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Securities Lending Market Report | June 2021

>>> Asia Pacific continued >>> US

Turning to Japan, corporates have been resilient in their annualised to 16% annualised following a change to Fig 6 - IHS Markit
ability to pay dividends and street demand remained strong the country’s money lending laws. Thailand’s pandemic
in March. Seasonality aside, borrow has been generally lockdowns have affected tourism and the local economy North American Securities Lending Equity Market
subdued with limited specials and GC pricing remains significantly, driving further interest in borrow demand
low due to an abundance of available liquidity. Interest to across a multitude of sectors. 16.00 0.70
provide Japanese yen (JPY) cash collateral has softened Malaysia, Singapore and Australia remained somewhat 14.00 0.60
as cross-currency basis spreads thinned and Japanese subdued with no standout events during the first half of 12.00
government bond (JGB) collateral offered lower spreads the year. 10.00 0.50
throughout the first half of the year. Total Lendable Assets (Trillions €) 8.00 0.40 On-Loan Balance (Trillions €)
Taiwan has been a standout performer so far in 2021, 6.00 0.30
with the shipping and semiconductor sectors particularly 4.00 0.20
in high demand. SBL fee lending caps reduced from 20% 2.00 0.10
0
0
Jan 2021 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021
Total Lendable Assets On-Loan Balance

New issues proved to be one of the main revenue AMC Entertainment (AMC) and Hertz (HTZZ) in huge
drivers during the first half of the year, either through numbers in a direct battle against the short sellers. As we
pre and post-merger special purpose acquisition vehicles now know, GME saw one of the largest short squeezes in
(SPACs), direct listings or traditional initial public offerings history and the margin calls that followed led to significant
(IPOs). Many generated significant lending revenues deleveraging. As funds moved into risk-off mode, record
and dominated the highest earner tables for the second long sales and short covering drove a reduction in loan
quarter. balances and compression of spreads in the specials space
as a whole.
As SPACs provide speculation on both the long and the
short side, demand from borrowers has been for lenders Although the lack of specials persisted until May, general
to provide liquidity for short sellers, as well as to provide collateral (GC) and warm demand remained buoyant
financing on the longs, either through traditional equity throughout the first half of the year, partly as a result of
indices or through bespoke risk-managed collateral buckets. borrowers having less inventory to internalise post the sell
offs.
Altimeter Growth Corp (AGC) and Churchill Capital IV
(CCIV) are two examples of SPACs in high demand that We finished the second quarter with a reminder of how the
are yet to complete mergers and are being targeted by the first quarter started, as retail forced another short squeeze,
shorts. this time in AMC, a top revenue generator as the price was
forced from USD 12 to USD 62 in a matter of days.
Another theme from the first half of the year was the
meteoric rise of the retail investor. Exchange traded fund (ETF) demand certainly increased
post the February volatility as borrowers turned to broader
Little did we know that the global monetary efforts over market hedging instruments in the equity space. Borrows
the past year (interest rate cuts, easing of policy and in SPDR SP500 (SPY) and iShares Emerging Markets (EEM)
stimulus payments) would create an opportunity for Main remained steady, most likely as a portfolio hedge. Whilst
Street to take on Wall Street as crowds of retail investors, relatively easy to source in the latter half of 2020, high
encouraged by Reddit and other social media boards, yield exposure returned with strong demand for both
armed themselves with Robinhood trading accounts and iShares iBoxx H/Y (HYG) and the SPDR Barclays H/Y (JNK)
purchased downtrodden names like Gamestop (GME),
as stability in overall supply proved to be volatile.