Singapore
12 April 2011
Securities lending is one of the smaller components of Singapore’s
market. But is that about to change?
Image: Shutterstock
The economic crisis has focused the global banking world into an area where excitement was already strong. Pretty much everyone now agrees that Asia is where everything is happening. And Singapore, as one of the most well-established markets, is reaping the benefits.
Although the one party state is unlikely to promote any bad news, Singapore has not seen any major upset to its economy in the last couple of years. Indeed, visitors to the country are unlikely to notice much difference now compared to two or three years ago.
In terms of infrastructure, there are few jurisdictions that can compete with this one. Singapore has one of the best-educated workforces, strong communications links and a welcoming tax environment that encourages high earning ex-pats. This is coupled with a low cost of living and a historical connection to Western economies, so plenty of ambitious finance staff are attracted to the island.
The opportunities in Asia continue to grow, both in established markets such as Hong Kong and Japan, as well as the newer economies of Vietnam and its neighbours. Meanwhile, the Chinese authorities appear constantly on the verge of further liberalisation - an event fund managers are already salivating over
Since full independence in 1965, Singapore has gone from strength to strength. A stable government that has long concentrated on ensuring the legal, technological and infrastructure resources are in line with the requirements of international investors.
As one of the four Asian Tigers - along with Hong Kong, South Korea and Taiwan - Singapore’s population is educated and highly regarded as efficient and comparatively low-cost compared to other financial centres. It’s now considered the fourth largest financial centre in the world.
Singapore is enjoying growth from all quarters. Domestically, savings are rising and institutional investment has had a relatively successful couple of years. As one of the safest jurisdictions in the world, let alone in Asia, it has also attracted regional and international investors looking for a flight to quality.
“Singapore has one of the best reputations of any domicile anywhere in the world,” says local consultant John Ng. The government has good relations with most of the rest of the world, and it has made it a priority to remain a centre that is attractive to the global investment community. This is combined with a wealthy local populace who are comfortable with making investments through the many funds on offer to locals.”
Technically, Singapore cannot be beaten. Its electronic infrastructure means that communication is fast and easy, with built-in failsafes for if anything ever does go wrong. It has a highly educated and motivated workforce, a low tax environment and a Western outlook when it comes to language and culture.
The Singapore Exchange (SGX) has long been regarded as one of the more forward-thinking exchanges, and has made great strides in attracting new participants. All CDP securities holder can participate in the SGX securities lending programme.
Securities lending
Unlike markets in North America, there has been no restriction - temporary or otherwise on short selling, the regulators believing that the market was functioning perfectly well without them. But to put the market in line with other exchanges in Asia, the SGX recently implemented compulsory identification of short sales with daily published aggregated short selling volumes.
While virtually every global banking player has a presence in the country, their securities lending operations tend to be run from Hong Kong or, occasionally, other jurisdictions. The securities lending market itself is mostly supported by local firms, often in association with the multinationals. “Opportunities are not as strong as in other markets in Asia and this does not give rise to fierce competition amongst firms or increase the maturity of the market in this region,” explains one Singapore-based trader.
“Singapore is typically regarded as the smaller brother to markets like Hong Kong. This is demonstrated by the fact that the majority of broker dealers’ front offices are located in Hong Kong,” he continues. “However, Singapore tends to be more of an operational hub providing global support. Singapore is making steps to increase its attractiveness for broker dealers as evidenced by recent structural announcements at SGX.”
SGX launched its securities lending programme on January 7, 2002. The motivations behind this move were to pave the way for the development of a securities lending market in Singapore, to provide improved investment and hedging opportunities for market participants and to help create a more sophisticated capital market structure in Singapore.
They can register as a lending participant even if they currently do not have eligible securities or the requisite quantity. Once registered participants have eligible shareholdings, the exchange will lend securities on their behalf.
By borrowing and lending in this way, lenders and borrowers remain mutually anonymous and with CDP as the principal all lenders are protected. Lenders can sell at any time, even if their securities are out on loan and lending is done based on an algorithm to maintain fairness.
From the start of July, SGX has had a new organisational structure, which it says will capitalise on all opportunities within the Asian markets. There are now 10 business units and seven support units, which are designed to ‘provide sharper focus on key products and customer segments’.
Under this facility, the Central Depository (CDP) acts as counterparty to both lenders and borrowers and assures the return of all lent securities or their cash value equivalent, in the unlikely event the borrowed securities are not returned. Borrowers will need to pledge collateral (include cash, letters of credit from banks, and securities acceptable to CDP) for all loans.
Through Depository Agents (DAs) in Singapore, investors can register as lenders and/or borrowers of the list of selected stocks listed on the SGX Mainboard.
Currently, retail investors can lend their stock scrips to SGX for a flat annual rate of four per cent. The exchange will then allow other parties to borrow the stocks at an annual rate of six per cent.
But SGX looks set to allow market forces dictate the rate at which participants can borrow the securities of retail investors in a move that it says will increase liquidity.
SGX says it plans to allow market forces to decide the interest rate on less liquid stocks, creating specials that can attract double-digit rates.
No timeframe has been set for the change to the current system.
