Looking back on a 40-year-long career in financial services, Tak Sugahara shares his story and that of those who left their mark on the evolution of securities borrowing and lending (SBL) and the rise of modern trading infrastructures in Asia Pacific. From building the first global stock borrow system (IP Sharp’s BLEND platform) to establishing Japan’s domestic SBL market, Sugahara takes great pride in helping to build businesses that were “innovative, resilient, and safe — without shortcuts or compromises”.
Where it all began
Morgan Stanley was a niche player in Japan when it opened its Tokyo office in 1970. But as Japan became a larger industrial force and global investor a decade later, the business there expanded.
In 1986, the firm became one of the first foreign investment banks to obtain the Tokyo Stock Exchange membership. This marked a turning point, where the firm began to invest more heavily in developing the talent and expertise to compete in the domestic market.
One of these talents was Sugahara — an industry veteran who has held senior roles within Deutsche Bank, Bank of America Merrill Lynch, Mizuho Securities Co., and Nomura Securities, to name a few.
Sugahara was introduced to the SBL world in 1985, an experience which he calls “serendipitous”. His father had received a call from the business, which at the time was seeking new university graduates for its frontier offices. “Although I had already accepted a job elsewhere, my father volunteered me without asking. That led to a memorable phone call — where I mistakenly described Morgan Stanley as a ‘great power tool company’ — and ultimately to an interview that changed my career,” he recalls.
Through Morgan Stanley’s management training programme, Sugahara was assigned to the stock loan group, where he learnt the mechanics of securities lending in the US and internationally. He gained exposure to the operational, legal, and technological foundations that underpin modern SBL.
While at the firm, he met Hiro Ishitani. Having joined Morgan Stanley in 1987 as an entry-level clerk in the operations department, Ishitani remembers Sugahara as a “young and bright stock loan specialist” who was sent to establish a separate stock loan team in operations.
He continues: “Tak and I, together with other operational professionals, worked very closely to improve operational processes and establish new ones required for his key objective which was to establish a domestic stock loan business.”
Playing important roles in the building of Morgan Stanley’s stock loan market, both Sugahara and Ishitani toured the firm’s European offices in London, Frankfurt, and Geneva to educate foreign traders who were selling short against warrant, bond or depository receipt (DR) certificate.
Looking back: Revisiting 1980s Japan
Setting the scene, Sugahara explores the Japanese market in the mid-1980s — when he was spearheading the SBL desk for Morgan Stanley. Describing the environment as “extraordinary”, Sugahara says it was a time where Morgan Stanley, Lehman Brothers, and Salomon Brothers were battling to lead index, convertible bond, and warrant arbitrage in Japan. The Nikkei was approaching historic highs, Japanese capital was flowing globally, and inefficiencies in the trading markets — particularly across mid and small-cap equities — created abundant arbitrage opportunities.
“But the infrastructure was primitive. Settlement was entirely physical — stocks were counted, transported by bicycle couriers, and stored in vaults,” he explores. “The Japan Securities Finance Corporation offered limited supply at high cost, and domestic institutions had no lending programmes, no legal frameworks, and no familiarity with stock loan mechanics.”
According to Sugahara, regulatory constraints added complexity to this market, where foreign collateral was restricted, Japan government bonds (JGBs) transferred to foreign entities became “dirty”, and settlement mismatches were common. “Against this backdrop, developing a functional domestic stock loan market required rebuilding nearly every operational, legal, and technological foundation from scratch.”
Ishitani recalls that the market at the time was dominated by domestic securities companies and was purely a client-side business. Foreign companies were small but growing — Morgan Stanley was less than 200 when Ishitani joined — and it was these entities that started to implement such strategies as arbitrage, repos, and hedging.
“The market quickly caught up but it was the foreign companies that were dominant and Morgan Stanley then was one of the dominant players. The best way perhaps to describe the Japanese market at that time is physical and manual,” notes Ishitani.
Prior to Sugahara’s domestic lending business, Ishitani says that the only form of a lending or borrow facility was via the Japan Securities Finance Corporation (JSFC) — a regulated and “expensive” stock borrow scheme primarily used to cover fails. Japan was a no fail market to the exchange so if a foreign client failed to deliver, it was the coordination between Sugahara’s team and the core operational team to borrow securities to deliver to the exchange.
Building a foundation
Alongside operational and support professionals, Sugahara and Ishitani began the journey to help form a domestic stock loan market in Japan by creating the business architecture. Collaborating with legal, compliance, treasury, settlements, technology, and trading desks, they worked to define acceptable collateral, settlement workflows, reporting procedures, and contingency plans.
These plans were formally presented to the Ministry of Finance and the Bank of Japan and once approved, Sugahara says the team worked around the clock with the settlements group to operationalise the framework.
It was then important to build relationships with key domestic institutions which, according to Sugahara, were initially those associated with Mitsubishi Group companies across life insurers, fire and marine casualty companies, banks, and trust banks — to form the first lending partnerships.
“Systems had to be invented. I built Japanese-language confirmation tools and the TraderX inventory platform to track borrows, recalls, and trading desk activity across settlement cycles. These tools proved essential, particularly around dividend and record dates,” he explains.
However, it was not all smooth sailing. From Ishitani’s perspective, there were several key challenges due to the physical delivery environment, no fail market, and client expectations. For instance — and specific to the stock loan market — Sugahara had to educate and convince large investors such as insurance companies to loan out their proprietary holdings. Ishitani explains that “no standards existed” and so a process had to be created which met the standards and expectations of both the clients and the market.
