How data is changing 

The 2023 EU Beneficial Owners’ Roundtable was moderated by Andy Dyson, the Chief Executive of ISLA with EquiLend as the lead sponsor. The roundtable was held in late March with a panel of industry experts discussing topics from the data, ESG, collateral and the change from 2022 to 2023.

A portion of the 2023 EU Beneficial Owners Roundtable is available in the video above. See below for a transcript of the highlights. 

Dimitri Arlando, Head of EquiLend Data and Analytics EMEA & APAC: A look back in history shows us that during extreme macro-economic turmoil, the resulting volatility usually means it’s good for security lending in terms of revenue generation, and 2022 has been no different really.

We’ve been collecting data since 2013. We all know that 2008 was a record in terms of revenue generated for the industry. 2022 came in at $9.89 billion revenue generated for security lending participants, slightly shy of DataLend’s 2018 high of $9.96 billion. 2022 revenue was 7% higher than 2021 and 30% higher than 2020.

We had a lot of aggressive rate hikes in 2022. The war in Ukraine, and the resulting energy crisis, high inflation, and more recently, the regional bank issues in the US and Credit Suisse, here in EMEA as well.

Focusing on EMEA, 2022 revenue came in at $2.18 billion broken out as $1.4 billion for equities and $800 million for fixed income. As you can see, the fixed income market performed exceptionally well in 2022 with a 25% increase over 2021.

$700 million of revenue was generated from corporate bonds globally in 2022 and $250 million of that came from EMEA. The driver behind the strong performance was on the balance and the fee side with both increasing significantly in the year.

US equities contributed the most to revenue overall led by electric vehicle companies and meme stocks. EMEA and APAC didn’t perform as well, and revenue was actually down for both regions compared to 2021.

For EMEA, Equity revenue is dominated by German and French names as you can see, and in Asia, Korean names dominated the top three. However, Korea was actually the fourth best performing market after Taiwan, Japan and Hong Kong. The top four markets in Asia actually accounted for 85% of the revenue.

In lendable terms this number averaged $26 trillion for 2022 but fluctuates between $26 and $30 trillion across the year. Collective Investment Schemes dominate the lendable inventory with 53% of that the total, however, when it comes to on loan, pension funds and government entities have more out on loan, and you’d expect that because collective investment vehicles have very strict guidelines on what they can or can’t do, and that’s not the same for pension plans and government entities.

Andy Dyson, Chief Executive Officer, ISLA: Cassie, when you talk to your clients, is what we see there in the data recognisable in their experience in terms of your programs?

Cassie Jones, Managing Director, EMEA Head of Financing Solutions Client Management, State Street: I think in particular, the fixed income trades are definitely re-emerging off the back of the crises that we’ve been seeing in the markets, and it’s worth just spending a few moments on what’s happening in the markets as well.

Of course, this market environment produces volatility, and in turn is generally good for securities lending revenue for the beneficial owners, but you have to also be thinking about the risk that you’re taking in these programs, and of course, your agent lender should be taking care of this on your behalf.

Andy Dyson: Ernst, what are your thoughts on what you see there in terms of market footprint when it comes to performance and where performance is coming from?

Ernst Dolce, CEO & Co-Founder, Biben Capital Markets: What we observed is that the trend in corporate bonds will continue. I remember noticing this trend eighteen months ago, even though corporate bonds are not currently dominating performance; equities still account for 60% of total revenue.

Despite the shift in results for securities lending, the market utilisation rate of total lendable assets. The utilisation rate has not increased meaning that the market participants managed to generate more revenue from their assets on loan.

Andrew Geggus, Global Head of Agency Lending, BNP Paribas: I would refer to the fixed income businesses as rockstars and I don’t think that’s ever happened before, but that is definitely a trend that I think we’ve seen for the last 18 months and that we see carrying on as well.

You need to make sure your clients are comfortable with their risk parameters and the whole point of having strong risk parameters in place is that during times of volatility it’s there to protect you. I do think we will see some clients maybe start to review their risk parameters on the reverse side, so maybe pulling back a little bit – which is not what we want, we want to push so we can optimise revenues.

Andy Dyson: Maurice, where do you see the performance in the markets in terms of what we’re seeing there?

Maurice Leo, Client Solutions, Agency Securities Lending, Deutsche Bank: The headline numbers I agree with in terms of growth overall at an industry level. I think there’s certain clients that have benefited much more and part of that is also the story Dimitri mentioned around concentration, particularly to take US equity revenues in the top 10 names, it’s typically about 50% of total revenues year to date.

Andy Dyson: Is that latitude more to do with the credit they’ll take, the duration their take on the reinvest, what is it that they’re buying that gives them that yield?

Maurice Leo: Yeah, I don’t think it’s always actually buying. I think it can be through reverse repo, which is a different risk construct and one that a lot of them like.

The government, sovereign entities that lend, the pension funds that can lend, can typically do duration, they can do collateral transformation. All the things that UCITS and mutual funds struggle with, because of the regulatory perimeter they have to work within. And that’s for understood reasons but I think that’s why our business is increasingly segmented, and clients are not in a homogenous offering anymore. I think regulation is probably the primary driver but its own their own risk profile as well.

Stephen Kiely, Head of the BNY Mellon Securities Finance Client Relationship Management and Business Development Teams in EMEA: One thing I’ll just say on the performance aspects is that, we’ve seen momentum, we’ve seen many of the trends that have already been discussed by Cassie, Andrew, etc and trends in asset classes, but what we’re also seeing is it’s not just about the revenue.

We saw in September last year during the volatility caused by the mini budget action when there was a lot of volatility, and we’ve seen it again now with SVB and with Credit Suisse, etc., that clients are looking to us to help them with liquidity management, not just increase revenue, especially in September last year. Requests such as, “Can you help us transform collateral? Can you help us raise cash? Can you help us deploy cash? So we’re seeing that as a trend. It’s a driver of volume and the entry of some new participants into the program. It’s not just about the revenue.