From the Securities Lending Trading Desk

In the US, the expiration of several IPOs’ lock-up periods will increase supply in the market and potentially affect fees. Meanwhile, mining companies are in the spotlight in both Europe and Asia Pac.

Below please find the July 28 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

LifeLock’s share price decreased by nearly 50% last week, spurring demand from borrowers.  U.S. officials accused the company of making deceptive claims about its identity theft protection services in violation of a 2010 settlement with state and federal officials.  The Federal Trade Commission stated that LifeLock failed to take steps to protect users’ data and falsely advertised that it protected information with the same safeguards employed by financial institutions.  Some suggest LifeLock could face lawsuits, which would likely drive continued demand from borrowers.

The expiration of multiple IPOs’ lock-up periods will increase lending supply and potentially ease fees for these names.  The lock-up period for Box Inc. ended on July 22, which made over 30 million additional shares available for trading.  Fee levels are expected to decrease for FreshPet and Shake Shack.  Both firms’ lock-up periods end on July 29 which will make almost 15 million shares of Fresh Pet and 4.6 million shares of Shake Shack available for trading.

Asia Pacific

A major accounting scandal at one of Japan’s most iconic firms has led to a major management shake-up and renewed concerns over corporate governance policies in the nation. Toshiba’s Chief Executive Officer, Hisao Tanaka, and a string of other senior officials resigned last week for their roles in the country’s biggest accounting scandal in years. The results of a report by an outside panel of accountants and lawyers cited that the firm had overstated its operating profit by $1.22 billion, roughly triple Toshiba’s initial estimate.  Securities lending interest in Toshiba has been limited due to high levels of liquidity in the market.

Operating conditions for iron ore miners in Australia continue to remain challenging as a prolonged slump in prices and a glut of supply continues to dent their profitability. We are witnessing broad securities lending demand for a number of mining companies such as Arrium, Atlas Iron and Mineral Resources.  Fortescue Metals Group has been in particular focus, however, driven by the firm’s intense battle for market share with major producers such as BHP Billiton, Rio Tinto and Vale SA.

Europe

Investors are increasing their short positions in European basic resources and mining shares.  This is amid a deepening slump in commodity prices and new data that revealed that China is growing at the slowest pace since 1990.  Securities lending demand has been strong for Kloeckner, with 18% of shares out on loan, up from 6.3% in early May.  Other names in focus include Aperam, whose short interest has increased to 9.7% from 7.1% since the start of May and Outokumpu, whose short interest has doubled to 10% in the same period.  Other heavily located stocks in sector include Lonmin and ArcelorMittal.

Several names in Europe announced convertible bond offerings last week, driving substantial borrower demand.  Rocket Internet, Sainsbury and Beni Stabili launched successful bond issues of $607.7 million, $779.9 million and $220.9 million, respectively. The deals have caused fees to rise from easy-to-borrow levels to mid-range difficulty.