Euroclear, BNY Mellon and J.P Morgan discuss future of collateral usage onshore at PASLA event
01 September 2021 Hong Kong
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Pan Asia Securities Lending Association (PASLA) held a webinar which discussed the future development of collateral management, emerging APAC markets in the international space and the complexities facing asset owners.
The online event was hosted by PASLA director Paul Solway, who introduced webinar speakers; head of PASLA's collateral working group and BNY Mellon product manager, Greig Ramsay, PASLA member and chief representative of the Euroclear Singapore representative office, Joseph Tan and PASLA executive board member and J.P. Morgan product manager, Bhavna Haswani.
Solway asks Tan about the future development of collateral usage onshore, referencing Euroclear’s signing of an MOU in China.
Tan says: “Regarding collateral management in China, the aim is to first allow easier access of onshore debt securities for international investors. The ability to access local debt issuance, and potentially denominated in an alternative (hard) currency, would be key.
“As with the majority of ICSD-eligible markets today, the overarching principle is that we need to allow the ability for the securities to move between beneficial owners in a very free and uninterrupted manner.
“Having said that, we’re also looking at similar initiatives in the region in the Middle East, in South Asia, as well as one particular market in North Asia."
Euroclear’s Tan hopes the launch of its flower bond series with China is a step in the right direction to allow easier access to the onshore market in China and to be able to refinance the securities within the tri-party platform.
Turning to BNY Mellon’s Ramsay, Solway inquires about the emerging APAC markets that are being seen in the international space.
Ramsay says: “Firstly, there is a great deal of interest in China. Although there are tri-party collateral solutions for Connect schemes, there continues to be significant demand for the ability to finance assets on-shore in China. Advocating for the required changes is something the market and, in particular PASLA, continues to do.
“I think we're generally starting to make some progressive strides on-shore in China and over the next couple of years, we'll start to see changes supporting the wider use of collateral.
“Secondly, we are seeing a number of questions from clients in relation to India. Although the time horizon for this is likely to be much longer given there are a number of other limitations which preclude the use of collateral for foreign investors. A number of these are currently being discussed in relation to Uncleared Margin Rules. However, this will take more time."
Lastly and aside from smaller regional markets, BNY Mellon’s Ramsay says that a key collateral focus in APAC surrounds the ability to post non-cash collateral to central counterparties (CCPs). Conversations with exchanges and CCPs continue with PASLA and as part of wider industry organisations. “However, what is clear is the industry continues to focus on key issues and there's a huge amount still to be done within APAC,” adds Ramsay “So it's definitely an exciting time”
The webinar’s third speaker, J.P. Morgan’s Haswani, also provided audiences with insights into the complexities faced by asset owners and buy-side firms, in regards to uncleared margin regulation (UMR) and over-the-counter (OTC) derivative transactions.
She says: “The onset of uncleared margin regulation has seen the emergence of OTC derivatives transactions, which need to be collateralised with initial margin posted and segregated at a third-party custodian.” This has added to the complexity faced by asset owners and buy-side firms, which require a holistic overview of where collateral is held, what securities are on loan and how margin calls can be met in the most cost-effective way.
“Moreover, greater demand has shifted the collateral management function into the spotlight and, because of the current binding constraints, it has moved it from being a back office function to a front office one,” says Haswani. Tri-party agents are thereby investing in asset mobilisation tools to allow clients to move assets in the most cost-effective and operationally efficient manner.
This PASLA webinar is one of a series of workshop-type webinars that the association has scheduled in the coming months.
The online event was hosted by PASLA director Paul Solway, who introduced webinar speakers; head of PASLA's collateral working group and BNY Mellon product manager, Greig Ramsay, PASLA member and chief representative of the Euroclear Singapore representative office, Joseph Tan and PASLA executive board member and J.P. Morgan product manager, Bhavna Haswani.
Solway asks Tan about the future development of collateral usage onshore, referencing Euroclear’s signing of an MOU in China.
Tan says: “Regarding collateral management in China, the aim is to first allow easier access of onshore debt securities for international investors. The ability to access local debt issuance, and potentially denominated in an alternative (hard) currency, would be key.
“As with the majority of ICSD-eligible markets today, the overarching principle is that we need to allow the ability for the securities to move between beneficial owners in a very free and uninterrupted manner.
“Having said that, we’re also looking at similar initiatives in the region in the Middle East, in South Asia, as well as one particular market in North Asia."
Euroclear’s Tan hopes the launch of its flower bond series with China is a step in the right direction to allow easier access to the onshore market in China and to be able to refinance the securities within the tri-party platform.
Turning to BNY Mellon’s Ramsay, Solway inquires about the emerging APAC markets that are being seen in the international space.
Ramsay says: “Firstly, there is a great deal of interest in China. Although there are tri-party collateral solutions for Connect schemes, there continues to be significant demand for the ability to finance assets on-shore in China. Advocating for the required changes is something the market and, in particular PASLA, continues to do.
“I think we're generally starting to make some progressive strides on-shore in China and over the next couple of years, we'll start to see changes supporting the wider use of collateral.
“Secondly, we are seeing a number of questions from clients in relation to India. Although the time horizon for this is likely to be much longer given there are a number of other limitations which preclude the use of collateral for foreign investors. A number of these are currently being discussed in relation to Uncleared Margin Rules. However, this will take more time."
Lastly and aside from smaller regional markets, BNY Mellon’s Ramsay says that a key collateral focus in APAC surrounds the ability to post non-cash collateral to central counterparties (CCPs). Conversations with exchanges and CCPs continue with PASLA and as part of wider industry organisations. “However, what is clear is the industry continues to focus on key issues and there's a huge amount still to be done within APAC,” adds Ramsay “So it's definitely an exciting time”
The webinar’s third speaker, J.P. Morgan’s Haswani, also provided audiences with insights into the complexities faced by asset owners and buy-side firms, in regards to uncleared margin regulation (UMR) and over-the-counter (OTC) derivative transactions.
She says: “The onset of uncleared margin regulation has seen the emergence of OTC derivatives transactions, which need to be collateralised with initial margin posted and segregated at a third-party custodian.” This has added to the complexity faced by asset owners and buy-side firms, which require a holistic overview of where collateral is held, what securities are on loan and how margin calls can be met in the most cost-effective way.
“Moreover, greater demand has shifted the collateral management function into the spotlight and, because of the current binding constraints, it has moved it from being a back office function to a front office one,” says Haswani. Tri-party agents are thereby investing in asset mobilisation tools to allow clients to move assets in the most cost-effective and operationally efficient manner.
This PASLA webinar is one of a series of workshop-type webinars that the association has scheduled in the coming months.
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