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Review of Securities Lending Revenues Q3 2021 - YouTube
Channel: Roy Zimmerhansl
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hello and welcome to securities learning
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saturday where each and every week i
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take you through an important topic
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related to the subject of securities
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lending my name's roy zimmer hansel i'm
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your host and today we're going to be
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talking about the third quarter and
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year-to-date revenues in the market give
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you a few observations and comments
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it'll be a quicker show possibly than
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normal but you never know until we get
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started so if securities hunting is
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something that you are interested in you
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are an institutional retail investor you
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borrow or lend or you're part of the
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ecosystem that's part of the business
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or if you're just interested in learning
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more about securities learning then this
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is the place for you let's get started
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[Music]
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i never go far without a slide deck
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and today is no different listen i'm
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always uh thankful for anyone that joins
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me and watches in so if you are watching
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drop a line in say who you are and where
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you are coming from and we're live
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on linkedin today tomorrow is sunday the
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14th of november it'll be available on
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youtube as part of the fundamentals of
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securities lending the series that i've
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been doing now this is week
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27.
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v fantastic to see you glad you could
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make it back i don't know if that's
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because of the time zones or what but
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whatever it is i'm thankful that you
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have joined me again this week so uh you
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win the prize if i ever start doing
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prizes i think you are going to be
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the one who gets gets the first prize or
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at least you'll be the first one to get
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to eight episodes with the next episode
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free we're gonna be talking about as i
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said the revenue and queue that's what
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we've been talking about over the past
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uh six months because we're a little bit
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over six months now and next week we're
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going to be doing a video on short
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selling so i have been asking over the
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last couple of episodes whether people
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wanted me to do a session on short
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selling i've had quite a lot of private
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messages with people saying yes please
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so i'm happy to do that as i said today
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we're going to talk about
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the revenue performance for this year
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we're going to talk a little bit about
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equities fixed income and the top
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contributors which i think might
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surprise a few people in terms of the
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impact
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that a handful of securities can have on
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the overall revenue picture and for
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those of you that aren't lending i think
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it'll be really interesting where you
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can say hey i don't have to have a full
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bro blown program to make quite a lot of
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money so
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let's just get started as always if you
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really like these videos please give us
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a thumbs up or a like where ever you're
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watching this
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live or on if you want to see every
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video that comes up
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please hit the subscribe button you'll
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be notified if you ring the bell you'll
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get a notification every time i post a
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new video
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i did two last week i am hoping
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that i'll be able to do that kind of
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mid-week session one of the things i'm
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interested in getting feedback on is
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every week for my private members club i
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do a little bit of a news story with
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sort of the five or six news items over
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the previous week and why i think they
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are important and relevant for
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securities lending i could turn that
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into a midweek video if you guys that
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might be interesting or helpful so let
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me know i'd be interested put something
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in the comments
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as to whether you think an update on
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related stories so sometimes it's about
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prime brokerage so last week it was
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about credit suisse exiting the business
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it's also about repo it's about all
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kinds of aspects of the business
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collateral what's happening with the
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markets themselves short selling
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all stories that i think tie into the
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business
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one way or another so put the comments
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in let me know if you think that's a
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good idea let me know if you think it's
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rubbish this is why i'm asking your
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opinion now the other thing about the
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subscriptions is we're trying to get to
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500 subscribers on the channel we're at
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337 today i think and the reason we want
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to get to 500 is if you get to 500
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youtube opens up the community tab and
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we can have a lot more dialogue i can
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share a lot more information we already
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do that in many different ways as i said
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for the membership club but i also run
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the linkedin group and we have our blog
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posts on our website so there's lots of
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different venues and i'd love the
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opportunity to share that with the wider
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community but you have to help me so if
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you like this please tell other people
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about it ask them to subscribe and if we
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can get to 500 then i think i can share
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even more information with the community
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let's go
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right
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2021 year to date there's a lot of green
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on this page
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that's a good thing the source for much
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of the material from this session is
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from dataland so you can just go to
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dataland.com and you'll find it there
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what i've just pulled out is
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the total lender revenue so far so this
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is where
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institutional investors retail investors
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they lend their securities to typically
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brokers and banks and securities firms
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so that sort of end user on the
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investing side to the end user on the
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borrowing side that's actually hit 2.3
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billion year to date that's for the
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quarter sorry and that is up 33
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um year on year so that's actually a
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pretty darn good figure going up by a
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third what what's gone into that a
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number of things not least of which was
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the elimination of the korean short
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selling ban which stopped a lot of asian
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revenue and you'll see that come out in
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the figure if we just look at the month
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of
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october so
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this on the left that's end of third
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quarter so that's end of september is
