Insight
EquiLend Trading Records Signal Growth in Electronic Trading in Securities Lending
Mike Norwood,
Global Trading Product Owner
Jan 2022
2021 was one for the record books for EquiLend Trading. On the back of favorable market conditions that generated $9.28 billion for the securities lending industry (DataLend), we saw our highest-ever trading volumes in a number of categories over the course of the year and experienced double-digit percentage growth in volumes year over year in all regions, with the exception of Asia-Pacific (+7%):
- Highest Monthly Total Trade Volume (March 2021)
- Highest Single Day Fixed Income Volume (March 2, 2021)
- Highest Single Day Broker-to-Broker Trade Volume (December 13, 2021)
- Highest Non-GC Monthly Trade Volume (December 2021)
- Highest Annual Trade Volume and Notional Value (+12% over 2020)
Trading Trends 2021
While milestones are great to celebrate, the trends behind them are even more important. Across the board we saw continued, sustained growth quarter over quarter in these categories rather than just periodic spikes.
Trends in Market Trading in 2021
2021 was defined by the evolution of websites devoted to retail traders. Stocktwits, Reddit boards and other extensions of this phenomenon led to enormous valuation changes in heavily shorted names due to deliberate short squeezes. The majority of this activity did take place through traditional analog outlets; however, it certainly fueled meaningful revenue in a very strong year for securities lending with the top 25 meme stocks accounting for 4% of global securities lending revenue, according to DataLend data
While this phenomenon proved lucrative for retail-based lenders, it also spelled casualty for asset managers holding large short positions, including a large, sophisticated asset manager. The resultant short positions incurred material losses and drew increased regulatory scrutiny from the Securities & Exchange Commission (SEC) in short sale disclosure regulations. Swaps also managed to generate significant interest from the SEC after a large hedge fund collapsed. Large prime brokers were directly impacted, and SEC Chairman Gensler began the process of improving disclosure by firms’ exposures to total-return swaps (TRS) products.
Rising equity markets and increased volatility fueled greater activity across our full suite of trading products. The EquiLend Clearing Services Loan Market saw growth in client activity of 43% in 2021. Activity was spread across ETFs , high-rate GC and hard to borrows, with a concentration in meme and SPAC-related activity.
Swaptimization continued to see improving trends in client activity. EquiLend continued development in the product to support the anticipated Q1 2022 launch of our OTF-compliant offering to supplement the active US and MTF platforms.
Similar trends were seen in all venues with ETFs (up 30% on NGT) and high-rate GC driving spikes in volume. Specific to NGT, we saw increased interest in fixed income trading volumes with corporate debt the real stand out, as trade counts were up 30% compared to 2020.
Trending Upward Year on Year for EquiLend
Recognizing our record of success in prior years in terms of introducing automation to the GC space in the traditional lender to borrower flow, EquiLend dedicated technology resource to helping migrate non-GC and broker-to-broker activity into a more digital format. This effort yielded increases in in 2021.
The trend in non-GC trading execution over EquiLend’s flagship NGT platform was global. While some of the behavior was market driven with the number of unique securities trading at >50bps up 15% in 2021, per DataLend, NGT’s gains of over 40% signal both a more robust market for electronic trading as well as the composition of securities eligible for electronic trading shifting to incorporate more of our clients’ overall books.
The lender and broker community’s adoption of non-GC executions via a digital platform resulted in increased efficiency for market participants to focus on other high-value trading opportunities.
As a product, we welcome this diversification and will continue to invest in platform improvements to reflect trading behavior and encourage automation and straight-through processing across all trade types.
Strong Position, Positive Outlook
As 2021 closed out, the talk of Fed tightening has started to dominate the marketplace. Easy monetary policy is likely to halt, with the market signaling upwards of four rate hikes in the 2022 calendar year. Shorting becomes a different consideration when rates move, but we have an ambitious roadmap of new functionality planned and look forward to a strong year to come.
Who We Are
EquiLend is a global financial technology, data and analytics firm offering Trading, Post-Trade, Data & Analytics, RegTech and Securities Finance Platform Solutions for the securities finance industry. EquiLend has offices in New York, New Jersey, Boston, Toronto, London, Dublin, India, Hong Kong and Tokyo and is regulated in jurisdictions around the globe.
