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In terms of overall profitability, the second half of the year always acknowledge that securities lending is seen as a
provided little solace for lenders. After the short selling discretionary activity that allows institutional investors
bans in Europe and Asia in the first half of the year that to generate incremental income as part of their overall
led to suppressed demand and wider fee compression, stewardship responsibilities. As such, it is important that
the second half of 2020 was typified by robust growth we as an association work with this community to better As Europe continues to develop its ambitious plans around
across equity markets which choked off demand from understand their concerns and try wherever possible to the Capital Markets Union, the provision of secondary
the hedge fund community. Exceptionally low or even provide help and guidance around important topics such market liquidity through the provision of securities lending
negative interest rates also limited the scope to effectively as Environmental Social and Governance (ESG), collateral participants will be a crucial factor in attracting retail
reinvest cash collateral, thereby pushing lenders away from screening, as well as developing our advocacy messaging to
cash collateral and reducing lending volumes. Recently support their objectives. As part of that process, we have investors, as Europe strives to reposition the way its thinks
published data by DataLend, specific to Lender to Broker for some time tracked the relationship between assets about the long-term financing of its capital markets.
activity, suggests that the securities finance industry being made available for lending by institutional investors,
generated $7.66 billion in revenues in 2020, compared to and what is being lent from the perspective of the various
$8.66 and $9.96 billion in 2019 and 2018 respectively. institutional investors participating across the industry.

As we have developed a better understanding of how The following two charts provided by DataLend highlight
our markets work and interact with the wider capital this dispersal, and give a clear indication as to how our
markets ecosystem, we are always aware of the pivotal industry is currently organised as well as the impact
role that institutional investors play in making their that regulation is having on both revenues and active
securities available for lending. It is important that we participation in these markets.

Previously, we have highlighted the disparity between Finally, December 31 saw the transition phase to allow the
9% securities being made available for lending by collective UK to leave the European Union come to end, with the UK
investment vehicles including UCITS, and on-loan balances
formally exiting the political and regulatory orbit that it has
(i.e. securities out on-loan). The picture as at the end of been a part of for over forty years. Our markets, together
22%
December was typical of the profile that we have observed with most other financial service companies were well
for several years now, with collective investment vehicles prepared ahead of the deadline. As we look forward into
representing some 49% of all securities that are being 2021 and beyond, it is likely that we will begin to see some
Fig 4: made available for lending, but only making up some 35% regulatory and policy divergence between the UK and the
Global Lendable Supply Value of on-loan balances. EU, although too early to see what that may look like. One
By Fund Type area that is already causing some debate is how UK-based
14% As Europe continues to develop its ambitious plans around investment firms will effectively service their European-
Source: DataLend 15%
the Capital Markets Union, the provision of secondary
based clients in the absence of any equivalence recognition
25%
market liquidity by securities lending participants will be from the EU for UK-based institutions. Current MiFID rules
% a crucial factor in attracting retail investors, as Europe prevent direct sales activities to clients from companies
49%
Fig 5: strives to reposition the way its thinks about the long-term outside of the EU 27. Whilst this may not directly impact
9
financing of its capital markets.
our markets, we could see some realignment of supply
Global Securities On-Loan and demand patterns for securities, as institutions have to
By Fund Type (Lender to Broker) Conversely, the role that Sovereign Wealth Funds potentially rethink their business models.
Source: DataLend (SWFs) play in our markets is now also well understood.
Where other groups have been constrained from However, and notwithstanding those challenges, it is
Pension Plans 35% 21% actively participating in securities lending either clear that much of the regulatory agenda in 2021 will be
Government/Sovereign Entities through convention or regulations, SWFs have stepped increasingly dominated by ESG and sustainable finance, as
Insurance Companies into markets, notably fixed income. Their sheer scale governments and politicians respond to the demands of
4%
Collective Investment Vehicle 29% and at times greater flexibility make them ideal their electorates to make climate change and the green
Others counterparts for borrowers. agenda a priority in a post-pandemic era.
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