- The US securities lending market grew considerably this year. An increase in average fees, due to high demand for meme shares, was a big driver of growth.
- GameStop stock currently has very high borrowing fees, indicating there is a lot of short-term interest.
(Read more of Wall Street Memes: Here’s the only “non-bearish” Wall Street analyst at GameStop Stock)
a bit of context
The securities lending market involves the lending of certain securities to institutional investors, usually banks and brokers. This practice requires the lender to provide collateral in the form of cash or security.
This process allows brokers and investors to engage in activities such as market making, short selling, and more.
According to the SEC, securities lending and lending are considered an integral part of overall market structures and help many mutual funds and pension funds generate additional income.
Securities lending Latest data
EquiLend Data & Analytics recently provided a report on global securities lending activity during the third quarter. According to the firm, so far in 2022, the securities lending market has generated $7.45 billion. That represents a year-over-year increase of 8%.
Delving deeper into the third quarter, we find that securities lending generated $2.63 billion, which represents a 12% year-over-year increase. Of that amount, about $1.3 billion, nearly half, came from North American equities. That $1.3 billion equates to a solid 35% year-over-year increase; experts attribute this growth to an increase in average rates, which have grown 37% during the same period.
The EquiLend report further notes that various asset classes played a key role in an increasingly volatile market. Recession concerns and pessimism about an environment of high inflation and high interest rates spurred increased short-selling activities.
The lending team at Brown Brothers Harriman & Co. (BBH), one of the largest private investment banks, provided an overview of the market. evaluation for the second half of 2022.
They state that due to this year’s “untested and unknown” macro environment, investors are looking to refocus on market fundamentals. Meanwhile, short selling has been increasingly used as a hedge against market downturns, and fundamentally overvalued meme stocks are a common target.
“This created positive momentum by creating depth in the US hard-to-loan market. Most notably, demand was concentrated on ‘meme stocks’ such as AMC Entertainment and GameStop, which continued to attract attention and charging high fees. – as assessed by the BBH securities lending team.
GameStop as the main capital gainer
Strong third-quarter North American securities lending industry revenue growth was closely related to growth in several key sectors, including consumer discretionary, communication services and consumer staples.
Within discretionary consumption, gamestop (GME) – Get the GameStop Corporation report Y Lucid Engines (LCID) – Get the Lucid Group Inc. report both experienced 80% growth in their loan income. The first was the main generator of capital, generating income for a total of $102,591,665.
Note that this number corresponds to the fees charged by intermediaries, No the total value of the shares loaned.
Within the communication and entertainment services sector, AMC Entertainment (AMC) – Get the AMC Entertainment Holdings Inc. Class A report. Y Sirius XM (SIRI) – Get the Sirius XM Holdings Inc. report. experienced triple-digit revenue increases. Also of note, beyond the meat (PORND) – Get the report from Beyond Meat Inc.in the consumer staples sector, it saw an impressive year-on-year increase of almost 300%.
GME loan cost
The cost of borrowing a stock varies depending on the laws of supply and demand. Influencing factors include utilization (the number of shares available to sell short), liquidity, and volatility.
Therefore, it follows that high borrowing ratios indicate high demand to short a stock, and vice versa. In general, average loan rates fall between 0.3% and 3% per year.
However, if a particular stock is very short, it is not uncommon to see fees in excess of 20% or much higher.
Currently, GameStop’s loan fees are 9.3% per annum. According to data provided by Interactive Brokers, GME’s loan fees remained at that level for much of October.
At other times this year, GameStop’s loan fees have been much higher. Through early August, for example, GameStop’s stock lending rates stood at an annualized percentage of 32.5%. In late May, for example, they shot up to a staggering 110%.
High loan fees make short selling more expensive and put additional pressure on short sellers. And even though GameStop’s current loan fees are down from the sky-high levels seen earlier this year, a 9.3% annualized fee is still significant.
(Disclaimer: This is not investment advice. The author may be long on one or more stocks mentioned in this report. Also, the article may contain affiliate links. These associations do not influence editorial content. Thank you for supporting to Wall Street Memes)
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