy Growth and Inovio Pharmaceuticals, which together generated $106 million in lending revenue during the quarter. This represents a significant decline from the $284 million earned by the top-five revenue-generating securities in Q3 2019, when Beyond Meat stock loans alone earned lenders $120 million.