COVID-19 and short selling bans lead to new low for global securities finance revenues

The massive fall in revenues was largely caused by lower market valuations and short-selling bans enacted worldwide by regulators. 

By Joe Parsons

Revenues from repo and securities lending have generated some of their lowest level of returns in the postfinancial crisis period during the first half of 2020, according to research from DataLend 

Global securities finance trading brought $3.89 billion in revenue for lenders in the first six months of 2020, a decrease of nearly 14% in comparison to the same period last year.  

The massive fall in revenues was largely caused by lower market valuations and short-selling bans enacted worldwide by regulators to curb volatility caused by the COVID-19 pandemic. 

According to DataLend, the market data affiliate of EquiLend, the decline in revenue was experienced across both the equity and fixed income markets, as well as regionally across EMEA, which was down 33%, and APAC which fell by a quarter.  

Conversely, the only region to buck the trend was the Americas, where there was no short selling bans, as revenue increased 5.6%. 
In the Americas, while equity loan values declined 14% yearoveryear, average fees increased by 22% driven by a number of special names, including four of the top-five revenue-generating securities and a number of COVID-related specials,” said Nancy Allen, global product ownerDataLend. 

“Meanwhile, in EMEA, fees to borrow EMEA equities in mid-March averaged 43.67 bps, the lowest value at any point in the last three years, following large selloffs in the global equity markets coupled with short-selling bans.”  

Allen notes that as bans have been lifted and equity markets have started to rebound, demand for European equities has returned. Fees to borrow EMEA equities have also steadily increased, with a dramatic climb throughout May and into June, resulting in an average fee of 76.42 bps for the first half of the year.

Securities lending revenue is calculated as the amount paid by borrowers, typically broker-dealers on behalf of their hedge fund clients, to temporarily borrow equity and fixed income securities from long-holders of these assets, known as beneficial owners.