The global securities finance industry generated $7.66 billion in revenue for lenders in 2020, according to DataLend, the market data division of fintech EquiLend.
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The figure represents an 11.6% decrease from the $8.66 billion generated for lenders in 2019 and a 20.7% decrease over the $9.96 billion in record-setting 2018.
Global broker-to-broker activity, where broker-dealers lend and borrow securities from each other, totaled an additional $2.87 billion in revenue in 2020, a 1.6% decrease year over year.
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.
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According to DataLend, the decline in lender-to-broker revenue was experienced across equity markets globally: Americas (-3.4%), EMEA (-19.2%) and APAC (-26.8%). Across fixed income globally, corporate debt was down 37%, while government debt finished the year up 15.3% relative to 2019.
Nancy Allen, Global Product Owner of DataLend, says: “Over the first half of the year, declining market values led to lower on-loan volumes in the equity markets, while short-selling bans in Europe and Asia resulted in suppressed demand and general fee compression. In the Americas, while equity loan values declined year over year, average fees increased driven by a number of COVID- and non-COVID related names trading at very high fees to borrow.
“However, as the year progressed, short positions in U.S. equities dropped to significant lows as markets not only rebounded but hit record highs. As a result, the lending market experienced depressed fees and on-loan balances, which drove the considerable decline in revenue. As we approached the year-end, equity lending revenue in the Americas and EMEA did increase as there was a slight uptick in short activity.”
The top five revenue-generating securities in the global securities lending market in 2020 were Match Group Inc, Canopy Growth, Varta AG, Inovio Pharmaceuticals and Nikola Corp, which together generated $482 million in lending revenue in 2020.
