Securities Lending Market Update

Transcription

1 The Science of Finance Securities Lending Market Update Sam Pierson \ Toronto \ 3 June 2015

2 Discussion topics Global sec lending snapshot and trends Canada sec lending snapshot and trends Canada equity specials analysis Canada demand drivers \ 3

3 2014 average inventory and revenue - global 2014 Avg Lendable Value Value On Loan Total Daily Revenue SL Daily Revenue Reinvestment Daily Revenue SL Return to Lendable Total Return To Lendable Avg Fee Equities 9.9T 590B 16M 89% 11% 5.3 bps 5.9 bps 87 bps Government Bonds 2.4T 782B 3.8M 42% 58% 2.4 bps 5.8 bps 7 bps Corp Bonds 2.6T 158B 1.3M 70% 30% 1.3 bps 1.9 bps 21 bps All values in USD \ 4

4 Global average daily revenue $USD millions Global Equities Global Govt Global Corp Q \ 5

5 Global average return to lendable Global Equities Global Govt Global Corp Basis points Q \ 6

6 Long/short ratio global equities Long-Short Ratio $10 trillion $798 billion 0.0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan $USD trillions Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio Post-crash: Supply continues to outstrip demand Since January 1st 2014: Supply up 6%; demand up 15% \ 7

7 Global equity VWAF 2.50% 2.00% 1.50% 1.00% Fees by region USA Equity Canada Equity Asian Equities European Equities 0.50% 0.00% 02/01/ /01/ /01/ /01/ /01/ /01/ /01/2015 Average fees highest in Asia Downtrend in average fee in CA (down 57% since start of 2014) \ 8

8 Long/short ratio global corporates Long-Short Ratio $2.8 trillion $152 billion Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan $USD Trillions Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio Since January 1st 2014: Supply up 9%; demand down 9% \ 9

9 Long/short ratio global gov t bonds 5.0 Global gov t debt Long-Short Ratio $2.3 trillion $USD Trillions 1.0 $588 billion 0.0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio Since January 1st 2014: Supply up 1%; demand down 7% \ 10

10 2014 average inventory and revenue Canada 2014 Avg Lendable Value Value On Loan Total Daily Revenue SL Daily Revenue Reinvestment Daily Revenue SL Return to Lendable Total Return To Lendable Avg Fee Canada Equity 461M 50M 768K 97% 3% 5.8 bps 6.0 bps 52 bps Canada Govt Bond 296M 68M 235K 82% 18% 2.3 bps 2.8 bps 10 bps CAD Corp Bond 255M 12M 46K 53% 47% 0.4 bps 0.65 bps 7 bps All values in USD \ 11

11 Canada average daily revenue $1,000,000 $900,000 $800,000 CA Equities CA Govt CA Corp $700,000 $USD $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Q Equities continue declining revenue in Q Gov t and corp bonds have increased in revenue in each of the last three years and are on pace to continue trend in 2015 \ 12

12 Canada return to lendable CA Equities CA Govt CA Corp 6 Basis Points Q \ 13

13 Long/short ratio Canada gov t debt Long-Short Ratio $263 billion $USD Billions $70 billion 0.0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio From : Supply up 54%; demand up 25% Since January 1st 2014: Supply down 4%; demand down 7% \ 14

14 Long/short ratio Canada corp bonds Long-Short Ratio $250 billion $USD Billions 5 $13 billion 50 0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 - Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio Since January 1st 2014: Supply up 6%; demand +8% \ 15

15 Long/short ratio Canada equities Long-Short Ratio $410 billion $53 billion $USD Billions 0.0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 0 Institutional Long Value (Inventory) Short Sale Value (Loans) Long Short Ratio Since January 1st 2014: Supply down 7%; demand down 11% \ 16

16 Highest revenue CA equities Name 2014 rev est Avg fee Avg utilization Avg value on loan Westport Innovations Inc $3,072, % 34.1 $501,078,048 Bank Of Nova Scotia $2,740, % 8.9 $3,585,294,592 Loblaw Companies Ltd $2,470, % 9.2 $3,779,753,216 Enbridge Inc $2,370, % 9.3 $2,764,058,112 Bank Of Montreal $1,694, % 9.9 $2,358,365,696 Crescent Point Energy Corp $1,621, % 14.5 $2,673,905,408 Cominar Real Estate Investmnt Tr Unt $1,505, % 17.2 $2,628,664,064 Potash Corporation Of Saskatchewan Inc $1,428, % 12.9 $1,860,176,384 Manulife Financial Corp $1,291, % 32.5 $1,279,239,808 Toronto-Dominion Bank $1,274, % 13.1 $1,652,566,528 \ 17

