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Global Equity

Markets in Focus

In the context of financial markets, the events of the As we look more broadly at how markets behaved
first part of 2020 have been without parallel. The term both here and in North America during this period,
‘unprecedented’ was used by many commentators, as the changes to the way banks are regulated since the
the single largest daily fall in equity markets since 1987 2007/8 crisis is probably a more material factor than
was reported on 12 March, and the UK FTSE fell some short selling bans.
33% between mid-February and the middle of March.
As markets and regulators responded to these almost Following the global financial crisis, banks have faced
unique set of challenges, we saw some predictable tools a regulatory environment that has been designed to
being deployed by the regulatory community, especially enhance their tier one capital base, and curtail large
here in Europe. Short selling bans were imposed across elements of their previous proprietary risk taking
a number of markets across Europe and beyond. activities by allocating increasingly high levels of risk
adjusted capital to these businesses. This has meant
The effectiveness of short selling bans has constantly that over time banks have effectively withdrawn
sparked considerable debate amongst the financial from these transactions. Where before trading
community, and the reaction to the recent bans in desks would have stepped in to act as some sort of
Europe was no different. There is much historical buffer to the extremes of markets movements, this
empirical evidence to suggest that bans of this type is no longer the case, leaving that role in part to the
have limited material benefit on the behavior of central banks to police.
markets during periods of stress. Anecdotal evidence
from recent events across Europe appears to underline Not unexpectedly, many of these themes played out
this view; those markets where bans were imposed did in our markets. The predominantly value-based data
not behave significantly different to those where bans outputs that we use began to show the impact of the
were not present. falling stock market values from late February.

Fig 17: Global Securities Lending Equity Market Source: IHS Markit

€20T €1.25T
Imposition of
Lockdown in Italy

Total Lendable Assets €15T €1T On-Loan Balance

€10T €0.75T
Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20

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