Record balances and revenues point to the scale of commercial opportunity within the APAC region, says Stephen Howard, CEO of the Pan Asia Securities Lending Association, who speaks to Carmella Haswell about the securities lending outlook across the region
How do you view the current securities lending environment across the APAC region? What is driving activity in this area?
It is a bit like the opening of A Tale of Two Cities: ''It was the worst of times, it was the best of times.” On one hand we see balances exceeding historical peaks and revenues achieving the same, according to both EquiLend and S&P Global data. At the same time, there are challenges in a number of regional markets as they review their market structure and the way that securities financing fits into their own capital market positioning.
PASLA has been engaging with the developing markets in the region, including China, the Philippines, Indonesia and Sri Lanka, to help them to enhance their capital markets by initiating reviews of either short-selling or securities lending.
Real investment appetite is key, so the underlying companies, the growth vector and opportunity are the fundamental factors driving securities financing activities in the markets. There is a significant variance in market profiles and investment returns across the region, as you would expect in a region as diverse as APAC. But it is clear that the more open capital market structures have benefitted significantly as they continue to encourage the free flow of risk capital.
What are you hearing from your members in terms of demand and where do you identify the strongest opportunities in the market for 2024?
Demand flows are strong. As our member firms adapt to the increased rate environment, they are all adjusting how they consider capital and collateral costs, so the demand drivers continue to be a combination of hedging, financing and the creation of acceptable collateral. The returns dispersion among equity indices within the region reflects this as Japan hits all-time highs in the Nikkei 225, while other regional benchmarks have struggled in 2023-24.
Key sectors of demand focus are as broad as any other region, but there continues to be particular interest in property, transport, technology and industrials as Asia — and not just China — remains the engine room for the rest of the world.
Deep markets that offer liquidity at a time of macro uncertainty — such as Japan, Hong Kong and Australia — are active and healthy in terms of demand and supply factors and we look to the issuance calendar for the year ahead.
What are the key priorities for PASLA over the coming 12 months?
More with more. As we grow the association, both in terms of our membership and the reach and impact of our advocacy, we will continue to develop our delivery for our member firms that is anchored in their requirements and aligned with the needs of all our stakeholders. We expect to see more bespoke thematic discussions that drive the agenda for the industry across Asia Pacific.
Our top priorities include the following:
Progressive integration of securities finance across APAC: We want to play a proactive role in driving progress towards the greater integration of securities finance within capital markets structures across the region. APAC markets are on a long-term journey towards integrating securities finance. While we do not expect the characteristics of securities finance to be uniform across such diverse markets, maintaining progress towards the integration of securities finance in market structures is critical as this delivers benefits including increased liquidity, more efficient price discovery and greater attractiveness to global investors.
Rethinking securities finance: Securities lending and the ability to cover short positions are core elements of securities finance, but developing a robust, liquid market structure involves a broader spectrum of securities finance activities. PASLA is committed to educating all stakeholders about — and advocating for — all aspects of securities finance, including market access, securities-backed lending, repo and margin financing.
Leveraging innovation: The digitalisation of securities finance is poised to deliver meaningful benefits to financial institutions and underlying markets. Emerging technologies such as distributed ledger technology (DLT) can enable streamlined processes, risk reduction and capital optimisation in the securities finance ecosystem. PASLA works to educate our members, as well as APAC exchanges and regulators, about the innovation landscape, supporting them in making informed strategic choices.
Which new emerging markets are currently attracting the most attention from market participants? How do you see these markets progressing over the next year?
From a market access perspective, it continues to be about the efficient use of capital to gain access to regional markets, so securing economic exposures while ensuring assets can be financed is critical to a large segment of the PASLA membership. This enables members to continue to scale their business activity and to address the needs of their client base, while managing their own scarce resources. Basel III and the proposed capital changes will only increase this focus on the financing quality of an asset.
We have also seen constructive deregulation in Indonesia and the Philippines as they seek to develop a broader range of hedging solutions for investors within their capital market structures.
How did the associations decide on Singapore as this year’s PASLA Conference destination? How significant is the country’s performance in the overall securities lending market in APAC?
Singapore is a leading financial centre in the region and a key hub for many of our member firms, as well as the broader community of asset managers, family offices and regional sovereign wealth funds. That makes it a natural choice for this year’s PASLA conference.
With a strong capital markets infrastructure and a world-class regulatory environment, Singapore has scope for a more vibrant securities finance ecosystem to help enhance turnover, particularly if it can leverage its strengths in wealth and asset management.
What can market participants expect from this year’s conference? What are the predominant themes of the event?
One of the themes is the advocacy for the full product suite that exists within securities finance. We are embracing the business activities of all our members and this is a clear focus for our new executive leadership team.
In terms of breadth, our agenda brings perspectives from inside and outside of our industry on themes including asset allocation, emerging markets, fixed income, hedge funds, liquidity investors, market access derivatives, operations, technology and leadership.
For depth, PASLA is bringing together the whole APAC securities finance community, as ever. This year, the conference will be attended by asset allocators, asset managers, beneficial owners, central banks, custodians, prime brokers, technology providers and other participants. We are looking forward to welcoming participants from more than 22 countries and territories.
With regards to optimising for the future, securities finance in Asia Pacific faces an exciting, but fluid, future. Record balances and revenues point to the scale of the commercial opportunity in the region, but market participants must balance their global focus on costs with the case for investment to capture growth in APAC.
