Paul Wilson of J.P.Morgan explains how its Asia-Pacific agent lending business is providing full coverage in the region.

What would you say are the critical factors for success in Asia-Pacific?

What is so important about having a local presence?

It is really important to be able to conduct business on a real-time basis locally and communicate with clients in their own language. It means issues, questions and challenges can be dealt with as they unfold. J.P.Morgan doesn’t just have representative offices in Asia-Pacific with the majority of lending activity being done elsewhere. Across the firm, J.P. Morgan has a very broad range and depth of capabilities, from trading, markets, prime brokerage to custody, which is really useful in supporting lending for our clients in some of the APAC markets. That means that our securities lending business within APAC is highly self-sufficient and a fully embracing microcosm of a global business. J.P. Morgan is one of the few providers that have full end-to-end capability in the region.

What are the differences in approach and needs of Asia-based lenders?

For instance, in Taiwan if there were to be a settlement fail, then potentially the lender can be shut out of the market altogether. Therefore, when lending in Taiwan, it is critical this does not happen. As an agent we need to be fully cognisant of these different requirements and structure our service and support to meet them. Having the local presence I mentioned for all aspects of the business really helps. 

In Taiwan, J.P. Morgan provides both sub-custody and is a prominent local broker. That provides significant benefits, as all parts of the process are contained within J.P. Morgan. Therefore, for instance, if there is a sale or recall, we are ideally structured to deal with it. It also helps differentiate ourselves and give clients the comfort they need to enter lending in this market. At the same time you have to be global. Lenders in Asia-Pacific are sophisticated, very thoughtful and demand connectivity with other regions, serviced locally.

By the nature of complex markets, of course issues happen on the odd occasion. But we find lenders are understanding, so long as issues do not repeat themselves. The local presence again helps here in terms of communication. Also, understanding the exacting standards in the region allows us to build controls, processes and buffers to minimise the potential for issues. We have set ourselves up to meet the expectations of our lenders in Asia (and globally).  This has consistently been recognised in the Global Investor/ISF Beneficial Owner Survey where we have been either first or second ranked for the Asian region in every year of the survey.

Are there differences across the region?

Yes. There are three distinct sub-regions: Australia, Japan and the remainder of Asia each have their own set of unique requirements for locally based lenders. From a local market perspective the first two are well developed and similar to other developed markets around the world. However within Asia, each market has a fairly unique set of market requirements. We have more than 60 dedicated mutli-lingual resources across the region to support our lending business. Hong Kong, Korea and Taiwan, for example, are all high revenue-producing markets for those lending there, but each has its own unique characteristics. If you are going to optimise revenue for clients, whilst mitigating and managing risk, understanding and managing all the idiosyncrasies is essential.

I mentioned the importance of avoiding settlement fails in Taiwan. When undertaken any SBL transaction it must be inputted into the local stock exchange system there by a local broker. Further, for international lenders there is a requirement to submit monthly tax reporting/returns. As noted previously, J.P. Morgan is a local broker in Taiwan, so end-to-end that process is all within our own organisation, and we have established links with tax firms to allow our clients to comply with their local reporting requirements.

Asian markets are incredibly valuable because they provide a significant source of revenue for international lenders. We consistently see several Asia-Pacific markets showing strong demand to borrow securities particularly across sectors like energy, technology, commodities and real estate. This brings us back to another unique feature of Asia-Pacific markets. Markets across Europe and the US, for several years now, have supply of assets outweighing demand to borrow. In several Asian markets the situation is a little different whereby there is still a lack of supply and therefore a strong demand to borrow.

Good question. They are very important to us as they represent a strategically important component of our growth strategy. We currently have approx. 40 lending clients across the region, both custody-related and increasingly third-party (non-custody), which is a fast growing part of the franchise. Typically, across lending we are not competing with local firms for business. We are focused on the Asian assets of international investors and the international assets of Asian investors. There are occasional exceptions to this, such as in Malaysia, where there is strong demand to borrow and minimal international supply so we have been tapping into the local supply of domestic investors. Again, this is a case where being in the local markets and understanding the global environment lets us deliver solutions that meet a range of client need.

This article appeared in Global Investor/ISF's Securities Finance Asia Pacific Guide for 2016.