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Securities lending revenues continue to push higher, generating $3.605B during Q2 2023

• Quarterly revenues push higher marking the best Q2 in recent history
• US equity specials generate highest quarterly specials revenues on record
• Fixed income assets continue to benefit from elevated fees
• Balances decline as recessionary fears ease

In the securities finance markets, revenues of $3.605B were generated over Q2. This represents an increase of 7% YoY and an increase of 6% QoQ. Average fees remained robust over the quarter with a Q2 average across all securities of 56bps (+20% YoY) representing a 3bps increase on Q1. Balances declined both YoY (-11%) and QoQ (-1%) along with utilization (-14% YoY and -5% QoQ). As a result of rising equity markets over the quarter, lendable supply increased by 3% when compared with Q1.

Equities generated $2.79B over Q2 representing an increase of 5% YoY and 8% QoQ. The second quarter of the year is typically the strongest for equity lending revenues and the healthy increase experienced in comparison to Q2 2022 will be welcomed by lenders. Average fees were 90bps over the quarter. YoY this represents an increase of 11%. This increase follows on from a strong Q1 average fee of 84bps which was an increase of 29% YoY. Utilization declined for equities over the period to an average of 3.7% (-7% YoY and -4% QoQ). This is representative of a common trend over the quarter as balances declined across the vast majority of asset classes. In relation to geographical regions, revenues increased YoY in line with average fees. Americas equities led the charge during Q2 with a high value specials market pushing revenues to all-time quarterly highs. Balances increased in Asia YoY (+4%) but declined across the Americas (-2%) and Europe (-16%). This signals a market of increased borrowing conviction as stocks on loan became more expensive.

In the fixed income markets both government and corporate bond lending remained robust. Revenues continued to increase YoY with both asset classes experiencing near record quarterly revenues. Average fees remained high across both instruments (45bps corporate bonds, 18bps government bonds) despite a fall in balances and utilization. Short-dated government bonds continued to be a priority for borrowers as did investment grade corporate bonds.

In summary, the second quarter of 2023 was very strong for securities finance markets. Revenues increased across the majority of asset classes both YoY and QoQ despite ever-increasing valuations in equity markets and a slight decline in inflationary concerns. The first half of the year has generated near record revenues for market participants. With central banks closing in on their inflation goals and interest rates starting to bite, Q3 will be critical in deciding whether securities finance revenues will experience an all-time high during the remainder of 2023.

Additional Q2 2023 metrics to note:

Average tenure: All Securities: 135 days (All Equities 75 days, Government Bonds 197 days, Corporate Bonds 90 days)

Cash reinvestment revenues: All Securities $437.3M

Securities lending return to lendable: All Securities 3.03bps (All Equities 3.13bps, All Bonds 2.74bps, Government Bonds 2.95bps, Corporate Bonds 2.47bps)

Cash vs Non-Cash Collateral average: All Securities 59.2% Cash vs 40.8% Non-Cash, (All Equities 63.5% Cash vs 36.5% Non-Cash, Government Bonds 40.4% Cash vs 59.6% Non- Cash, Corporate Bonds 62.8% Cash vs 37.2% Non-Cash

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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.