ISLA: Securities lending industry was stable and resilient in H1
25 August 2020 London
Image: alwoodphoto / Adobestock
The securities lending industry showed itself to be stable and resilient in the face of extreme trading conditions in H1, says the International Securities Lending Association (ISLA).
In its 13th market report, the association says that the market’s infrastructure was tested to its extremes, with at times more than 40 percent additional trading volumes and thousands of attendant margin movements.
Despite this “the operational framework around the industry performed well,” ISLA argues.
“Taking stock on the first six months of this year and how securities lending fared during this period, the overall feeling from across our industry is one of stability and resilience” ISLA adds.
Elsewhere, ISLA notes that overall securities lending activity returned to normal levels around July, with outstanding on-loan balances closing the six month period at €2.2 trillion, down from €2.3 trillion reported at the end of December.
ISLA Global Securities Lending Aggregate reveals on-loan balances still remain at historic levels.
However, a review using this timeframe belies the true scale of upheaval the market endured during that period.
DataLend figures show that the value of securities in lending programmes fell significantly at the end of February and into March, as equity markets reacted to COVID-19 concerns.
Between 19 February and 23 March, the S&P 500 fell by more than 33 percent, which ISLA says highlights the intrinsic link between lending pools and market valuations.
Major central bank intervention served to blunt some of these spikes and ease liquidity concerns.
“The continued stimulus resulting in excess cash in the system, allowed banks to roll off excess funding taken on at the height of the crisis, thereby lowering their overall cost of funding,” ISLA says.
Moreover, the association explains that late February also saw considerable volatility in on-loan balances due to market participants shifting trading behaviour to shield themselves from the equities route.
This was compounded by the effect of short selling bans in several European markets which removed much of the borrowing demand.
This trend contributed to lending revenue being down 14 percent year-on-year for the first half of 2020.
In its 13th market report, the association says that the market’s infrastructure was tested to its extremes, with at times more than 40 percent additional trading volumes and thousands of attendant margin movements.
Despite this “the operational framework around the industry performed well,” ISLA argues.
“Taking stock on the first six months of this year and how securities lending fared during this period, the overall feeling from across our industry is one of stability and resilience” ISLA adds.
Elsewhere, ISLA notes that overall securities lending activity returned to normal levels around July, with outstanding on-loan balances closing the six month period at €2.2 trillion, down from €2.3 trillion reported at the end of December.
ISLA Global Securities Lending Aggregate reveals on-loan balances still remain at historic levels.
However, a review using this timeframe belies the true scale of upheaval the market endured during that period.
DataLend figures show that the value of securities in lending programmes fell significantly at the end of February and into March, as equity markets reacted to COVID-19 concerns.
Between 19 February and 23 March, the S&P 500 fell by more than 33 percent, which ISLA says highlights the intrinsic link between lending pools and market valuations.
Major central bank intervention served to blunt some of these spikes and ease liquidity concerns.
“The continued stimulus resulting in excess cash in the system, allowed banks to roll off excess funding taken on at the height of the crisis, thereby lowering their overall cost of funding,” ISLA says.
Moreover, the association explains that late February also saw considerable volatility in on-loan balances due to market participants shifting trading behaviour to shield themselves from the equities route.
This was compounded by the effect of short selling bans in several European markets which removed much of the borrowing demand.
This trend contributed to lending revenue being down 14 percent year-on-year for the first half of 2020.
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