An Overview of Securities Finance and Collateral Management in Asia

Finadium
January 2014

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In Finadium’s first look at Asia’s securities finance markets, this report evaluates the evolving dynamics of securities lending, unsecured lending, repo and collateral management in major trading markets. The financial markets of Asia are highly diverse; a primary objective of this report is to summarize major regional trends while recognizing that across regulatory jurisdictions, sell-side, buy-side and service providers, a broad array of objectives dictates current and upcoming priorities.

This report is based on site visits with banks, brokers, agent lenders, service providers, exchanges, central counterparties, central securities depositories and beneficial owners in Singapore and Hong Kong, and data collection from across the region. The results of our conversations and data analysis have been aggregated to form a general assessment of market conditions and future prospects. The topics explored include: growing conflicts such as the extraterritoriality of US and European Union rules; the continued importance of indemnification in securities lending transactions when considering the collateral transformation trade; the role of CCPs in securities lending region-wide; trends in secured vs. unsecured lending; and demand for collateral management technology and outsourced services.

While each Asian country deserves its own report, this initial research introduces some of the pressing issues in Asian securities finance markets today. Our primary objective is to familiarize ourselves and our international readers with the main topics of this complex and diverse region.

This report should be read by any securities finance market participant engaged in the Asian markets either directly or via service providers.

This report is 31 pages with 11 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ The Idea of “Asian” Markets
– Equities
– Fixed Income

■ Securities Lending Trends
– Agent Lenders and Beneficial Owners
– Prime Brokers and Hedge Funds
– The Role of Stock Exchanges and CCPs

■ Secured (Repo) vs. Unsecured Financing

■ Collateral Management
– The Collateral Transformation Trade
– Change in the OTC Derivatives Markets

■ A Strong Market, but For Whom?

■ About the Author

■ About Finadium