Non-Conventional Equities and Fixed Income Bump Up Securities Lending Revenue

With the demand to borrow at a record low and still increasing U.S. securities inventories, the U.S. securities lending market managed to increase its lending revenue by 8.9% year-to-date, or just less than $1.85 billion, according to a research note released by Markit.
By Rob Daly(2147487629)
With the demand to borrow at a record low and still increasing U.S. securities inventories, the U.S. securities lending market managed to increase its lending revenue by 8.9% year-to-date, or just less than $1.85 billion, according to a research note released by Markit.

“This is roughly in line with the total seen in 2012,” says Simon Covlin, analyst at Markit and author of the note.

Since the beginning of the year, equities lending has contributed $151 million in revenue, which is approximately $90 million higher than the same period a year prior.

Covlin attributes much of the gain to the increased value of the loaned instruments, since metrics like demand to borrow are at all-time low levels. “The market is rising which is boosting the value of the loaned assets, which is helping to drive some of the incremental revenue,” he says.

Additionally, much of the growth has been in non-congenital securities like American Depository Receipts and exchange trade-funds , which witnessed a respective 37% and 47% growth in revenue compared to conventional equities, which saw a 3% jump in revenue.

Covlin finds the growth in conventional equities revenue encouraging since lenders can command much better fees than they did in the second half of 2013. “These resilient fees have been seen despite the fact that equity inventories have continued to climb to new heights,” he adds.

Fixed income, which did not experience the same slump in fees like equities did last year, saw a 12.6% increase in revenue since the beginning of the year.

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