Rates volatility unlikely to dampen demand for securities lending
Securities lending enjoyed a good year in 2021 and, despite the prospect of rate hikes, corporate M&A activity offers cause for optimism for 2022.
The global securities lending industry generated $9.3 billion in revenue for lenders in 2021, an increase of more than 21% compared with the previous 12 months, according to DataLend.
Broker-to-broker activity – where broker-dealers lend and borrow securities from each other – generated an additional $2.8 billion.
It was a welcome result after a couple of years where revenues were negatively impacted by factors such as short-selling bans and the global pandemic.
The revenue performance reflects, among other things, the impact of retail participation during the last year. The meme stock craze together with the popularity of special purpose acquisition companies (Spacs) go some way towards explaining the numbers.
“More than 500 Spacs went through initial public offerings (IPOs) in 2021 compared to 247 in 2020,” points out Michael Saunders, head of agency lending, Americas, at BNP Paribas Securities Services.
“This year, the financial strength of corporate balance sheets will be a driver of M&A activity, leading to significant corporate action trading for many beneficial owners.”
Gino Timperio, global head of financing and collateral solutions for State Street, also points to the importance of corporate action deals in 2021.