Industry revenues reach $9.5bn, according to IHS Markit
09 May 2018 London
Image: Shutterstock
“Data doesn’t lie, it’s an actual fact to depend on,” according to one panellist at this year’s Finadium conference, where it was revealed that the industry had achieved $2.1 trillion dollars in lendable, $2.5 trillion on loan, and $9.5 billion in revenue.
The panel, which discussed current dynamics in the securities lending industry, focused on graphs created by IHS Markit in order to tackle questions regarding: what is driving volumes in the market, changes in borrower behavior, what solutions can help beneficial owners lend or re-engage in the market in spite of challenging regulation and risk versus reward: where is money being made and why?
One graph showed that 77 percent of total revenue contributed by equities, and a bullish market last year gave lesser specials than 2016.
In regards to fixed income, high-quality liquid assets (HQLA) continue to deliver revenue, while high yield and convertible bonds drive revenue.
Another graph focused on exchange-traded funds (ETF) and revealed that global ETF loans and revenues are up from 2016. Meanwhile, European ETF revenues are up by 33 percent, and more ETF collateral was posted last year. The speaker added: “In a nutshell, 2017 has been a rollercoaster.”
Another panellist commented on the graph suggesting: “It’s a good representation of the size of the assets that are available in the marketplace.”
“Hedge funds had a rough time in 2016. They are the drivers of demand for the specials in the equity space, so they were getting a little gun-shy,” panellist added.
The panellist continued: “Going into 2017, hedge funds were a lot more cautious, and so the year unfolded pretty much as it started.”
The panel then turned their attention to government bond lending in 2017, where a noticeable trend coming from 2017 to 2018 can be seen, whereby the value of loan has increased considerably.
According to the graph, it is an upward trend, demonstrating that there is more demand for a non-cash trade, and there is a large portion of Japanese assets that are collateralising government bonds.
Commenting on this, one panellist said: “The flexibility of collateral drives the demand for the assets.”
“Asset managers account for a very great percentage of lendable supply and yet they feature a lot less when it comes to the amount to loan. You’ll find asset managers on one side and a good size of the industry on the other side,” the speaker said.
To adapt, “the key thing is working closely together,” according to the speaker.
The panellists were asked: when you discuss term, how much is a term with beneficial owner committing those assets or it is right of substitution?
To which, one speaker replied: “In the majority of cases loan side is fully collateral. If it’s the borrower's side they can substitute the collateral throughout the trade.”
Reflecting on the financial crisis, one panellist said: “If you go back to the crisis it was all about utilisation. It changed the way borrowers were being judged. It has big constraints depending on where the borrower is sitting. They will pick up at a detriment to others.”
Later, the panel was asked, how do you reconcile the need to demonstrate full and fair best execution with the fact that many clients offer borrows very different borrowing opportunities?
One panellist argued: “You have to start looking at how you group clients. It’s almost impossible to create a perfect execution but it does create a big discussion point. It’s not one size fits all.”
The speaker added: “Keep the focus on the buy side. Keep the focus on the credibility.”
The panel, which discussed current dynamics in the securities lending industry, focused on graphs created by IHS Markit in order to tackle questions regarding: what is driving volumes in the market, changes in borrower behavior, what solutions can help beneficial owners lend or re-engage in the market in spite of challenging regulation and risk versus reward: where is money being made and why?
One graph showed that 77 percent of total revenue contributed by equities, and a bullish market last year gave lesser specials than 2016.
In regards to fixed income, high-quality liquid assets (HQLA) continue to deliver revenue, while high yield and convertible bonds drive revenue.
Another graph focused on exchange-traded funds (ETF) and revealed that global ETF loans and revenues are up from 2016. Meanwhile, European ETF revenues are up by 33 percent, and more ETF collateral was posted last year. The speaker added: “In a nutshell, 2017 has been a rollercoaster.”
Another panellist commented on the graph suggesting: “It’s a good representation of the size of the assets that are available in the marketplace.”
“Hedge funds had a rough time in 2016. They are the drivers of demand for the specials in the equity space, so they were getting a little gun-shy,” panellist added.
The panellist continued: “Going into 2017, hedge funds were a lot more cautious, and so the year unfolded pretty much as it started.”
The panel then turned their attention to government bond lending in 2017, where a noticeable trend coming from 2017 to 2018 can be seen, whereby the value of loan has increased considerably.
According to the graph, it is an upward trend, demonstrating that there is more demand for a non-cash trade, and there is a large portion of Japanese assets that are collateralising government bonds.
Commenting on this, one panellist said: “The flexibility of collateral drives the demand for the assets.”
“Asset managers account for a very great percentage of lendable supply and yet they feature a lot less when it comes to the amount to loan. You’ll find asset managers on one side and a good size of the industry on the other side,” the speaker said.
To adapt, “the key thing is working closely together,” according to the speaker.
The panellists were asked: when you discuss term, how much is a term with beneficial owner committing those assets or it is right of substitution?
To which, one speaker replied: “In the majority of cases loan side is fully collateral. If it’s the borrower's side they can substitute the collateral throughout the trade.”
Reflecting on the financial crisis, one panellist said: “If you go back to the crisis it was all about utilisation. It changed the way borrowers were being judged. It has big constraints depending on where the borrower is sitting. They will pick up at a detriment to others.”
Later, the panel was asked, how do you reconcile the need to demonstrate full and fair best execution with the fact that many clients offer borrows very different borrowing opportunities?
One panellist argued: “You have to start looking at how you group clients. It’s almost impossible to create a perfect execution but it does create a big discussion point. It’s not one size fits all.”
The speaker added: “Keep the focus on the buy side. Keep the focus on the credibility.”
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