Blog: Securities Finance April 2022 Snapshot – IHS Markit

$1.058b in April securities finance revenue

  • April revenues climbed by 32% YoY
  • ETP and Corporate bond borrow fees increase on last month
  • Slump in ADR borrow demand continues
  • European markets boosted by dividend yields

Global securities finance revenues totaled $1.058b in April, a
32% YoY rise. The YoY increase was primarily the result of
equities, with all regions showing YoY growth. Average daily global
revenues decreased 2% MoM compared with March. American equities
and global ETPs are notable in revenue growth driven by both YoY
increase in balances and fees. In this note, we will review the
drivers of April revenue.

APAC Equity

APAC Equity Finance revenues totaled $174m in April, up 22% YoY
but down 15% from the YTD high in March. Last month the average
value on loan was $275bn but reduced borrow demand in April saw
loan balances drop to $220m. Japan was on top in April, generating
$47m of equity finance revenue but Taiwan retains 2nd spot
delivering $46m, up 76% YoY. South Korea remains buoyant, producing
$30m and up 239% YoY, with Hong Kong also generating $30m but down
19% YoY.

The top revenue name is Lg Energy Solution for the second month
in a row, delivering $5m in April. Taiwan stocks Au Optronics Corp
and Acer Inc generated $1.93m and $1.92m respectively. Cost
pressures and lockdown restrictions have driven borrow demand for
bottled water maker Nongfu Spring, generating $1.56m in equity
finance revenue and entering the APAC top 5.

Americas Equity

Americas Equity Finance revenues totaled $362m in April, +49%
YoY and -11% MoM. We saw an increase in both average fees (+23.7%
YoY) and average balances (+20% YoY). Despite the YoY increase we
saw a downtick MoM with fees (-4%) and balances (-4%) both
decreasing.

Canadian Equities revenue remained mostly flat YoY (+2.4%)
producing $24.1m for April with continued offsetting drivers
observed in a +20% YoY increase in balances but a decrease of -15%
YoY in average fees. US Equities generated $335.9m, with a +54%
increase YoY and -10% MoM decrease.

Sweetgreen (SG) and Rivian Automotive (RIVN) topped the list for
April generating $18.71m (+67% MoM) and $15.46m (+43% MoM)
respectively. Sweetgreen and Rivian’s ascent to the top of the list
was due to an increase in fees of 86% and 54% from March. We saw a
significant drop in the top two names from March as Lucid Group
(LCID) and Digital World Acquisition Corp (DWAC) declined in
revenue by -65% and -63% respectively. Two entrants into the top 10
were Gamestop Corp (GME) and Sirius Xm Holdings Inc (SIRI). Both
securities saw major spikes in fees from March with deltas of +98%
for GME and +81% for SIRI.

European Equity

Dividend yields have continued to boost equity finance revenue
in Europe, generating $175m in April, up 21% YoY and 43% from
March. Renewed demand in the region has increased the utilization
of assets to 6.5%. Sweden ($35m), Switzerland ($31m) and France
($26m) saw strong securities finance returns, and utilization
exceeded 10% in France, Germany, Sweden and Norway. Italy generated
$13m in equity finance revenue with high demand for insurance group
Assicurazioni Generali Spa contributing almost 30% of the total in
April.

Swiss stock Nestle took top spot in April, generating $7.10m,
with demand for German name Varta remaining robust. Nordic
securities Volvo, Dnb Bank & Swedbank make up the rest of the
top 5 generating $17.42m between them.

Depository Receipts

Revenues from lending American Depository Receipts (ADRs) in
April continued the downswing with a 35% YoY drop totaling $23m,
although up 33% from March. ADR securities finance revenues were
led by 51Job (JOBS) and United Microelectronics (UMC). JOBS
contributed 15% of the ADR revenue with $3.45m this month. Loan
balances for ADRs dropped to $29b, the lowest figure since
September 2020, and a 5.3% YoY dip in utilization further
contributed to the April slump.

Exchange Traded Products

Global ETPs Revenue remained strong in April totaling $81bn, up
48% YoY and only down 4% from the all-time high in March. Although
loan balances dropped 10% MoM to $119bn, fees reached a YTD high of
0.84% and lendable assets rebounded from their March dip to $481bn,
up 3% MoM. This led to a monthly-average utilization of 11.9%, down
2% YoY.

Americas ETPs remained the strongest revenue generator with
Ishares Iboxx $ High Yield Corporate Bond Fund (HYG) generating
$14.11m, up 10% MoM. Ishares Iboxx $ Investment Grade Corporate
Bond Etf (LQD) was the second highest revenue generator with $5.08,
up 19% MoM.

Corporate Bonds

Corporate Bond lending revenues reached a new all-time-high of
$75m in April, up 101% YoY. Average balances dipped 1% MoM to
$290bn and lendable assets dropped to $4.3tr, a 2% decrease MoM and
a 6% decrease YoY. Fees, however, remained robust at 0.31%. As both
lendable assets and loan balances moved in lockstep, utilization
remained steady at 5.7%, a 46% YoY increase.

Expedia Group Inc 0% note retained its position as the top
revenue generator with $0.95m, up 8% MoM. The new entry to the top
5 was the Dexcom Inc 0.25% note with $0.57m monthly revenue due to
a sharp increase in fee reaching 2.14%, up 550% MoM.

Government Bonds

Global sovereign debt fee-spread revenues totaled $145m for
April, a 12% YoY increase however down 5% MoM. Demand for
government bonds increased by 5% YoY which translated to daily
average balances of $1.32T in April. Average fees increased 6%
YoY.

US government bond lending generated $73.9m, a 3% decrease YoY
for positive-fee balances but a 4% MoM uptick. European debt
lending generated $53.1m, up 24% YoY, however down 7% MoM driven by
a decrease in average balances of 4% compared to March.

Total government bond lending revenue for agency programs
including reinvestment returns and negative fee trades decreased 3%
YoY mostly driven by a 4% decrease in average balances YoY and
reinvestment revenue that decreased 6% YoY that offset a 9% YoY
increase in average fees.

Conclusion

A slight bounce in April saw securities finance revenues
increase 32% YoY, with similar demand drivers persisting and a less
severe decline in ADR revenues. Uncertainty in the fixed income
asset class was marked by narrowing UST borrow demand amidst the
steep hike in interest rates. The upswing in EMEA revenues was
boosted by dividend yields in Sweden and Switzerland. The use of
exchange traded products in institutional long portfolios and for
short hedges has resulted in record highs for lendable assets and
loan balances, with increased borrow demand likely to continue to
bolster revenues going forward. Demand for corporate bonds
continued last year’s trend, with April monthly revenue seeing 101%
YoY growth.


Posted 06 May 2022 by Paul Wilson, Manging Director, Securities Finance, S&P Global


IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.


This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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