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Global securities finance revenues totaled $804m in April, a 15%
YoY increase. The YoY increase was primarily the result of
equities, with all regions showing YoY growth. Average daily global
revenues decreased by 2.3% MoM compared with March. Equity special
balances remain well below the YTD peak in January, but it is worth
noting they increased 15% MoM. In this note, we'll discuss the
drivers of April revenue and outlook for remainder of Q2.
Americas Equity
Americas equity revenues came in at $242m for April, a 10% YoY
increase and a 9% increase in average daily revenue compared with
March. The YoY increase is the result of growing loan balances,
with fees declining YoY. The decline in average fees was driven by
low-fee balances growing faster than special balances YoY, which is
unsurprising given that equity markets were just starting to
recover from the Q1 crash in April 2020.
US equity revenues came in at $218m for April, a 15% YoY
increase. Average daily revenues increased 13% compared with March,
however, returns remain a far cry from January's record return. US
equity special balances increased by 24% MoM, with an average of
$8.8bn in April. Special balances are defined in this note as
balances with a fee greater than 500bps.
The highest revenue generating US equity was Blink Charging Co,
the result of increasing fees during the last half of March which
persisted through April. It is interesting to note the Grayscale
Bitcoin Trust continues to see elevated borrow demand and loan
balances have consistently hovered around $2bn since early
March.
Canadian equity lending revenue of $23.4m reflected a 23% YoY
decline. The YoY decline was primarily driven by a 50% decline in
average fees, while balances increased by 56% YoY, with loan
balances extending uptrend from the YTD low point in February.
Canadian equity specials balances averaged $727m for April, the
highest monthly average since August 2020.
European Equity
European equity returns increased by 24% YoY for April, with
$144m in monthly revenue. The YoY upswing primarily resulted from
the YoY increase in loan balances, though average fees did also
increase. France listed equity revenue increased 48% YoY, led by
shares of Air France Klm Sa, which saw increased borrow demand
around the firm's capital raise in April. The resumption of
dividend payouts is likely to boost borrow demand from the
securities finance channel and IHS Markit Dividend Forecasting
expects a 17% YoY increase in payout for
EMEA issuers in 2021.
APAC Equity
APAC equity finance revenues increased by 19% YoY in April,
though average daily revenues declined slightly. Asia equity
special balances continue to have an upward trajectory from the
2020 low point in early November, April's 9bn in daily average
special balances reflects a 4% increase compared with the Q1
average.
The largest market, Japan equities, delivered $48m in March
revenues, a 19% YoY increase. Hong Kong equity finance revenues
increased by 54% YoY in April. Apart from Malaysian firm Top Glove
Corporation, HK equities have generally been atop the APAC leader
board YTD, however Singapore firm Jardine Strategic Holdings
delivered just over $2m in April revenue on the back of the firm's
acquisition the shares it did not already hold in Jardine Matheson
Holdings Ltd.
South Korea's short selling ban has concluded for larger market
capitalization firms, with new short sales will be allowed for the
benchmark Kospi 200 Index and the small-cap Kosdaq 150, likely to
be a boon for shareholders seeking to generate revenue by lending
shares.
Depository Receipts
Revenues from lending American Depository Receipts (ADRs)
declined sharply in April, tracking the demand for shares Hong Kong
SAR domiciled Futu Holdings, which generated $8m in April, after
generating $81m in March revenue. The general uptrend in ADR
revenue remains in-tact, excluding the impact of Futu, and April
revenues increased 85% YoY. ADRs for Mainland Chinese firms
contributed the majority of YoY revenue growth in April, with
$13.8m in revenue reflecting an 145% YoY increase. European ADRs
delivered $4.6m in April revenue, a 30% YoY decrease. Depository
receipts listed outside the US generated $6m in April, a 117% YoY
increase.
Exchange Traded Products
Global ETP revenues totaled $55m for April, a 58% increase
compared with April 2020. Average daily revenues declined by 9%
MoM. Loan balances declined from the recent all-time high set on
March 23rd, driving the sequential decline in revenues. Lendable
assets continued to increase, putting pressure on overall
utilization which declined MoM for the first time since January.
Revenues for fixed income products declined by 9%, as HYG borrow
demand fell after the fund distribution on April 5th, and equity
revenues declined by 15% MoM.
Corporate Bonds
Corporate bond lending returns came in at $37m for April, an 8%
increase YoY and the first YoY increase in monthly revenue since
2018. The Illumina convertible bond was the most revenue generating
corporate for the second consecutive month, boosting overall
convertible revenues by 65% YoY, though still only accounting for
5% of corporate total.
Government Bonds
Government bond borrow demand remains robust, with $1.26T in
positive-fee global balances for April reflecting an 29% YoY
increase. Revenues totaled $130m for April, a 9% YoY decline
compared with April 2020. US government bond lending revenue came
in at $76m for April, a 20% YoY decrease. The most revenue
generating bond was the UST 10Y due Feb 2031, repeating the role as
top earner, albeit delivering only one third of the March return.
Returns from lending European sovereigns were $43m for April, a 17%
YoY increase.
Conclusion
Overall revenues increased 15% YoY for April, as global loan
balances continue to trend upward. US and EMEA revenues recovered
some ground after declining during the latter portion of Q1.
Current and former SPACs continue to percolate toward the top of
the US leader board, a phenomenon likely to continue as the record
outstanding SPACs seek business combinations over the remainder of
2021. ETFs and ADRs continue to deliver YoY revenue growth, however
the most revenue generating constituents cooled in April relative
to March. Fixed income borrow demand remains robust, with corporate
bond demand trending higher with total on-loan balances at the
highest level since 2008.
Posted 10 May 2021 by Sam Pierson, Director of Securities Finance, S&P Global Market Intelligence
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