EquiLend
Securities Finance
Q1 Lookback

Reflecting back on an eventful start to 2022, it is difficult to avoid starting with the unprecedented display of aggression by Russia in starting a wholesale invasion of the Ukraine. Our thoughts and sympathies are with the Ukrainian population. The economic impact of this action poured fuel on the fires of an already superheated global inflationary story. With US inflation figures already at 5-6% growth pre-invasion, increasing disruption led to rising fuel and food prices globally. Inflation became the major story here as it reached 8% year over year to register a new 40 year high. Major US indices all saw Q1 declines for the first time since 2020 with the S&P 500 reaching double digit percentage drop prior to rebounding a bit in the last half of March. 

Interest rate hikes by the Fed and Bank of England coupled with bond purchase tapering by central banks, such as the ECB, created excessive rate volatility. Bond yields continue to widen out universally as growth concerns hit all regions of the world. Equity prices will need to keep up with bond yields in order to remain attractive to investors. 

The macro climate and resulting volatility resulted in robust activity in the securities lending space. Across EquiLend’s NGT platform, we saw a record quarter in terms of volumes and notional amount traded across the platform (7.48m trades v $8.3T) representing 16% growth compared to Q1 2021. We witnessed an all-time daily high in notional value on March 22 ($180b) and observed double digit increases across the board. EMEA was a stand out with 27% growth over 2021, likely due to CSDR efficient settlement practices going into effect as we also saw significant increases in use of our PTS Returns product. Other highlights included growth in the non GC space and in the broker to broker space of 43% and 68% respectively. 

Across our ECS Loan Market product we saw a shift out of the SPAC names as many traded down below strike price while there was renewed focus on many of the themes that carried throughout the last two years with Stocktwits and other retail tracking sites helping promote borrow demand. ETFs continue to be in focus as fixed income ETFs for investment grade, and high yield were heavily trafficked. Index ETFs used for hedging by large asset managers saw high demand as well (IWM, QQQ, SPY, LQD, VXX, and JNK/HYG). Russian ADRs were in focus early on but removed as viable short options due to regulatory sanctions. Collateral funding saw reductions in notional size as clients reduced leverage and therefore their need for funding. Quarter end saw a flurry of activity as clients made adjustments to their allocations of on balance sheet vs off balance sheet positioning. 

Given that the current climate shows no signs of abatement, it is likely that Q2 will continue to see volatility and related strength in the Securities Finance industry. We anticipate continued growth across our electronic trading platforms and should see volumes continue to increase.