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that 33
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trend continuing yes the answer is
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obviously not only is it continuing at
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33
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it even notched up an extra percent so
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in october there was another 821 million
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made that month so
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all looking quite good so how did we get
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there let's talk a little bit about the
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a couple of the key drivers here one is
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uh the increase in fees for asian
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equities which has gone up by 27 basis
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points to 105 basis points per annum
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that's over 25 percent rise that's
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pretty impressive again part of that is
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korea but korea is not the only story
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and i'll show you some information in a
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minute on that a couple of quick graphs
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so that's part of the story the other
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part of the story is an increase in on
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loan value for north america so part of
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that remember since
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the loan value is tied to the value of
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securities the reality is when you have
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a market rise the value of securities
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loans goes up so let me give you an
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example if you have a hundred dollars on
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loan and the stock market goes up five
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percent
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now that same
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stock is worth 105 dollars so some of it
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is market value itself
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some of it is increases so we've seen
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we've seen huge rises in a number of
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stocks we've seen some new activity the
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ipos continue to do well specs have come
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off a little bit but the reality is the
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markets is plowing ahead exchange-traded
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products again really super much in
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demand so north america increases as it
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says here 23
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year-over-year so there's no
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short-selling bans in the u.s this is
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just incremental volume and value on
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load so just that no matter what's
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happening with the levels or the fees
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that will increase the returns for the
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entire market so pretty powerful figures
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2.3 billion for q3 another 800 million
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in october this is shaping up to be a
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great year
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and i showed
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i told you i'd just show you some kind
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of indicative charts here so the source
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for these charts is ihs market as it
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says up there and these are some charts
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where they show where they give
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indications that kind of an index level
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as to
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what's happening with the return of
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portfolios on loan so this is as they
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say the securities lending return to
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lendable don't worry about the
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differences between low mid and high but
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you can see suddenly with all of these
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trends you can see that's a rising trend
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now
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i i hate charts that have big outliers
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like that so of course it's important to
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know but when you get one outlier there
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or two in this case it kind of distorts
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the output from the rest and as you can
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see though if you just look at this
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orange line it's gone from about three
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basis points on the portfolio to
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probably over six so really a really
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powerful move there and then again the
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same in
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japan so they do asia x japan
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and then they have japan as a separate
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chart and again you can see a generally
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rising trend here so that really bears
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out what we saw in the last slide where
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it said that asian returns were really
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an important driver that's confirmation
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of that if we go from equities into
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fixed income government bonds and
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corporate bonds um yeah like really
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incredible quarter and year to date so
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as you can see government bonds the
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revenue was up for october
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31
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year on year
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and the balance is up 21 actually let me
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talk about corporate bonds so saying
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that corporate bonds look at that 81
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increase in return
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year on year for corporate bonds and the
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balances went up almost by 50
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so why is all of this happening first of
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all for government again
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if you've been watching any of the
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series or if you haven't been watching
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this series i'll put a link in for the
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collateral
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sessions as to what the drivers are
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maybe on the trading ones as well the
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reality is quite a lot of government
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bond borrowing over the past several
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years has been to obtain collateral to
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use
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as
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valuable commodities in
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central counterparty clearing other
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bilateral obligations like repo trading
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or other exposures that you might have
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primarily that other exposure the big
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boost last month was the implementation
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in september of another phase of umr the
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uncleared margin regulations which
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require
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uncleared derivatives so your bilateral
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derivative exposures to be
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collateralized with your counterparties
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now everybody that's a collateral taker
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wants to have the best collateral so of
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course they want government bonds and
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that's been a big driver of it okay so
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part of the government bond story
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is is from the demand for borrowing to
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use as collateral the other reason why
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you might borrow a government bond is
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just to have them sit on your balance
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sheet for
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liquidity coverage purposes so the one
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of the big regulations that came out
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after the global financial crisis was
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the need for banks to be able to
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demonstrate to their regulators that
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they can operate
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for 30 days or one month without needing
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external funding how do they do that
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some of it is internal cash flows that
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if they have the cash to do that's great
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but also a big part of that is they hold
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government bonds on their balance sheet
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which the central banks and the
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regulators will take as equivalent to
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cash because they know they can always
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finance that at the central bank so if
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the world dries up they have good
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collateral the bank will take central
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bank and give them cash so it proves
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that so sometimes for uses collateral
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externally sometimes to hold in reserve
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to prove the liquidity purposes so
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that's been a part of the story but one
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of the things that's common with both of
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them we start seeing discussions about
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tapering finishing
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we see moves so there was an expectation
