Sourcing the right collateral increasingly a priority for financial industry in Asia

Every other delegate at fifth annual Global Securities Financing Conference Asia believes there will be a shortfall of collateral in the next 12 to 24 months * Clearstream and Singapore Exchange (SGX) collaboration will deliver collateral management solutions for Asian market * Fifth annual Global Securities Financing Conference Asia in Singapore brings together more than 150 delegates from across the Asia-Pacific region

22. May 2014

Sourcing the most appropriate collateral to cover global exposures, thereby reducing the risk of financial transactions, has risen up the list of priorities for financial institutions in Asia in the past 12 months, according to a poll of delegates at this year’s Global Securities Financing (GSF) Conference Asia in Singapore which Clearstream and Singapore Exchange (SGX) jointly organised. 93.4 per cent of conference delegates “agreed” or “strongly agreed” that this has become a priority, only 6.6 per cent “disagreed”.

49.5 per cent of conference delegates said they believe there would be a shortfall of eligible collateral over the next 12 to 24 months; 28.4 per cent of the respondents do not think so; 17.3 per cent did not know and 4.9 even assumed there would be a “significant shortfall”.

Yet 83.8 per cent of conference delegates – who represent pan-regional institutions, infrastructures, investment banks, universal banks and central banks – indicated that they still have “much work to undertake” to move towards a more efficient collateral management solution in their institution; 14.1 per cent said they had “little work to undertake”. Only 2 per cent said they had “no more work to undertake” in this space.

A number of factors are deemed to be influential in Asian investors’ shift from unsecured to secured lending. For 37.8 per cent of the conference delegates, this would depend on “the right collateral management functions and infrastructure becoming available”; 39.8 per cent said a push could also come from “the local regulator adopting new rules to encourage secured lending”; lower cost for secured lending as opposed to unsecured lending was an argument for 22.4 per cent of conference participants.

In another poll, 44.3 per cent of conference participants said an “efficient collateral management solution” would be an important driver for them to use their assets held in Singapore as collateral; “competitive pricing” (22.7 per cent), a “trusted collateral management provider” (18.2 per cent) and “global connectivity” (14.8 per cent) followed as drivers.

A conference poll also revealed that for 84.5 per cent of the delegates at the Singapore conference, triparty repos will become increasingly attractive to corporates as a replacement to cash deposits (60.2 per cent agreed, 24.3 per cent strongly agreed); 15.5 per cent of the voters “disagreed” with this view.

The poll results reflect the debates and discussions during the GSF conference. More than 150 delegates from across the region converged at the event to discuss the recent developments around collateral management, securities lending and OTC derivatives in Asia-Pacific and worldwide.

Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing at Clearstream, said the poll results clearly demonstrated that overcoming the collateral challenge was as much an Asian as a global issue and that a number of factors would likely lead to a shift to more secured lending and stronger demand for collateral management in Asia.

“There is plenty of collateral in the market globally, but much of it is fragmented and so difficult to unlock and mobilise. As a result, institutions are losing money through inefficient collateral management,” he said. “Our discussions with industry delegates in the Asia-Pacific region confirmed that we are on the right track with our SGX partnership and the execution of our recently announced joint collateral management service,” Mr Lepp added.

“Customers are increasingly concerned about the impact of the regulatory changes occurring outside of Asia and their ripple effect across the region. Having built Asia’s leading central counterparty, we now look forward to working with Clearstream to develop and offer customers a tailor-made collateral management solution for the Singapore market and the wider Asian region,” said Nico Torchetti, Head of Post Trade, SGX.

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