To cope with the global pandemic, central banks have joined together to maintain liquidity during this period of volatility. How has the Canadian securities market evolved relative to other markets? Lisa Tomada: Most of the world`s markets, including Canada, have been very confused in securities lending. High-quality liquid assets (HQLAs) are at the heart of the business of both borrowers and actual beneficiaries. Borrowers used HQLA to cover liquidity needs, including seeking long-term loans from HQLAs to secure sources of liquidity. Beneficial Owners steigerteden Umsatz von HQLA, um ihren eigenen Liquidit-tsbedarf zu decken. With the Bank of Canada`s inclusion in the market of the quantitative easing program, we have seen that the need to ease the borrowing maturity for HQLA is beginning to ease. Canadian equities also recorded an increase in demand. Canada, a commodity-based market, has been particularly hard hit by the recent drop in oil prices. From a securities lending perspective, demand in our program has increased in the energy and materials sector. Since then, we have seen some stability in demand and volume within The Canadian Boursiary space.
Overall, the Canadian stock market had declined due to negative market ratings. Alexa Lemstra: The Canadian market has felt the effects of this global event in the same way as other markets. If you look at DataLend to get an overview of what happened, the trends in Canada are very similar in the United States and the global consequences of the pandemic from an inventory, loan and use perspective. Canadian loans and continuing loans showed a general downward trend between late February and late March, with a 20 per cent decline in value. In both the Canadian and U.S. markets, the utilization rate increased from about 11 per cent to more than 13 per cent in Canada between February and March and from less than 10 per cent to more than 13 per cent in the United States over the same period. Each market has its own nuances, but in general, the trends in the Canadian market were consistent with global markets. Kyle Kolasingh: In the face of the Covid-19 pandemic and the accompanying global turbulence, 2020 is proving to be an exceptional year for securities lending. The actions of global central banks have contributed to an element of economic stability, although continued market volatility has continued to affect the securities financing sector. In Canada, in March and April, we saw a sharp increase in investment by actual beneficiaries.
Some lenders have also reoriented their parameters for the securities financing program to adapt their risk-based investment strategies. This combination of events, while it has created a number of challenges for lenders, has also created a chance for actual beneficiaries, as the securities credit market has seen an influx of transaction activity. For example, one of the most investment-rich classes was HQLA, as investors tried to create liquidity amidst volatility. This sudden increase in sales activity has led to a temporary tightening of supply in the credit market and an increase in credit charges, which has been particularly beneficial for lenders who have participated in maturity structures (term loans). Katie Pries: Demand for securities in Canada remains strong overall, with a slight decline in spreads and utilization rates compared to the previous year. In 2019, Canada had an exceptionally good year, during which hqLA (Canadian government bonds) and high-demand stocks (“Specials”) such as cannabis stocks were the main drivers of securities borrowing revenues. By 2020, the same trends continued with additional volatility associated with the global pandemic. Canada has not imposed a short selling ban, as has been seen in Europe, which has allowed the Canadian market to maintain active trade and hedging. The lending of securities continues in a relatively frantic manner.
In addition to the request from HQLA and