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June revenues increased by 4% YoY
South Korea, Taiwan & Hong Kong SAR lead APAC upswing
SPACs & IPOs led US specials balance increase
ETP borrow demand remains robust
Global securities finance revenues totaled just over $1B in
June, narrowly exceeding the stellar June 2020 return. The uptrend
in equity specials balances accelerated in June, particularly
relating to current and former US SPACs and South Korea. ADRs and
ETPs are notable for seeing YoY increases in revenues, loan
balances, fee and utilization in June. In this note we'll discuss
the drivers of June revenue, which increased 4% YoY.
APAC Equity
APAC equity finance revenues increased by 37% YoY in June, with
$176m in revenue, the most for any month since March 2019. Asia
equity special balances continue to increase with June's $14bn in
daily average special balances reflecting a 28% MoM increase and
the highest monthly average since January 2019. Special balances
are defined in this note as balances with a fee greater than
500bps.
A key to the upswing is revealed by the two most revenue
generating equities which are both listed in South Korea. SK equity
revenue totaled $36m for June, a 103% YoY increase and the most
monthly revenue since February 2020, the last full month prior to
the short sale ban. SK equities contributed 38% of the YoY APAC
equity revenue increase.
Hong Kong SAR equity finance revenues increased by 36% YoY in
June, overtaking Japan as the most revenue generating equity market
in the region. The most revenue generating HK equity was Pop Mart
International Group Ltd., which generated $3.5m in June revenue. HK
equity finance activity has steadily increased since the 2020
revenue low point in September, with June seeing the most revenue,
highest average fees and loan balances during that span. Another
key to the APAC resurgence has been Taiwan, where loan balances and
revenues both reached all-time highs in June.
Japan equity finance revenues declined 18% YoY on lower loan
balances, with fees increasing slightly. Balances and revenues did
increase MoM, with Anges Inc., Japan Tobacco Inc., & Canon Inc.
as the top earners.
Malaysian firm Top Glove Corporation was taken down as the most
revenue generating APAC equity in June, but remains near the top of
the list and continues to boost MY equity revenues.
Americas Equity
Americas equity revenues came in at $443m for June, a 6% YoY
decline. The YoY revenue decline is the result of declining average
fees, with loan balances increasing. The decline in average fees is
as much the result of stellar special balances in June 2020, which
resulted from the Carnival special balances relating to convertible
bond issuance and a broad short squeeze in crowded short positions;
For June 2021, Americas equity average fee of 82bps is the highest
monthly average since January, reflecting an uptrend from the low
point in March.
US equity revenues came in at $411m in June revenue, a 2.5% YoY
decline and a 19% MoM increase compared with May. US equity special
balances increased by 7% MoM with an average of $17bn in June, the
largest average specials balance since January.
The most revenue generating US equity was Upstart Holdings Inc,
with $27.5m in June revenue ahead of the share lockup expiry on
June 14th. Each of the top 10 most revenue generating equities were
either IPO or SPAC business combinations which occurred since the
start of 2020.
Canadian equity lending revenue of $30.3m reflect a 36% YoY
decline for June. The YoY decline was primarily driven by a 53%
decline in average fees. Canadian equity specials balances averaged
$717m for June, the lowest monthly average since February.
European Equity
European equity returns declined by 19% YoY for June, with $133m
in monthly revenue. The YoY decrease was driven by decreasing fees,
the result of a dearth of specials revenue, particularly in
Germany.
German equity revenues of $21m reflect a 60% YoY decline for
June. Varta led German equities in June with just over $4m in
monthly revenue, with other stalwart revenue contributors Grenke
and Deutsche Lufthansa continuing to deliver. The YoY shortfall was
partly driven by Wirecard delivering $15m in June of 2020, more
than the top 5 German equities combined in June 2021.
