Finadium
January 2017

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Although hurdles remain, collateral management remains a central part of financial markets in Asia. While expected increases for collateral requirements of US$10 trillion may never fully emerge, each new day brings reasons why investors and banks must pay close attention to their collateral mobilization strategies. This is a business that impacts every actor in financial markets, regardless of participation in derivatives, securities lending or repo. It is also a vital topic when discussing opportunities for regional integration across Asian markets.

In this report, Finadium delivers results from a late 2016 survey of banks in the Asian derivatives market on their collateral management strategy, approach and operations. We asked market participants about preferences in posting and receiving collateral, the roll out of collateral optimization and their interest in creating a standardized Asian collateral basket across the region. We also surveyed recent collateral practices and derivatives market development in seven large Asian economies.

The report provides insights on how, why and whether an increased use of non-cash collateral from Asian issuers would benefit the Asian markets, including the need for streamlined infrastructure. Currently, Asian collateral is typically not sought outside of Asia, and even within the region there is a preference for using local non-cash collateral rather than regional options. The creation of a standardized collateral basket could be a step forward for existing Asian market harmonization discussions and encourage global market participants to view Asia as an interconnected financial marketplace.

This report should be read by any sell-side or buy-side institution trading in Asian markets, and technology firms or regulators operating in the region. It provides new intelligence on how banks approach collateral management and a useful overview of collateral developments across the region.

This report is 31 pages with 18 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ Perspectives on Asia’s Collateral Management Market
– Methodology

■ What Asian Banks Think About Collateral Management
– What Collateral Is Best for Asia?
– Is Cash or Non-Cash the Best Collateral?
– Operations and Optimization

■ The Advance of Collateral Rules and Technology by Asian Country
– Australia
– China
– Hong Kong
– Japan
– Malaysia
– Singapore
– South Korea

■ The Argument for Integration

■ About the Authors

■ About Finadium

■ About Deriv Asia

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