17 Canada equity beneficial owner breakdown Lendable value Mutual Fund Value on loan Mutual Fund Pension Fund Pension Fund Insurance Company Insurance Company Quasi-Governmental Body Public Pension Plan Quasi-Governmental Body UCIT SICAV Bank Public Pension Plan Erisa Fund Corporate UCIT SICAV Erisa Fund Other Other \ 18

18 Canada equity - Cash vs Non-cash $USD Billions Any Cash Non-Cash 10-02/01/ /01/ /01/ /01/ /01/ /01/ /01/2015 Decline in cash collateral in Canadian equity lending \ 19

19 US equity - Cash vs Non-cash $USD Billions Any Cash Non-Cash 50-02/01/ /01/ /01/ /01/ /01/ /01/ /01/2015 Increase in non-cash collateral in US equity lending \ 20

20 Canada equity specials Warm Special Warm: 50bps < Fee < 500bps; Special: Fee > 500bps Only names with greater than $1m USD on loan Increase in warm stocks over last three years; fewer deep specials vs peak in early 2014 \ 21

21 Canada equity specials > 500bps bps bps Billions (USD) \ 22

22 Canada equity specials Billions (USD) Other Health Care Equipment & Services Retailing Transportation Real Estate Capital Goods Consumer Services Utilities Materials Energy \ 23

23 Transaction detail - WPT WPT transactions (as of February 20th 2015) Transaction Fee 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Size = Value of Transaction \ 24

24 North America equity returns vs Lendable/loan balances 120% 100% 80% 60% 40% 20% 64% 84% 54% 44% 24% 113% 98% 83% 0% CA US Value on Loan Lendable Value ETF VWAF 40% 20% 17% 11% 12% 31% 0% -20% -11% -7% -7% -40% -60% -80% -58% CA 14-Q US 14- Q \ 25

25 Canada 2014 worst performing equities Name 2014 price change Avg value on loan Avg fee Avg utilization Industry group Replicel Life Sciences Inc -95% $1,904 9% 97% Pharmaceuticals, Biotechnology & Life Sciences Mbac Fertilizer Corp -94% $844,758 4% 86% Materials Gasfrac Energy Services Inc -92% $454,220 16% 55% Energy Iona Energy Inc -91% $2,483 1% 48% Energy Argent Energy Unt -90% $8,720,927 1% 44% Energy Niko Resources Ltd -90% $6,876,348 9% 59% Energy Belo Sun Mining Corp -84% $244,086 4% 0% Materials Spyglass Resources Corp -82% $16,854,618 2% 30% Energy Datawind Inc -82% $1,045,585 5% 26% Software & Services Parallel Energy Unt -81% $11,919,825 1% 68% Energy Prd Energy Inc -80% $16,301 6% 0% Energy Lightstream Resources Ltd -80% $96,251,048 0% 10% Energy North American Palladium Ltd -80% $3,529,451 4% 50% Materials Westport Innovations Inc -79% $59,942,188 8% 96% Capital Goods Terrace Energy Corp -79% $116,707 5% 3% Energy Banro Corp -78% $5,568,463 4% 50% Materials Strategic Oil And Gas Ltd -77% $1,547,463 3% 88% Energy Alderon Iron Ore Corp -77% $305,835 9% 100% Materials Tag Oil Ltd -77% $6,158,977 3% 45% Energy Shamaran Petroleum Corp -76% $101,482 4% 62% Energy \ 26

26 North America energy sector detail 3.5 $ $50 Shares (Billions) $40 $30 $20 $USD Billions 0.5 $ $- Quantity On Loan Value On Loan \ 27

27 North America energy sector detail 3.5 $ $ $80 Shares (Billion) $60 $40 $ USD 0.5 $ $0 Quantity On Loan XLE \ 28

28 Demand drivers Hedge fund assets IPO issuance Convertible issuance M&A activity \ 29

29 Demand driver global asset flows $USD Billions ETF Inflow Hedge Fund Inflow Source of Hedge Fund Data: BarclayHedge Source of ETF data: Markit \ 30

30 Canada IPO and convertible issuance 80 IPO deal count $6 IPO deal size $USD Trillions $5 $4 $3 $2 $ $ Source of data: PWC \ 31

31 Demand driver IPO issuance 30 PSK loan balance and fee 1.2% Shares (MM) % 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% VWAF % Quantity on Loan VWAF Even at peaks, utilization of supply never exceeded 50% \ 32

32 Demand driver IPO issuance Shares (MM) VII loan balance and fee 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% VWAF % Quantity on Loan VWAF Fees flat to down despite increasing demand \ 33

33 Demand driver - Canada convertible issuance $2.5 Canada convertible debt issuance $USD Billions $2.0 $1.5 $1.0 $0.5 $ Source of data: Infomart \ 34

34 Demand drivers Hedge fund assets IPO issuance Convertible issuance M&A activity \ 35

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