“Imagine hundreds and thousands of trades requiring settlement and for each one of those, physical securities had to be delivered to the client and to the exchange,” Ishitani explains. “Although the actual custody/safekeeping and delivery of physical certificates was done by a third party, the operational process at Morgan Stanley had to ensure this was all instructed and delivered on time.”
Another key challenge to tackle was the conservative nature of the decision makers of the equity owners. Ishitani says: “If you could imagine Tak’s client seeking executive and/or board approval of an insurance company, primarily very grey-haired, this might help imagine the scene,” he adds.
The Japanese are very detail-oriented and mistakes are highly frowned upon. For example, not returning stocks to lenders for record dates would have caused material harm to lenders because those shares were often held for cross shareholding purposes. This would have cascaded to irreparable harm to Morgan Stanley’s market reputation and ultimately damage the lending market itself. “I can report this never happened,” notes Sugahara. “Interestingly, Morgan Stanley built such a positive reputation that some lenders allowed it to borrow ‘mu-tampo’ — without collateral.”
Morgan Stanley launched its domestic stock borrow programme in early 1987 and, as Sugahara put it, “quickly became the leading index, convertible bond, and warrant arbitrageur”. Through Sugahara’s efforts, Ishitani says the first ever stock loan transaction was concluded via a third party.
Sugahara adds: “Growth strained the physical settlement process and systems, prompting us to innovate using safekeeping receipts to replace actual stock movements. Rather than transferring thousands of stocks positions between lenders and Morgan Stanley and between Morgan Stanley and exchanges, we used a confirmation process to eliminate almost half the stock movements. This mechanism drastically reduced operational overhead and costs and ultimately enabled Morgan Stanley to successfully arbitrage the TOPIX futures contract when it launched.
“It was a foundational moment for Japan’s capital markets and a defining chapter in my career.”
Reviewing the impact of these events, Ishitani says the Japanese market was primarily long only and when stock loans became household, investors and traders began looking at the short-end of the market and became more creative. Through stock lending, investors were able to secure additional income via lending fees.
From Japan to Hong Kong
Following his move to Goldman Sachs in 1990, Sugahara worked to build the firm’s Japan SBL desk before taking on a new role at its Hong Kong office in 1991. Here, he was tasked with building Goldman Sachs’ APAC SBL desk.
“When joining Goldman Sachs, the market already existed, but building the business still required recreating the structure — this time in a more formalised environment,” notes Sugahara. “Within six months, we were live with most of the major domestic lenders. The desk grew rapidly and supported index, convertible bond, and warrant arbitrage, as well as the growing hedge fund community trading Japan.”
The move to Hong Kong, following five years in Japan, enabled Sugahara and his team to map, in detail, the legal, tax, and regulatory frameworks needed to expand financing and short selling across APAC. “This work laid a solid foundation for the firm’s later prime brokerage growth in the region.”
Prior to Sugahara’s relocation, Lawrence Komo worked under his leadership at Goldman Sachs’ Japan office. “Those were exciting times as it was still the early days of securities lending in Japan, and there were many internal battles with compliance and operations as we grew the business,” Komo recalls. “It took years of discussions to persuade the large holders of Japanese equities, mainly the insurance companies, to get comfortable with the benefits and safeguards around OTC lending.”
Despite these challenges, Sugahara and Komo partnered on various projects including one that established the ‘first-ever’ exclusive borrow arrangement with one of the largest regional sovereign funds. Not only was this unique, says Sugahara, but it expanded the trading opportunities and created resilience in supply.
For Komo, there are two critical components for a robust securities lending market — trading demand for shorting/hedging and supply of lenders in the market. He explains that, at the time, Japan’s financial markets were “exploding” with new exchange traded products — futures, CB’s, warrants — which drove “huge demand” for lending to support market makers and arbitrage desks.
“I built off the work Tak had successfully done with local institutional lenders, and continued to grow the pool of firms willing to lend,” he says. “The combination of these newly introduced exchange traded derivatives and ample supply of stock loan fed not only proprietary desks but hedge funds and the growth of Japan market focused hedge funds!”
Imitation is the highest form of flattery and broker-dealers are masters in that regard, according to Komo. He says the success of Goldman and Morgan Stanley pulled in most large Western brokers into establishing domestic desks, which ultimately legitimised the lending market in Japan.
“At that time, Japan was the bellwether for financial market liberalisation, and the success of Japan’s robust derivatives markets left a legacy of similar modernisation across Asian markets going forward. Tak’s success in introducing securities lending to the Hong Kong market and regulators is a prime example of this knock on effect and impact!”
Reviewing the key highlights from his career, Sugahara says the most rewarding moments came from tackling projects that seemed impossible at first glance — building markets, creating systems, designing frameworks, and solving operational bottlenecks. Even more so, he highlights the significance of the people he worked with, noting that he worked alongside teams who took ownership, invested long hours, and consistently did things the “right way”.
“I take great pride in knowing we built businesses that were innovative, resilient, and safe — without shortcuts or compromises. That, more than anything, defines the legacy I hope we leave behind.”
He concludes: “After 40 years, I leave with the satisfaction of having contributed to businesses that grew from nothing into dominant market franchises. It feels like the right moment to step back and let the next generation carry the torch.”
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USS Investment Management Limited
Playing the long game
Image: Tak Sugahara 
