SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

OVERVIEW OF THE SECURITIES FINANCING MARKETS

The following sub-sections further analyse the market with a focus on North America, Eu- rope and Asia Pacific.

> North America

The US global lending market is a large mature market. Its liquidity, depth and breadth con- tribute to ensure an efficient market.

Although badly hit by a reduction in size and not as profitable as it had been before the crisis, the US equity lending market has remained so far the largest in the world, reaching USD344bn in terms of lendable assets in Q2 2010, that is to say 65% of global equity lend- ing. It comfortably exceeds the European equity lending market (USD111bn) and the Asian Pacific one (USD66bn). The treasuries/bonds US lending market is also very significant, with USD251bn in terms of lendable assets in Q2 2010, split into US treasuries/UST strips, US agencies, US mortgage backed securities and US corporate bonds.

1.4

Table 13 displays detailed figures of lendable assets and total on loan in the United States and in Canada, with the breakdown between treasuries/bonds and equities.

Figure 13: Lendable assets and total on loan, North America (Q2 2010)

Lendable assets (USDMM) Total on loan (USDMM) Total on loan (%)

North American treasuries/bonds

2,601,635

487,290

19%

> US

2,508,102

472,060 15,230 296,682

19% 16%

> Canadian

93,533

North American equities

3,573,435

8%

> US

3,439,616

283,410 13,272

8%

> Canadian

133,819

10%

Source: RMA quaterly aggregate data survey, Q2 2010

The Canadian market size is quite small compared to the giant US, with only USD13bn of equities lendable assets and USD9bn of bonds lendable assets in Q2 2010. It has weathered the storm well, with conservative programs structured more towards realising the intrinsic value of the loan as opposed to relying on the earnings from additional spreads from an ag- gressive cash reinvestment program like in the US and the UK markets. One of the unique characteristics of the Canadian market is that there is very little third party lending done in Canada, compared with the United States and the United Kingdom; 85 to 90% of the lending activity is handled through custodians 7 .

> Europe

As displayed in figure 14, the European bonds lendable assets reached USD44bn in Q2 2010 for a total on loan of USD14bn. It is a very active market with a ratio of “total on loan/lend- able assets” of 31% (against only 19% in North America). The German sovereign bonds are

7 Source : Global Investor magazine, “Canadian market forum”, June 2010

Securities Lending & Repo markets | page 25