The Asia Pacific region remains a hot-bed of activity for securities lending markets and PASLA has been proactively assisting the region’s markets in their evolution
The global securities lending community was deprived of the PASLA/RMA conference in Tokyo this year. What were the hot topics you were planning on discussing?
The executive and conference committees at the Risk Management Association (RMA) and the Pan Asia Securities Lending Association (PASLA) were very disappointed to have to postpone the conference. The decision was made given the potential threat to participants from COVID-19 and, in hindsight, was the right thing to do. We look forward to seeing everyone in Tokyo in March 2021.
The planned agenda was exciting and included, in addition to the popular topics from previous years, some new subjects.
ESG: We had planned to launch the results of our environmental, social and governance (ESG) survey, undertaken in conjunction with EY, as well as considering the next steps for the securities lending industry to meet expectations around ESG. Radek Stech, the chair of the newly-launched ESG-focused council of the International Securities Lending Association, known as ICSF, was going to join discussions on possible formulations of guidelines for the industry.
Diversity and inclusion: There was an exciting panel with representatives from the LGBT+ community who would have provided insight into challenges they have faced as well as discussing how to create a welcoming environment. We were also planning to launch the PASLA Inclusion Network (PIN) for PASLA members (see more later).
Technology: The impact of fintech on securities lending would have been discussed/introduced, including methods for managers to introduce the changes in a positive way.
Market updates: Exchange representatives and market experts would have provided insights into how both large and small markets have evolved since the previous conference as well as looking at their immediate and long-term futures.
Previously popular sessions would have returned including regulatory updates, beneficial owners’ views and industry leaders’ opinions on the prospects for the industry.
Can you share some of the key takeaways of your ESG survey?
ESG came into focus at the end of 2019 with the highly publicised withdrawal of Japan’s Government Pension Investment Fund from securities lending. PASLA has worked with EY to undertake an anonymous survey of our membership, in addition to more extensive interviews with key market participants, to create a document that aims to provide a snapshot of the region’s current views and concerns over ESG in securities lending.
It will be released beyond the PASLA membership in May and will be part of PASLA’s ongoing engagement around ESG within SBL.
We aim to work closely with the ISLA’s ICSF to help create guidelines for the wider industry to help address any concerns that market participants may have over governance within the securities lending industry.
PASLA turned 25 this year, how has the association grown during that period? What were some of the key challenges you faced in establishing a pan Asian industry body, and what are some of your biggest achievements?
Whilst PASLA has obviously changed since its inception in 1995, some things do remain consistent, mainly the commitment from industry participants to help drive PASLA’s objectives. We are continually thankful for the level of engagement by our members especially those who work tirelessly on our various committees.
Over the past 25 years, the securities lending industry has grown significantly in Asia, with fees from lending in the region now outstripping that of the region of Europe, the Middle East and Africa. Taiwan, South Korea and Malaysia opened lending platforms and several other markets, most notably China and India, established domestic platforms. Additional markets, such as Indonesia and the Philippines are working to assess their own rules around securities lending and PASLA continues to work with the relevant regulators on potential further reforms.
PASLA continues to work with the more established markets and was, for example, closely involved in discussions with HKEx concerning the challenges posed by delisting rules that left suspended securities in limbo. After strong lobbying a clear guideline on delisting was issued, helping to resolve a sensitive issue.
The diverse range of market rules and lack of regional harmonisation provide an ongoing challenge to PASLA members and, in 2017, we participated in the development of a roadmap for Asia Pacific Economic Cooperation Finance Ministers via the Asia Pacific Financial Forum with the aim of improving regional market infrastructure.
Our annual conferences have continued to grow both in number of participants and breadth of topics covered. We hope that they now provide a recognised forum for regional market participants and any non-participants to learn about recent developments and to consider their future plans.
PASLA is active in several pan Asian markets working with regulators, governments and industry participants. What has PASLA been most focused on recently?
There is understandable interest and focus on the potential for a more active mainland China market as regulators there continue to review existing and potential models for offshore access (see later discussions).
PASLA arranged a roundtable for both the PSE and the SEC to review offshore collateral management and options to provide support to their ongoing plans to open up short selling and build upon their existing onshore lending programme.
We are in the process of creating a library of legal documents for PASLA members to access. The aim is to have readily available boiler plates for all regional markets that require additional documentation as standard. We started with the more challenging Korean market documents and, once these are finalised, plans are to roll the project out to all APAC markets.
Given the lack of regional harmonisation mentioned earlier, we have recently launched, in conjunction with the RMA and EquiLend, a regional market update which will provide a good level of understanding of the current status of Asia Pacific markets.
The opening up of the Chinese market has been something the global market has eagerly anticipated for a while now. PASLA’s conference was meant to be there next year, does that mean progress is being made?
PASLA’s China group has been working extensively with the Asia Securities Industry and Financial Markets Association to build consensus across industry to establish best practices in a T+0 environment.
There have been multiple meetings with the relevant regulators in both Hong Kong and China with the view to ensuring that the next suggested offerings create a long-lasting and productive securities lending frameworks.
Currently securities lending is allowed through Stock Connect but there remain several barriers to entry.
The recently launched STAR board short selling rules provide more of a central counterparty/bilateral hybrid and may offer an alternative source of development outside of the cross-border model.
We are still keen to host a future conference in Beijing and look forward to building on existing relationships with regulators.
In total, APAC boasts 11 full-fledged markets and two emerging ones that are yet to install offshore securities lending frameworks. What’s happening in those areas?
With regard to the nascent frameworks within Indonesia and the Philippines, PASLA has had meetings with the relevant authorities in Indonesia who are keen to expand the product offering available to investors, including an understanding that a securities lending product is required to facilitate and support the successful introduction of exchange-traded funds and futures. They are considering options for future market participants in securities markets.
The Philippines has a functioning onshore securities lending system that presents challenges to offshore participants. The Philippine Stock Exchange is reviewing its short selling proposals to ensure that they will meet with market requirements as well as considering the structure of its existing securities lending system to reduce barriers to overseas investors.
If all things go well we will all be in Tokyo in March next year. What can we expect from PASLA between now and then?
We are excited about the prospect of reconvening in Tokyo in March 2021. Likely an overlay will develop on each topic as to how this year’s situation has been a catalyst to change our strategies and mindsets. PASLA, as mentioned earlier, is launching PIN in the next few months, led by Valerie Rossi, with the aim of creating an environment where PASLA members and its community can come together with their own views and feel respected.
Members will be able to guide the direction of the group to ensure that it responds to their requirements and interests. We will be using the momentum around our recent ESG work to actively contribute to best practices on governance within the securities lending industry.
A 108-page regional market update, with information across all active and developing securities lending markets in Asia, has been released and will provide a valuable resource to new market participants as well as a timely reminder to more seasoned professionals.
We will continue to work with legal counsels across the region to create a library of documents and addenda helpful to current and new entrants to the securities lending industry.