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that the uk government was going to
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increase interest rates now that didn't
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happen but you could see that there's a
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powerful movement there and everyone was
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watching to see what's happening so i
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think what you start seeing is more
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expectation of increasing rates and when
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you have increasing rates that to me
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that's a game changer for securities
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ending so game changer partly because
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you start to get more demand on the
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fixed income side so that will change
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skus because people will start going
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back to trading the bonds themselves and
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i think that's been a big part of
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corporate bonds where people are saying
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if companies have higher financing costs
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going forward what will that actually
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mean to the companies themselves
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but part of it is differences in foreign
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exchange expectations which are also
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inextricably linked to to interest rates
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okay so look there and any more
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discussion or uncertainty or or
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certainty of views going forward where
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you'll see differentials in interest
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rates i think those will drive
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more bond borrowing activity but also
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from an equity perspective
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where you see cash collateral maybe at
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about 40 percent of the marketplace
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today
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when those interest rates start
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generating higher returns for investors
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in the money markets that will make
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agent lenders and their clients a little
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bit more interested in taking a little
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bit more cash collateral because they
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can generate incremental returns so as
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we start to see interest rates rise
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don't be surprised if you see a little
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bit of a shift moving from non-cash to
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cash now it won't
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fundamentally change it but you will
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start to see a rise
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it also means that if we get anywhere
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near to the interest rates of the old
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days over the next couple of years
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we'll actually see people trading maybe
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even on a positive basis in order to
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generate securities lending related cash
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rebate returns that are much more
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attractive than they are today so
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interest rates are a game changer we can
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already see it having an effect in
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october i would expect to see that
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happening in november year end you can
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never tell it's a crazy time year ends
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but certainly i'd expect another good
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month in november
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okay so a very quick comment again from
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dataland today one of the things that
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they produce is top five contributors so
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these are the securities that generated
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the most income in that month from
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securities lending and look at that
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those five stocks
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generated 105 million dollars of revenue
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from the total market of 820 million
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like that's an incredible figure and it
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is that kind of distorted scale that you
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would expect to see so this doesn't
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surprise me but i think it surprises a
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lot of people that we did a video
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and a blog post last year where we
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talked about one year where citibank
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just citibank shares
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generated about 10
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of the total marketplace i think i can't
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remember it was 2010 maybe 2011.
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um
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just lending citibank shares for about
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eight months of the year generated 10 of
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the total market income so this kind of
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outsized contribution from a small
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number of securities is a real thing
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it's also one of the things that i think
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drives retail uh investors and their
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increased participants if you look at
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the retail brokers that have fully paid
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share lending programs or where they
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have some kind of uh subsidy for clients
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in terms of free dealing look these are
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the sorts of stocks that make a massive
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difference to those customers and you'll
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see that in the figures from
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uh those brokers that do fully paid
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lending some pretty hefty returns over
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the past year
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this is where because
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many of them big index names but those
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aren't the names that generate a lot of
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revenue they might have high balances
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high amounts on loan but since they're
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so widely available
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the fee levels are very low so the
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amount of absolute return that they
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generate is relatively small given their
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size
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these stocks
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make all the difference so if you're not
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lending
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you maybe you should think about it if
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you're holding any of these stocks but
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just be aware obviously there's risk
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with anything talk to a professional
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before you do anything but there is some
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big money to be made
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okay i really wanted to actually pull
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that out for you so you can see just how
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impactful a small number of securities
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can be
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okay i'll say for i think the third week
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in a row i'm still recording this course
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i'm pretty confident i'll have it done
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this week we also have our free primer
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and the big daddy introduction to
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securities lending course so head over
[1010]
to our website www.peer.info
[1014]
and look at courses and maybe you
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will be one of our next students i'd
[1019]
love to have you join me there's also
[1020]
options there for a one-on-one coaching
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which i'm always happy to share my time
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with anyone that's as interested in
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securities lending as me or wants to be
[1030]
okay
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let's just do a quick summary i told you
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today would be shorter than normal 2021
[1035]
revenues equities up so we see both
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balances and fee levels in general
[1042]
rising
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we see fixed income up with as i said to
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me i expect a positive outlook and even
[1049]
more activity than normal because look
[1052]
at the end of the day over the last
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decade fixed income has only been
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valuable for
[1057]
collateral purposes now we're starting
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to see uh real revenues starting to make
[1062]
a good contribution again
[1064]
and then find that slide where we showed
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the top contributors really dominating
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the income generation picture again
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that's always the case
[1073]
now it may not always be of the
[1076]
returns it is around that figure pretty
[1079]
much most of the time so if you're not
[1081]
doing it think about doing it
[1084]
okay next week as i said we're going to
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be doing short selling if you have
[1089]
questions beforehand that you want to
[1090]
see me answer again please drop them in
[1092]
the notes in the comments below and i
[1095]
look forward to seeing you next week
[1097]
i've given you back some saturday time
[1099]
if you see me every week you know it
[1101]
usually goes on about another 20 minutes
[1103]
you now have 20 minutes free enjoy your
[1105]
saturday enjoy your weekend enjoy your
[1108]
week
[1109]
and i'll see you next weekend thanks
[1112]
and see you later
[1115]
[Music]
[1131]
you
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