This is our fifth ISLA Securities Lending Market Report and we now able to review this latest data set against the backdrop of over two years of comparable data. Our independent ISLA Global Securities Lending Aggregate2 now looks back over an extended time horizon and provides an increasingly visible, important and independent reference point for regulators and policy makers as they consider the developing dynamics of this market.
Using data as at 30th June 2016, the following represent the key highlights and themes:
• As at 30th June 2016, there were €1.9 trillion of securities on-loan which represented an increase of 4% from 6 months earlier. The value of equities on- loan continued to increase in the first half of the year powered by increasing demand from Asia and North America. The value of government bonds on loan fell marginally for the second consecutive period.
• We did see some contraction of lending activity around the UK Brexit vote on 23rd June. We observed that European equity loans were returned ahead of the vote, suggesting investors had closed down open risk positions. Furthermore, a sharp fall in available lendable securities in Europe suggests that investors were selling in the cash market ahead of the vote.
• Mutual funds and pension plans continue to dominate the global lending pool. Together they again account for 66% of the reported €14 trillion of securities that institutional investors make available for lending.
• Although mutual funds account for 44% of all securities made available for lending, they now only account for 17% of total on-loan balances. The increasingly harsh regulatory environment facing many retail funds, notably UCITS, has led to a permanent shift in borrowers behaviour as they look to borrow securities from entities that better match their own regulatory requirements.
The full ISLA Securities Lending Market Report is available here.