“Right now there’s no incentive for participants to lend specials on exchange,” says one market player. “But this could change - liquidity at the moment is ok, but it could get a lot better if the market supports this plan.”
Although the one party state is unlikely to promote any bad news, Singapore has not seen any major upset to its economy in the last couple of years. Indeed, visitors to the country are unlikely to notice much difference now compared to two or three years ago.
In terms of infrastructure, there are few jurisdictions that can compete with this one. Singapore has one of the best-educated workforces, strong communications links and a welcoming tax environment that encourages high earning ex-pats. This is coupled with a low cost of living and a historical connection to Western economies, so plenty of ambitious finance staff are attracted to the island.
The opportunities in Asia continue to grow, both in established markets such as Hong Kong and Japan, as well as the newer economies of Vietnam and its neighbours. Meanwhile, the Chinese authorities appear constantly on the verge of further liberalisation - an event fund managers are already salivating over
Since full independence in 1965, Singapore has gone from strength to strength. A stable government that has long concentrated on ensuring the legal, technological and infrastructure resources are in line with the requirements of international investors.
As one of the four Asian Tigers - along with Hong Kong, South Korea and Taiwan - Singapore’s population is educated and highly regarded as efficient and comparatively low-cost compared to other financial centres. It’s now considered the fourth largest financial centre in the world.
Singapore is enjoying growth from all quarters. Domestically, savings are rising and institutional investment has had a relatively successful couple of years. As one of the safest jurisdictions in the world, let alone in Asia, it has also attracted regional and international investors looking for a flight to quality.
“Singapore has one of the best reputations of any domicile anywhere in the world,” says local consultant John Ng. The government has good relations with most of the rest of the world, and it has made it a priority to remain a centre that is attractive to the global investment community. This is combined with a wealthy local populace who are comfortable with making investments through the many funds on offer to locals.”
Technically, Singapore cannot be beaten. Its electronic infrastructure means that communication is fast and easy, with built-in failsafes for if anything ever does go wrong. It has a highly educated and motivated workforce, a low tax environment and a Western outlook when it comes to language and culture.
The Singapore Exchange (SGX) has long been regarded as one of the more forward-thinking exchanges, and has made great strides in attracting new participants. All CDP securities holder can participate in the SGX securities lending programme.
Securities lending
Unlike markets in North America, there has been no restriction - temporary or otherwise on short selling, the regulators believing that the market was functioning perfectly well without them. But to put the market in line with other exchanges in Asia, the SGX recently implemented compulsory identification of short sales with daily published aggregated short selling volumes.
While virtually every global banking player has a presence in the country, their securities lending operations tend to be run from Hong Kong or, occasionally, other jurisdictions. The securities lending market itself is mostly supported by local firms, often in association with the multinationals. “Opportunities are not as strong as in other markets in Asia and this does not give rise to fierce competition amongst firms or increase the maturity of the market in this region,” explains one Singapore-based trader.
“Singapore is typically regarded as the smaller brother to markets like Hong Kong. This is demonstrated by the fact that the majority of broker dealers’ front offices are located in Hong Kong,” he continues. “However, Singapore tends to be more of an operational hub providing global support. Singapore is making steps to increase its attractiveness for broker dealers as evidenced by recent structural announcements at SGX.”
SGX launched its securities lending programme on January 7, 2002. The motivations behind this move were to pave the way for the development of a securities lending market in Singapore, to provide improved investment and hedging opportunities for market participants and to help create a more sophisticated capital market structure in Singapore.
They can register as a lending participant even if they currently do not have eligible securities or the requisite quantity. Once registered participants have eligible shareholdings, the exchange will lend securities on their behalf.
By borrowing and lending in this way, lenders and borrowers remain mutually anonymous and with CDP as the principal all lenders are protected. Lenders can sell at any time, even if their securities are out on loan and lending is done based on an algorithm to maintain fairness.
From the start of July, SGX has had a new organisational structure, which it says will capitalise on all opportunities within the Asian markets. There are now 10 business units and seven support units, which are designed to ‘provide sharper focus on key products and customer segments’.
Under this facility, the Central Depository (CDP) acts as counterparty to both lenders and borrowers and assures the return of all lent securities or their cash value equivalent, in the unlikely event the borrowed securities are not returned. Borrowers will need to pledge collateral (include cash, letters of credit from banks, and securities acceptable to CDP) for all loans.
Through Depository Agents (DAs) in Singapore, investors can register as lenders and/or borrowers of the list of selected stocks listed on the SGX Mainboard.
Currently, retail investors can lend their stock scrips to SGX for a flat annual rate of four per cent. The exchange will then allow other parties to borrow the stocks at an annual rate of six per cent.
But SGX looks set to allow market forces dictate the rate at which participants can borrow the securities of retail investors in a move that it says will increase liquidity.
SGX says it plans to allow market forces to decide the interest rate on less liquid stocks, creating specials that can attract double-digit rates.
No timeframe has been set for the change to the current system.
“Right now there’s no incentive for participants to lend specials on exchange,” says one market player. “But this could change - liquidity at the moment is ok, but it could get a lot better if the market supports this plan.”
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