PASLA/RMA securities lending conference: covering the bases
06 March 2013 Hong Kong
Image: Shutterstock
This year’s Pan Asia Securities Lending Association (PASLA)/Risk Management Association Conference on Asian Securities Lending kicked off with an introduction to the business, courtesy of Dominick Falco of BNY Mellon and Robert Nichols of J.P. Morgan.
The two swapped anecdotes as they took beginners, and those in need of a refresher, through the issues of proxy voting rights, the rare event of recalling, and legal agreements between counterparties. It was noted that lending has grown from a vanilla function that is solely intended to grease the wheels of settlement—staffed by “one guy who went on holiday a couple of times a year”—into something more elaborate. The basic statistics were given, with Taiwan requiring 140 percent collateral surprising some conference attendees who are new to the business.
One pertinent question from attendees was the issue of the Italian transaction tax on Asian countries, with it being generally agreed that the short side of the business would indeed be affected, considering stocks such as Prada and their existence in the Hong Kong market.
Current issues were also addressed in the next session. This included a market overview of securities lending in Asia, whereby attendees were informed of key issues to consider before entering an emerging market. These included settlement process, tax rules, manufactured dividends and clients’ sales.
In India, it was explained that for now, there are restrictions on insurance companies and lending, but hope was expressed that this would change further on in the year. A healthy discussion on central counterparties (CCP) followed, with various advantages, including improved liquidity, an option to anonymously trade and reduced systemic risk, being offset by challenges such as additional costs to lending agents. Minimal capital requirements may put off some smaller parties, and it was agreed that various other regulations were promoting a CCP concept without fully or sufficiently defining platforms.
Finally, one participant illustrated the oft-thought about but unspoken challenge of CCPs: the emotional factor of lenders having to give up all of their tools for managing risk when they hand management over to a CCP. While it may be a relief to some, it was not doubted that this would come as a blow for those who prefer to keep full oversight and control in-house.
The two swapped anecdotes as they took beginners, and those in need of a refresher, through the issues of proxy voting rights, the rare event of recalling, and legal agreements between counterparties. It was noted that lending has grown from a vanilla function that is solely intended to grease the wheels of settlement—staffed by “one guy who went on holiday a couple of times a year”—into something more elaborate. The basic statistics were given, with Taiwan requiring 140 percent collateral surprising some conference attendees who are new to the business.
One pertinent question from attendees was the issue of the Italian transaction tax on Asian countries, with it being generally agreed that the short side of the business would indeed be affected, considering stocks such as Prada and their existence in the Hong Kong market.
Current issues were also addressed in the next session. This included a market overview of securities lending in Asia, whereby attendees were informed of key issues to consider before entering an emerging market. These included settlement process, tax rules, manufactured dividends and clients’ sales.
In India, it was explained that for now, there are restrictions on insurance companies and lending, but hope was expressed that this would change further on in the year. A healthy discussion on central counterparties (CCP) followed, with various advantages, including improved liquidity, an option to anonymously trade and reduced systemic risk, being offset by challenges such as additional costs to lending agents. Minimal capital requirements may put off some smaller parties, and it was agreed that various other regulations were promoting a CCP concept without fully or sufficiently defining platforms.
Finally, one participant illustrated the oft-thought about but unspoken challenge of CCPs: the emotional factor of lenders having to give up all of their tools for managing risk when they hand management over to a CCP. While it may be a relief to some, it was not doubted that this would come as a blow for those who prefer to keep full oversight and control in-house.
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