Securities finance revenue starts year with a bang
08 March 2021 US
Image: adobe.stock.com/NDABCREATIVITY
Although average daily global revenues decreased 8 per cent month-over-month (MoM) compared with January, global securities finance revenues totalled $812 million in February, a 10 per cent year-over-year (YoY) increase, according to IHS Markit.
The start of this year has delivered new securities finance “revenue catalysts”, says Sam Pierson, director of securities finance at IHS Markit, including surging specials balances amid the January short squeeze, fixed-income exchange-traded funds (ETF) shorts, Asia Pacific (APAC) American depository receipts (ADRs) and the corporate action-related demand for DuPont shares.
The decline in US equity special balances was partly offset by increasing APAC special balances, Pierson says and revenue drivers from the first two months of this year combined put year-to-date (YTD) revenues 18 per cent ahead of the first two months of 2020.
APAC equity finance revenues declined 8 per cent YoY in February, the 13th consecutive month of YoY declines, while daily revenues increased 7 per cent compared with January, the fourth consecutive month where daily returns increased MoM, the report states.
The largest market, Japan, delivered $42 million in February revenues, a decline of 14 per cent YoY. However, daily average revenues increased 5 per cent MoM, Pierson notes.
Elsewhere in Asia, Pierson highlights Hong Kong’s Futu Holdings, which generated $94 million in February, 75 per cent of the total ADR return. This drove the marked increase in revenues from lending ADRs — an increase of 549 per cent YoY. Even excluding Futu, February ADR revenues increased 65 per cent YoY.
The US fared better than APAC, with its January equity revenues at $266 million, a 7 per cent YoY increase. However, US equity special balances declined by 48 per cent MoM, with an average of $13 billion in February compared to January's $25 billion average. This decline was mostly down to “soaring January revenues for US equities, set against the broad squeeze for crowded shorts,” Pierson says.
DuPont De Nemours was the highest revenue generating equity in January, at $33.8 million, thanks to its exchange offer for International Flavors & Fragrances.
In Europe, equity returns declined by 17 per cent YoY for February, with $77 million in monthly revenue, while daily average revenue declined by 24 per cent compared with January.
Corporate bond lending returns came in at $31.6 million for January, a 21 percent decline YoY. But this long-term decline in corporate bond lending revenues, starting in late-2018, is showing signs of reversing course, Pierson says. Average daily revenues in February increased 4 per cent MoM, with $1.1 million in daily revenue the most for any month since July 2020.
Government bond borrow demand remains “robust”, with revenues in January totalling $114 million, an 8 per cent YoY increase, Pierson reports, with just over $1 trillion in positive-fee global balances for February reflecting a 23 per cent YoY increase.
The start of this year has delivered new securities finance “revenue catalysts”, says Sam Pierson, director of securities finance at IHS Markit, including surging specials balances amid the January short squeeze, fixed-income exchange-traded funds (ETF) shorts, Asia Pacific (APAC) American depository receipts (ADRs) and the corporate action-related demand for DuPont shares.
The decline in US equity special balances was partly offset by increasing APAC special balances, Pierson says and revenue drivers from the first two months of this year combined put year-to-date (YTD) revenues 18 per cent ahead of the first two months of 2020.
APAC equity finance revenues declined 8 per cent YoY in February, the 13th consecutive month of YoY declines, while daily revenues increased 7 per cent compared with January, the fourth consecutive month where daily returns increased MoM, the report states.
The largest market, Japan, delivered $42 million in February revenues, a decline of 14 per cent YoY. However, daily average revenues increased 5 per cent MoM, Pierson notes.
Elsewhere in Asia, Pierson highlights Hong Kong’s Futu Holdings, which generated $94 million in February, 75 per cent of the total ADR return. This drove the marked increase in revenues from lending ADRs — an increase of 549 per cent YoY. Even excluding Futu, February ADR revenues increased 65 per cent YoY.
The US fared better than APAC, with its January equity revenues at $266 million, a 7 per cent YoY increase. However, US equity special balances declined by 48 per cent MoM, with an average of $13 billion in February compared to January's $25 billion average. This decline was mostly down to “soaring January revenues for US equities, set against the broad squeeze for crowded shorts,” Pierson says.
DuPont De Nemours was the highest revenue generating equity in January, at $33.8 million, thanks to its exchange offer for International Flavors & Fragrances.
In Europe, equity returns declined by 17 per cent YoY for February, with $77 million in monthly revenue, while daily average revenue declined by 24 per cent compared with January.
Corporate bond lending returns came in at $31.6 million for January, a 21 percent decline YoY. But this long-term decline in corporate bond lending revenues, starting in late-2018, is showing signs of reversing course, Pierson says. Average daily revenues in February increased 4 per cent MoM, with $1.1 million in daily revenue the most for any month since July 2020.
Government bond borrow demand remains “robust”, with revenues in January totalling $114 million, an 8 per cent YoY increase, Pierson reports, with just over $1 trillion in positive-fee global balances for February reflecting a 23 per cent YoY increase.
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