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As we look at how markets have reacted to the pandemic, We have discussed previously how much of the data we
we have seen occasional but at times very notable use to compile this report, is value rather than volume
events or outcomes that have led to something of a re- based, making it inevitably subject to external market
evaluation of how we think about risk, and to an extent trends and changing valuations. Consequently, and
how markets behave. The eminent British Prime Minister, The eminent British Prime Exceptionally low or even negative although we do note an increase of some 14% over the
Benjamin Disraeli once said, “What we anticipate seldom Minister, Benjamin Disraeli interest rates also limited the period, this increase has to be viewed through the lens
occurs: but what we least expect generally happens.” His once said, “What we anticipate scope to effectively reinvest cash of a 21% increase in the S&P global index over the same
words resonate very loudly from history when we look collateral, thereby pushing lenders period. If these factors are considered, it is likely that
at what happened in November last year. Quant funds seldom occurs: but what we least securities being made available for lending remained
use powerful systems to analyse market data and find expect generally happens.” His away from cash collateral and broadly unchanged. This idea is supported by further
patterns or trends that may predict future prices. This words resonate very loudly from reducing lending volumes. anectodical feedback from our members that suggest that
long-short momentum (buying recent winners and selling history when we look at what this was the case.
recent losers) was a successful strategy throughout
2020. However, when on 9 November news broke that happened in November last year. From a trading perspective, after a falloff in on-loan
an effective vaccine for COVID had been approved, they balances during the summer months, balances broadly
experienced their worst day ever. Quant strategies rely increased into the year-end, closing the year at €2.4 trillion.
on using history as a reasonable indicator for the future. This meant that the Global Lending Aggregate showed a
Consequently, if something happens that is without slight increase from the €2.3 reported in June, returning to
precedent such as a vaccine in the middle of a pandemic, 2019 levels.
the models don’t quite work, leading to heavy losses. At
one level, this suggests that we should be mindful of how through into securities finance markets in the final six
events such as this can change the way we think about months. As the following chart from IHS Markit highlights, Fig 3: ISLA Global Securities Lending Aggregate Source: ISLA
market risk, but they also highlight how truly transparent there were some €24 trillion of securities being made
and effective they can be. available for securities lending by institutional investors at
31 December, a €3 trillion increase from the €21 trillion €2.5T
Not unexpectedly, many of the macro economic and reported six months earlier. This apparent increase must be
political themes that drove markets at a higher level, fed set against the context of wider market movements.

Fig 2: Global Securities Lending Market (Equities and Fixed Income) Source: IHS Markit €2T
€25T €2.5T

€1.5T
€24T €2.4T

Total Lendable Assets €23T €2.3T On-Loan Balance On-Loan Balance €1T

€2.2T
€22T
€0.5T
€21T €2.1T

€20T €2T €0
Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20
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