Securities Finance Q3 2023 Snapshot

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Securities lending revenues start to trend lower, generating $3.131B during Q3 2023

• Quarterly revenues start to trend lower following recent highs
• US equity revenues fall as specials activity declines
• Asia equities make a comeback, posting a 20% YoY increase in revenues
• Lendable increases but balances decline throughout the quarter

In the securities finance markets, revenues of $3.131B were generated over the quarter, representing a 7% decrease YoY. Average fees increased by 1% YoY to 49bps and as equity markets continued to climb higher over the period, lendable values increased whilst balances declined, pushing utilization lower by 17% YoY to 5.8%.

In the equity markets, over the first two months of the quarter, Americas equities led the charge, as healthy specials revenues continued to help generate strong returns within a rising equity market. The advent of corporate activity with the consolidation of APE shares into the AMC line and the Kenvue (KVUE) spin off by Johnson and Johnson (JNJ) provided strong revenue opportunities for market participants. These two high revenue producing opportunities held revenues higher than otherwise may have been expected given the fall in balances.

APAC equities were the rising star throughout the quarter with growing momentum seen in the revenue numbers. After the 4% YoY increase in revenues seen during Q2, continued strong performance led to Q3 revenues increasing by 20% YoY to $605M. Strong performance was seen in Japan, South Korea, and Taiwan.

EMEA equities experienced a more difficult quarter as revenues declined by 25% YoY and balances declined by 27% YoY. Utilization declined 35% YoY to 4% as a result, marking a multi-quarter low. Quarterly revenue declines were seen across all of the major EMEA equity lending markets with only Denmark, Finland and the Netherlands seeing any revenue growth YoY.

Exchange traded funds continued to see a decline in both borrowing demand and revenues following a banner year during 2022. Revenues across the asset class declined by 26% YoY as demand for corporate bond ETFs declined.

In the fixed income markets, government bond balances declined 10% and revenues declined by 2%. Stronger fees (+9% YoY) have been keeping revenues higher throughout the year as an active specials market in short-dated bonds continues to push average fees higher.

In the corporate bond markets, revenues continued to grow, with the asset class posting an 11% increase YoY. Both balances and utilization did start to trend lower over the quarter, possibly pointing towards the end of a period of enhanced demand that the asset class has experienced throughout the rate rising cycle.

In summary, YTD revenues remain higher than at the same point during 2022, however, September saw a steep decline from some of the record highs seen during the months of Q1 and Q2. A fall in US specials activity and a pause in the stock market rally has made borrowers more cautious as growing uncertainty started to extend into the securities lending markets.

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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.