Securities lending in Asia is looking increasingly attractive
in spite of challenges around regulation and technology,
according to a panel at the Pasla/RMA Conference on Asian
Securities Lending in Tokyo.
"We’ve definitely seen momentum in Asia," said
Eric Champion, director, Bank of America Merrill Lynch, Hong
He noted several reasons for why the region is important for
the lending business, the first being growth in the hedge
fund industry where AuM has returned to pre-Lehman levels and
that there have been "quite a few" hedge fund launches.
Secondly, it is difficult to find good spreads in the US and
Europe where the average lending fee is "around 40 to 50
basis points". By contrast, spreads in Asia are much
"Regulatory issues around capital and pressure on balance
sheets are pushing market participants to look at where
spreads are highest - which is in Asia," Champion said.
Gareth Mitchell, global head of securities finance, Citi,
agreed with Champion.
"Over the last few years we’ve seen increased
asset allocation from our underlying beneficial owners in the
Asia region… There’s been interest in
emerging market (EMs) returns that the US and European
markets haven’t been achieving."
Some of the most attractive EMs in Asia include Taiwan,
Korea, and Malaysia.
Mitchell said that the percentage of revenue his business
generates is increasingly flowing from Asia.
"There is a lot of untapped territory in Asia for asset
managers", said John Vaughan, MD and head of Japan prime
services, Credit Suisse, adding that the
region’s growth prospects are "some of the best
in the world".
As Vaughan pointed out, there are some 22,000 listed
companies in Asia, of which 2,300 have a market cap of more
than $1bn. Out of those 2,300 companies, only around 1,000
are covered by research banks, he said.
While Asia does present opportunities for beneficial owners,
there are several challenges including higher risk and vast
diversity among regulatory regimes that can make trading
John Shellard, director and global head of trading, JPMorgan
said: "I wouldn’t necessarily say that Asia is
more attractive than other regions. Some markets in Asia do
offer high spreads but this is offset against greater risk."
Vaughan said there are sometimes capacity issues in finding
managers that have expertise in Asia.
But Shellard acknowledged there is room for growth in
existing and emerging Asian securities lending markets
whereas the markets in the US and Europe are very mature.