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Global securities lending revenue sees sharp 16% decline to $2.53bn in Q2 2024, study shows

By Puja Sharma

July 12, 2024

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The global securities finance industry experienced a notable downturn in the second quarter of 2024, with revenue for lenders totaling $2.53 billion, down 16% from the $3.00 billion recorded in the same period last year, according to DataLend, the market data service of FinTech EquiLend.

Overview of Industry Performance:

Securities lending plays a crucial role in financial markets, enabling institutional investors, such as pension funds and hedge funds, to borrow securities temporarily to cover short positions or facilitate trading strategies. The revenue generated from these transactions reflects the fees earned by lenders for providing these securities.

Broker-to-Broker Activity:

Broker-to-broker transactions, a significant segment within securities lending, generated an additional $696 million in revenue during Q2 2024, marking a 9% decline compared to the previous year. This decline underscores broader market challenges impacting trading volumes and the demand for borrowed securities.

Regional Trends:

The performance of securities lending varied significantly across regions:

  • North America: Revenue from equity lending in North America declined by 19% year-over-year in Q2 2024. This decline was largely driven by a 22% decrease in lending fees, reflecting reduced demand and pricing pressures in the region’s equity markets.
  • EMEA (Europe, Middle East, and Africa): EMEA experienced a substantial 33% drop in equity revenue during the same period, with fees declining by 23%. Economic uncertainties and regulatory changes contributed to lower lending activity and decreased revenues in the region.
  • APAC (Asia-Pacific): In contrast, APAC saw an 8% increase in equity lending revenue, supported by a 13% rise in fees. This growth was driven by robust demand in key markets such as China and Japan, where institutional investors sought to capitalize on market opportunities despite global economic uncertainties.

Fixed Income Sector Performance:

The fixed income segment of securities lending also faced challenges in Q2 2024:

  • Global Fixed Income: Overall fixed income revenue declined by 11% year-over-year. While revenue from government securities remained relatively stable, corporate debt revenue plummeted by 32%. This decline marks a reversal of the trend observed in corporate bonds during the bullish market conditions of 2022 and 2023.

Monthly Performance Insights:

In June 2024, the global securities finance industry generated $790 million in revenue, indicating an 11% decrease from the $888 million reported in June 2023. Broker-to-broker activity contributed an additional $207 million in revenue during June, also reflecting an 11% decline year-over-year.

Top Revenue Generators:

During June 2024, the top revenue-generating securities included Lucid Group (LCID US), Trump Media & Technology Group (DJT US), Canopy Growth Corporation NPV (CGC US & WEED CN), Beyond Meat Inc. (BYND US), and ImmunityBio Inc. (IBRX US). These entities collectively contributed $56 million in revenue, highlighting their significant role in the securities lending market despite overall revenue declines.

Market Implications and Outlook:

The second quarter of 2024 presented considerable challenges for the securities finance industry, influenced by global economic uncertainties, regulatory changes, and shifting market dynamics. The decline in both quarterly and monthly revenues underscores the impact of these factors on securities lending activities worldwide.

Looking ahead, market participants will closely monitor economic indicators and regulatory developments that could affect securities lending volumes and profitability. Institutional investors will continue to navigate market conditions, adjusting their strategies to optimize returns and manage risks in an evolving financial landscape.

In conclusion, while Q2 2024 witnessed a downturn in securities lending revenue, opportunities for growth and adaptation remain as market participants strive to capitalize on emerging trends and regulatory changes shaping the future of the securities finance industry.

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