Securities Finance Market Review: 2022 in Review

Insight

EquiLend Trading Analysis: 2022 in Review

Mike Norwood

Jan 2023

Mike Norwood, Head of EquiLend Trading Solutions, reflects on securities finance trading activity across 2022 in this month’s Securities Lending Trading Analysis. 

Trading Analysis: 2022 in Review

December wrapped up what was a tough year for Wall Street with all three major US indices enduring their worst performance since 2008. Similar themes have endured in December to those of our October and November Market Commentaries. Global political uncertainty, war in the Ukraine & stubborn levels of inflation permeated the financial landscape. This has allowed many of the same securities lending themes we have highlighted in our DataLend & Trading market recaps to persist & drive activity on the NGT & ECS trading platforms.  

The playbook for central banks trying to control inflation has been to rely on rate hikes to create the conditions for economic demand to slow. Rate hikes & persistent inflation has fueled the reversals of any gains seen in Q3’s equity & bond markets. As expectations shift based on central bank forecasting of rates, labor market conditions & production constraints, the rotation in equity & fixed income markets has generated new short selling activity. These trends have been reflected in NGT’s securities finance data which remains elevated to 2021 trading activity levels in all regions & asset classes. 

Trading Activity Increased Overall for 2022

Analysis of the securities lending market’s trading via data from EquiLend’s NGT platform demonstrated continued, strength in December trading activity with 2,421,068 trades executed during the month (up 2% from November and 1% y/y) v $2.26T. In an opposing trend, volatility in the equity markets, measured by the CBOE Volatility Index (The VIX) dropped to their lowest levels of the year as leverage remained subdued and investors dialed back risk going into year end.  

Overall Q4 saw relatively muted demand relative to the rest of the year with overall trade counts down 4.6% from Q3 2022. This figure was still an increase vs Q4 2021 by 3%. The trade count for Q4 2022 represented a higher trade count than any quarter prior to 2022 in securities finance data collected by EquiLend.

Equity and Fixed Income Trading Analysis

December trade composition showed month over month gains in US and APAC equity activity as EMEA and Canada remained relatively flat. Continuing a year-long trend, year over year volume increases were driven primarily by continued interest in the fixed income space with daily average trade counts up 25% in the US, 7% in EMEA, and 80% in Canada as investment grade bonds outpaced high yield at a 5:1 ratio.

Securities Finance Trading Up 10% Year on Year

Overall, 2022 was an extremely active year for NGT with total trades up 10% compared to 2021 (+17% Fixed Income) as market volatility drove sec finance market volumes. 87% of trading days in the US witnessed intraday equity market index price swings of at least 1% which indicates lack of consensus in valuation and led to demand for borrowing. EquiLend saw double digit percentage increases in all 3 regions compared to 2021 that were largely on the back of increases in broker-to-broker trading (33%) and non-GC (General Collateral) (+38%). Non-GC increased activity is a focus for the industry at large as the resources to manage that portion of the trading book are heavily consumed. 2023 looks like more of the same as we continue to deal with geopolitical and macroeconomic uncertainty and await the actions of the central bankers. 

Follow securities finance trends, trading analysis and monthly market commentary with EquiLend’s Monthly Trading commentary across 2023.

Who We Are

EquiLend is a global financial technology firm offering trading, post-trade, market data, regulatory and clearing services for the securities finance, collateral and swaps industries. EquiLend has offices in New York, Toronto, London, Dublin, Hong Kong and Tokyo.