Global Investor/ISF published the 2023 edition of the Asia Pacific Securities Finance Guide, which centers around exploring the crucial elements that shape securities finance operations in the region. It delves into ongoing limitations on short selling, examines the consequences of GASLA’s updated Global Framework for ESG and Securities Lending, and assesses the implications of transitioning to T+1 settlement from a foreign exchange standpoint.
Markets overview
Despite the headwinds, and a material slowdown in global growth, much of the region (ex-China/HK) still posted above trend growth, with particularly strong activity in India and southeast Asia.
Utilization continues to grow across the region, reaching 6.73% during the month – the highest since September 2022 (6.91%). Utilisation has been increasing over 2023 An in-depth look at the main factors influencing securities finance revenues across Asia in 2022 and the Q1 average of 5.44% is the highest quarterly figure since Q3 2022.
Across the region, Japan (+23%), Hong Kong (+23%) and Singapore (+64%) saw the largest increases in revenues with Japan recording its highest monthly revenues for several years. March is traditionally the highest revenue generating month for this market and the $91mn figure that was generated during March 2023 surpassed the March figure for the last few years
Rising interest rates caused investments to flow from equities into bonds, and interest rate differentials created dislocations across markets globally and across APAC Adnan Hussain, head of agency lending & liquidity services, markets & securities services at HSBC
“The decline in revenues during the second half of 2022 was driven by stronger equity markets across the region – particularly during Q4 – leading to short covering and a fall in short conviction,” said Stewart Cowan, executive director and head of APAC securities finance product at S&P Global Market Intelligence, as cited in the report.
When asked to assess the main factors behind the growth of securities finance revenues in Asia in 2022, Adnan Hussain, head of agency lending & liquidity services, markets & securities services at HSBC, referred to a number of key developments across fixed income, equities and macro:
- A loosening of the yield curve control at one point toward the end of last year created significant short interest in Japanese government bonds, whilst subsequent buying undertaken by the Bank of Japan saw dislocations in the market (taking liquidity of certain issuances out of the market)
- Directional interest in corporate bonds as interest rates increased Rising interest rates caused investments to flow from equities into bonds, and interest rate differentials created dislocations across markets globally and across APAC
- Capital raisings, placements and rights issues as raising finance through debt became more expensive • China/US tensions and trade restrictions caused strain in some sectors
- Risk appetite increased as mainland China and Hong Kong physically opened up after Covid restrictions were lifted
- Increase in participation/new lender entrants with growth of Asian ETFs participating in securities lending for additional yield
Restrictions on short selling across APAC remain a contentious topic in terms of how policy makers have justified these bans and the evidence (or otherwise) to suggest that such bans have increased market stability.
Operations view
The report hosts a series of other interviews with representatives from PASLA, ASIFMA, BNY Mellon, and EquiLend.
ASIFMA identified its key objective in terms of improving the sustainability of securities lending in the region as creating, interoperability between systems, definitions and reporting standards, including disclosure (TFCD and/or ISSB standards adoption by listed companies); taxonomies – common definitions on what is green, in transition or sustainability linked; and development of carbon markets with similar and potentially interoperable characteristics.
“Ultimately this will help avoid market fragmentation, which would increase costs and obstruct financial flows across the region,” said Diana Parusheva-Lowery, executive director and head of public policy and sustainable finance at ASIFMA, as cited in the report.
Philippe Dirckx, managing director and head of fixed income at ASIFMA, noted that the team is now launching the 2023 repo survey, which “we are planning to leverage to promote the opening of the domestic repo markets by incorporating sets of onshore data from some of the key regional markets.”