France listed equity revenue increased 5% YoY. The upswing in
revenues was partly the result of reinstated dividends which had
been cancelled or reduced in 2020. UK equity revenues increased 16%
YoY led by Tui Ag; borrow demand for the travel and tourism firm's
shares is partly impacted by the convertible bond.
Depository Receipts
Revenues from lending American Depository Receipts (ADRs)
increased 45% YoY, with average daily revenues increasing 6% MoM.
The general uptrend in ADR borrow demand remains in-tact, though
revenues and specials balances are lower than at the start of 2021
when Futu Holdings shares led ADR demand. June average loan
balances of $54b was the highest monthly average since July 2018
which consisted of 55% Alibaba Group (BABA) balances. The largest
contributor to June 2021 balances was Astrazeneca (AZN) which
contributed only 17% of average daily balances.
Exchange Traded Products
Global ETP revenues totaled $56m for June, a 55% YoY increase.
Despite the strong YoY comparison, it's worth noting that revenues
dipped 5% MoM as the result of lower average fees despite loan
balance growth. Loan balances set new high daily and monthly
average records, reflecting increased use of the products for
hedging. Lendable asset values also set a new all-time monthly
average high of $455bn. Revenues for fixed income products
decreased 9.6% MoM; FI products generated 40% of June revenue, down
from 42% in May. ETP specials balances declined sharply MoM, with
the largest contributor to the decline being lower fees and
balances observed for Harvest CSI 300 China A-Shares ETF
(ASHR).
Corporate Bonds
Corporate bond lending revenues increased 18% YoY, with $41.8m
in June revenue. Corporate loan balances averaged $241b in June, an
increase of 44% YoY and a slight decline relative to May. Lendable
assets have also steadily increased, reaching an all-time high in
June, $4.7T, sufficient to drive a small decline in utilization as
compared with May. Total corporate bond lending revenues for agency
programs, including reinvestment returns and negative fee trades
declined by 15% YoY as the result of narrower reinvestment
spreads.
Convertible bonds contributed 8.6% of June corporates revenue,
up from 7.9% in May, led by the Viacom CBS Inc 5.57% convertible
note due April 2024. June convertible bond lending revenues of
$3.6m were the most for any month since July 2019.
Government Bonds
Fee-spread revenues for global sovereign debt totaled $130m for
June, a 5.5% YoY increase. Government bond borrow demand remains
robust, with $1.25T in positive-fee global balances for June
reflecting an 38% YoY increase. The $341bn increase in positive-fee
balances is the result of a $259bn YoY increase in total on-loan
balances along with $82bn moving from negative to positive fee.
Total government bond lending revenues for agency programs,
including reinvestment returns and negative fee trades declined by
9.6% YoY, as the result of narrower reinvestment spreads.
US government bond lending revenue came in at $71m for June, a
5% YoY decrease, the lowest monthly return since February. The Feb
2031 UST 10Y note took the top rank on revenue generator table from
the Nov 2030 UST 10Y, the two have switched back and forth as the
top earner for the last three months. Returns from lending European
sovereigns were $44m for June, a 19% YoY increase, with the French
5Y due May 2025 appearing among the top 5 revenue generating
sovereigns.
Conclusion
US equity specials mounted a timely comeback, after a thin
stretch from late-February to April. Current and former SPACs are
dominating 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. The usage of exchange traded products
in institutional long portfolios and for short hedges has resulted
in record highs for lendable assets and loan balances,
respectively, with increased borrow demand likely continue to boost
revenues going forward. One trend which may be reversing course is
the increased borrow demand for US Treasury securities, with
interest rates in decline June saw loan balances and revenues for
UST notes at the lowest levels since February. As the drivers of
lending returns which have been anticipated since the start of the
year continue to play out, including SPACs, convertible hedging,
dividend reinstatements and the conclusion of short sale bans, Q2
concluded with $2.8b in revenue, a 13% YoY increase.
Posted 09 July 2021 by Sam Pierson, Director of Securities Finance, S&P Global Market Intelligence
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