The global securities finance industry generated $8.66 billion in revenue for lenders in 2019, according to market data provider DataLend.

While 2018 was a record amongst recent years for securities lending revenue, 2019 global revenue was down 13% in comparison. Securities lending revenue is calculated as the amount paid by borrowers, typically broker-dealers on behalf of their hedge fund clients, to temporarily borrow equity and fixed income securities from long-holders of these assets, known as beneficial owners. 

According to DataLend, the decline in revenue was experienced across all regions globally and in both the equity and fixed income markets. On-loan balances and fees to borrow also declined in all regions, with the exception of Asia-Pacific, which experienced a marginal increase in balance.

Nancy Allen, Global Product Owner of DataLend, says: “Global macro uncertainty, driven by trade wars, Brexit and central bank actions, resulted in a general lack of conviction by hedge funds and alternative investment managers in 2019. As uncertainty loomed, the securities lending markets experienced lower on-loan balances and fees globally. However, a significant amount of revenue was generated from lending a very concentrated number of securities. Beneficial owners lending those ‘hot’ securities likely will have experienced a more positive 2019.”

The securities finance market experienced a slight recovery in the 3rd and 4th quarters, specifically in the equity markets, where a handful of “specials”—also known as “hot” or “hard-to-borrow” securities that trade 500 basis points (bps) and above in the securities lending market—drove revenue higher. 

The top five revenue-generating securities in the global securities lending market in 2019 were Beyond Meat (BYND US), Aurora Cannabis (ACB CN), Canopy Growth (WEED CN), NIO (NIO US) and Casino Guichard-Perrachon (CO FP), which together generated $680 million in lending revenue in 2019