ISSUE045 - Securities Lending Times

PanelDebateThe international financial crisis had the effectof detracting attention away from classical interbanktriparty securities lending transactions inthe region while market participants were forcedto make a review of basic principles. Our experienceis that we see it’s the international playersin Asia who are still the early adopters.Sunil Daswani: Regulatory intervention hasnot, on the whole been favourable to recovery,specifically in markets such as Australia,where a short selling rule proved a disincentiveto investment, and South Korea, where a banon covered short selling hampered demand forthree months in late 2011.Borrowers have been compelled to adopt a morecost sensitive approach to their businesses,which has internalised a lot of demand. Coupledwith this trend, corporate deal activity remainssubdued, particularly in markets such as Japanwhich was negatively impacted in early 2011.Having said this, pockets of demand continue toexist in Asia and are likely to remain a priority forborrowers in the near future.In the emerging market space, Taiwan continuesto attract significant interest, given stronghedge fund demand, high spreads and compellingrevenue prospects. Hong Kong alsoemerged as a key market particularly during2011, where concerns over a slowing Chineseeconomy drove directional demand for sectorsexposed to this trend.David Raccat: The Asian market had not onlythe general market downturn to recover from,but also the short sale bans, short term reductionsin asset allocations to some emergingmarkets in the region from US and European investors,and higher than usual withdrawals fromlocal funds by Asian investors as they switchedto other asset classes such as cash.Raccat: Hong Konghas emerged to bethe main driver in theregion in the lastcalendar year. Asexpected, Taiwan wassecond. South Koreahas dropped awayThat said, these dynamics were not unique toAsia but as we all know Asia comprises sev-eral markets each of which has a unique dynamicand has evolved in a unique way sincethe downturn.From the borrower, or demand, perspectiveHong Kong has emerged to be the main driverin the region in the last calendar year. As expected,Taiwan was second. South Korea hasdropped away and the most recent reinstatementof the short sale ban has not helped. Japanhas continued to be Japan – stable, volumedriven and nothing unexpected.From the lender, or supply perspective securitieslending has returned to the agenda across Asia.Speaking for BNP Paribas our lending supplylevels are higher than pre-GFC, and we haveboth a strong pipeline of new clients and are beingasked for securities lending services acrossthe region. Some of the latter is exploratory –those who have not lent their securities beforeare comfortable that the sector is growing, is anacceptable market activity for institutional investorsand want to know what levels of revenuecould be generated from their assets. There is ahuge amount of pressure in the pension sectorat the moment in regards to performance andwhen discussing performance funds also reviewtheir operating costs. This is the traditionalsegue for a securities lending discussion and itis occurring across Asia today for us.18What is unique to the Asian region, and why itis the fast growing region for securities lendingactivity globally is that there is still ‘new’opportunity – new lending supply, new marketsor easing of access to existing marketsand an active corporate sector to drive intrinsicvalue opportunities.Yin Yin Ng: We have been seeing near termpositives for the equities markets. The rate ofcontractions in Asia have somewhat eased. Majormarkets seemed to be recovering. In general,most of our individual traders are shunningthe market for shorts and going on long for now.This could mean a temporarily quiet securitieslending market for us. On the positive side, theprice recovery will mean a better level for shortingin time to come.Andrew McCardle: The impact of the downturnhas taken longer to reach Asia in some respectsand is still being felt. We have seen interestwithin the region grow as people look to automatedsolutions for workflows that have beenvery manual for a number of years. There aremany local markets within Asia where our clientswould like EquiLend to assist in automatingservices that we provide today, and as has beenthe case historically. These automated solutionsbring efficiency and help to grow business betweencounterparts.www.securitieslendingtimes.com