Securities Lending in 2022: Staying on Course?

July 21, 2022
  • Investor Services
Capital and macro markets continue to present market participants and policymakers with a complex and dynamic environment that requires their flexibility to adapt. BBH’s securities lending team provides a mid-year assessment and outlook for H2 2022.

The film Apollo 13 dramatizes the challenging lunar mission and depicts how the spacecraft’s astronauts acted quickly and devised a strategy to get home safely in a chaotic and unforeseen environment. In a tense scene, the gimbal navigation system1 became locked and the astronauts were forced to use unprecedented action to stay on course. Too steep an entry back to Earth and they would burn up; too shallow an entry would lead them to skip off the top of the atmosphere and back into space. Fortunately, they judged it right and they were able to land safely. The macro and capital markets have a similar tense and unexpected feel.

Staying on course in a complex, fast-moving environment requires flexibility from policymakers and market participants. Central banks are faced with a fine balancing act: go too strong on interest rates and there is a risk of stemming fragile growth. On the flip side, too little correction and inflationary pressures could get out of hand. Add into the mix escalating geopolitical and economic tensions associated with Russia’s invasion of Ukraine, volatile markets, supply chain shocks and slowing global growth and we have a macro environment which feels untested and unfamiliar.  

Securities lending endured the same unfamiliarity at the start of 2022 with heightened volatility associated with a wide market sell off. BBH’s securities lending team noted that volatile capital markets could create challenging market conditions with investors seeking to refocus on fundamentals.

In Securities Financing in 2022: Hold on Tight! we highlighted that investors were increasingly looking past the pandemic and we expected to see a shift in focus where risk assets begin to trade more on fundamentals as we moved from Quantitative Easing (QE) to Quantitative Tightening (QT).

Overall, despite the relatively muted start, we noted that there would be more conviction in terms of lending demand and activity would broadly increase. As we look to the second half of the year, we believe many of these themes will continue but we also expect several opportunities in certain markets and asset classes.


China’s “Zero Covid” strategy with targeted lockdowns in major cities in H1 2022 to clampdown on Covid infections impacted both regional and global economies. The impacts were particularly felt in sectors such as hospitality, retail, and travel.2 The regulatory controls that focused on the technology sector and curtailing debt bubbles in real estate and property led to wide market sell offs.  Although pressure has recently abated for some firms, broader risks remain. Separately, investor de-grossing and reduction in leverage resulted in lower balances and a narrower demand profile in the region. Capital raising activity in Hong Kong slowed down considerably as new issues and secondary offerings were hampered by market volatility, rising interest rates, and geopolitical tensions.  

Going forward the Chinese authorities are expected to stick to “Zero Covid” in the short term, which will likely impact the broader economy and provide us with similar sector-specific themes to those mentioned earlier. Capital raising across APAC could be challenging in the second half of the year given the macro environment; however, the delisting of Chinese firms in the U.S. to Hong Kong may accelerate in late 2022 or early 2023. This could provide some impetus for lending demand towards year end. In South Korea, a broader relaxation of the short selling rules may be permitted in late 2022 outside of the Kospi 200 and Kosdaq 150, which will likely boost lending demand.


Airlines and travel firms have faced continued headwinds post-Covid due to the conflict in Ukraine and retaliatory sanctions imposed by Russia putting strain on global fuel costs. Several European airlines have also had large EU-imposed fines to contend with after a cartel scandal dating back to 2006 during which cargo carriers plotted to fix the level of fuel and security surcharges over a period of six years.3 Air France, Finnair, International Airlines Group, Lufthansa, TUI and SAS (Scandinavian Airlines) are several airline securities that have seen strong securities lending revenues this year. Real estate has also seen robust lending returns during the first half of the year, including Luxembourg based Adler and Swedish firm SBBB. Capital raising remained strong in the first half of 2022 with several notable rights issues. Demand was seen for Air France, Billerud Korsnas, EDF Energy, Faurecia, Karo Pharma, and Millicom International. Finally, two key specials that drove high revenues were German battery maker Varta and distressed Italian bank Monti dei Paschi.

