Global securities lending revenues for Q1 2019 came in at $2.4 billion, 10 percent lower than Q1 2018, according to Sam Pierson, director, securities finance, at IHS Markit.
In the IHS Markit Securities Lending Q1 Update, Pierson said that the good news is that the Q1 revenue also reflects a 3 percent sequential improvement compared with Q4 2018.
Pierson highlighted that last year delivered the most securities lending revenues since the financial crisis, which looks like a tough act to follow in the early going of 2019.
He cited: 鈥淭he last two quarters have been notable in that there hasn鈥檛 been the pickup in borrow demand which often accompanies periods of increased volatility.鈥�
In Q4 2015 to Q1 2016, US equities had the two best post-crisis revenue quarters amid the credit and equity sell-off as investors hedged and added to shorts, Pierson found.
It was noted that there was no such increase in Q4, though there is some cause for optimism with Q1 revenues at least mounting some growth while market values recover.
Elsewhere in the update, Pierson found that equity lenders have seen a lack of special balances, while there has been some marginal cooling in previously hot market segments.
This includes government bonds, corporate bonds, and Exchange Traded Funds (ETFs), Pierson explained.
According to Pierson, the revenues are within the range of the preceding four quarters, however, the breakdown of returns continues to evolve with the changing needs of market participants.
Pierson found that ETFs took a pause after an impressive period of increasing revenues, posting a 16 percent decline compared with Q1 2018.
Half of the decline was accounted for by a single credit ETF (HYG) as the result of declining fees in Q1.
Equity lending revenues came in at $1.9 billion, a decline of 7.5 percent compared with Q1 2018, Pierson revealed.
The bright spot continues to be Asia, the only region to improve on equity lending revenues year on year in Q1, Pierson affirmed in the update.
He remarked: 鈥淎sia equities also contributed to American depositary receipt revenues, which posted the most quarterly revenue on record at $128 million.鈥�
鈥淭hings were less upbeat in the West, with US and EU equity revenues both declining by more than 10 percent compared with Q1 2018. The blistering rally inexpensive to borrow equities in January has kept a lid on specials demand.鈥�
Meanwhile, lending of government bonds, particularly US Treasuries, has taken on an increased significance in recent years.
Pierson noted that the demand driver has largely been the collateral needs of broker-dealers in relation to regulatory requirements for holding high-quality liquid assets.
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