From the Securities Lending Trading Desk

After weeks of hype and anticipation, Spotify Technology SA sold shares via a direct listing. Directional demand has also started ticking up for Intrexon Corporation as the share price has rallied 50% from the start of the year. Japanese online retail broker Monex Group Inc.’s share price volatility spiked after it agreed to purchase cryptocurreny exchange Coincheck Inc, and Securities Lending demand increases for Telecom Italia as investors do battle for control in Europe.

Below please find this week’s edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

After weeks of hype and anticipation, Spotify Technology SA (SPOT) sold shares via direct listing on 4/3. Just 5.6 million shares changed hands at the opening price, or 5 percent of the total number potentially available to trade, according to data compiled by Bloomberg. Compared with the IPOs of five other technology companies, including, TWTR, SNAP and DBX, that went public with market valuations of $10 billion to $40 billion, trading volumes were much less on both the first and second days of trading. The share price traded between $169.00 and $149.01 on the first day of trading, but many buyers remained on the sidelines for fear of large blocks of stock coming into the market and driving down prices. Despite some initial volatility, the close of day prices have been within a relatively tight band of $143.99 to $149.01. Broker interest has been extremely strong despite the non-traditional method to market, but this has not materialized into firm demand at this time.

Directional demand has started ticking up for Intrexon Corporation (XON) as the share price has rallied 50% from the start of the year, creating a new entry point for bearish investors. The biotech company’s share price has rallied as collaboration and licensing revenues increased significantly, by 102.7% to $56.2 million, year over year. However, a large portion of this was due to a deferred payment from their collaboration with ZIOPHARM Oncology, Inc. (ZIOP), which has since been terminated. In addition, XON remains unprofitable at this time. Often, we see bearish investors take positions in biotech companies due to the simple fact that treatment development is so difficult and uncertain. Making this sector even more attractive to shorts, the marketing of the treatments can be extremely expensive, highly uncertain in its outcome, and filled with legal challenges. We anticipate continued demand for XON, which has been a focus of bearish sentiment for years and there has been very little change to the headwinds the company faces.

Asia Pacific

Japanese online retail broker Monex Group Inc share price volatility spiked after it agreed to purchase cryptocurreny exchange Coincheck Inc. Monex Group Inc will pay USD $34 million for all of Coincheck Inc’s shares and the acquisition will provide Monex Group Inc with a new product to complement its existing services in Japan. Following the announcement, shares in Monex Group Inc surged 23% to a record high, then fell 8% the next day, before rising 13% the day after. We saw strong securities lending demand for Monex Group Inc during the period of share price volatility last week.

Renesas Electronics Corp shares fell sharply in Tokyo trading after the Japanese chipmaker announced major shareholders will reduce their stakes. Several major investors will sell a total of 269.9 million shares in order to increase Renesas Electronics Corp’s independence and free it to pursue mergers, acquisitions or tie-ups with other companies, Renesas shareholders are offering the stock at a discount of as much as 5% from the close on the day of pricing. We saw strong demand to borrower shares in Renesas Electronics Corp following the announcement

Europe

Russian companies and stocks with exposure to U.S. and E.U. sanctions in the crosshairs. Citigroup analyst warned that the treasury department’s blacklistings could ensnare any Russian company. Russian incorporated equities weren’t the only stocks stung by U.S. sanctions, Russian billionaire Viktor Vekselberg and his Renova Group investment vehicle made the U.S. sanction list. Renova has scrambled to sell shares for Suzler AG (SUN SW) to limit its exposure as a majority shareholder. The desk is witnessing higher borrow demand for Sulzer, OC Oerlikon (OERL SW) and Schmolz + Bickenbach (STLN SW). Russian global depository receipts (GDR’s) are also in higher demand this week.

Securities Lending demand increases for Telecom Italia as investors do battle for control. This week saw US based hedge fund Elliot Management and state backed investment vehicle Cassa Depositie Prestiti look to build their stake in Telecom Italia. The Italian telecoms company which is seen as a strategic importance within Italy has been under control by Vivendi who own a 23.9% stake and increased its grip on key decisions since investing in 2015. The recent increases by Elliott and Cassa have been ahead of the 24th April shareholder meeting where elections for board members will take place and in turn the influence of the firm’s future direction. Borrower demand has increased as activist funds look to hold the stock over the voting period as well as funds in lending programs recalling stock in order to register their vote thus reducing liquidity.