North America

It was an extremely challenging start to 2022 for U.S. equities with the S&P 500 entering bear market territory by June. The core themes dominating investor sentiment remained the evolving nature of the pandemic, the Federal Reserve’s reaction to rising inflation and concerns around slowing growth. Simultaneously, investors reallocated and deleveraged their portfolios, particularly on the long side, as a more risk-off environment took hold.

Despite the prevailing volatility, the less correlated asset pricing and a more fundamental focused environment did offer some resilience on the short side as investors took a more hedged view. This generated some positive momentum creating a depth in the hard to borrow market in the U.S. Most notably the demand concentrated on the “Meme Stocks”,4 such as AMC Entertainment and GameStop, which continued to attract attention and command high fees.

Elsewhere, event driven demand, namely SPAC deal closures and IPO lockup expiries generate a significant source of lending revenues. Companies such as AdTheorent, Lucid Group and Rigetti Computing were in high demand as investors looked for exposure to these deal situations.

In Canada, the first half of 2022 saw a modest rebound after a relatively lackluster end to 2021. While the cannabis sector remains a popular thematic trade, a return to the highs of 2019-2020’s lending returns may prove challenging due to its low asset valuation. We also witnessed a broadening in terms of Canadian sector plays as investors have expressed conviction this year in crypto, electric vehicles, real estate, and various forms of mining including lithium and uranium.

Fixed Income

In the corporate bond space at the macro level, we have seen an uptick in utilization for the sector versus previous years as central banks around the world increased interest rates putting significant pressure on pricing and spreads across both the investment grade and high yield spectrum. Long dated issues, as well as perpetual bonds, have been growing in demand given their weakness further down the yield curve. On a micro level, American Airlines and United Airlines saw several of its issues in the first half of the year become a focus of lending demand as fuel costs and reduced services impacted their bottom lines.

Key Takeaways

With so much on the table, it’s difficult to see a clear path forward. Capital markets and policymakers alike are dealing with unique and unseen challenges. What this is likely to mean is that the themes and trends will become increasingly dynamic, fast paced, and be more targeted. There will continue to be divergence between global policymakers and risk assets will be more uncorrelated and disparate. This environment will likely lend itself well to more active and hedged allocation and ultimately drive securities finance demand well into the second part of 2022.

The prospect of further interest rate increases will create additional opportunities generated by the continued volatility and increasingly the impact to corporate earnings. Supply shocks and inflationary pressures will likely single out winners and losers which will lead to an uptick in fundamental stock picking.

Elsewhere, credit spreads will likely push heavily leveraged firms to raise capital via equity offerings and debt restructurings, which in turn will generate opportunities. We also expect continued focus on credit and corporate bonds as these asset classes increasingly come under pressure. Overall, we are in for a period of significant adjustment and, much like the astronauts onboard Apollo 13, investors are going to have to adapt quickly to these unfamiliar surroundings.

1 A typical gimbaling inertial navigation system, such as might be used on board a missile, uses three gyroscopes and three accelerometers. The three gimbal-mounted gyroscopes establish a frame of reference for the vehicle’s roll (rotation about the axis running from the front to the rear of the vehicle), pitch (rotation about the axis running left to right), and yaw (rotation about the axis running top to bottom).
4 A meme stock is a stock that gains popularity among retail investors through social media.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. Pursuant to information regarding the provision of applicable services or products by BBH, please note the following: Brown Brothers Harriman Fund Administration Services (Ireland) Limited and Brown Brothers Harriman Trustee Services (Ireland) Limited are regulated by the Central Bank of Ireland; Brown Brothers Harriman Investor Services Limited is authorised and regulated by the Financial Conduct Authority; Brown Brothers Harriman (Luxembourg) S.C.A is regulated by the Commission de Surveillance du Secteur Financier. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2022. IS-08295-2022-07-19

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction