Securities Financing Forum Hong Kong
Data Explorers would like to thank everyone who attended the 2011 Securities Financing Forum in Hong Kong and invite you to register for the 3rd annual Hong Kong Forum on 16th October 2012. For a taste of last year's Forum, here is the presentation, voting results, editorial and photographs from our 2011 Forum.
Event Photos
Asian Securities Financing in a Global Context
Will Duff Gordon’s introductory presentation focused on a macro-economic overview of the globe and how Asia fits into the global economic environment. Issues of supply and demand for securities lending were evaluated and Hong Kong was discussed as a particular market. Duff Gordon concluded with the question: Who is the most important person for the future of securities financing? His answer: Shan Fulin, head of the China Banking Regulatory Commission who will be shaping the future of securities financing regulation in China. At the conclusion of the presentation, the audience voted overwhelmingly that the top of the cycle for Hong Kong demand has not been reached.
Economics Focus
Speaker David O’Rear, Chief Economist, Hong Kong General Chamber of Commerce
According to David O’Rear, Hong Kong General Chamber of Commerce Chief Economist, Asia is the ‘least worst place to be’. The panel heard that Hong Kong is like a broker, taking commission on trade regardless of the global economy, so can weather this storm. By contrast, China is still reliant on European and US growth. Milton Friedman was wrong: inflation is not everywhere. We have subdued consumer consumption leading to low inflation (UK being the exception). Low inflation makes economic growth harder and unless countries grow their GDP by 3% or more they cannot reduce their deficits. Stagnation and indebtedness will prevail. But, China will soon have enough domestic demand to keep Asia going. “At present, European politicians are doing an excellent job at making the US politicians look good!” said the Californian Economist.
Panel: The dynamics of ETFs in Asia
Mark Brady, Director, BlackRock
Keith Chan, Head of Listed Products Sales, Wealth Management Sales, Global Markets, HSBC
Frank Henze, Managing Director of SPDR Exchange Traded Funds, Asia Pacific, State Street Global Advisors
If there were leveraged ETF products, retail take up would be greater in Asia. While this is NOT exactly what the panelists said, it is an extension of their view that Asian investors like to take risk and like volatility. As seen in Europe, the industry is held back by a lack of incentive for financial advisers to sell these products to their clients. 90% of the AUM is contained in the top 5 most liquid Asian ETFs. Asian Hedge Funds are not as hungry to borrow and short ETFs as their American peers due to the bespoke service they get from their Prime Brokers who create tailored swaps products in lieu. This product is in its infancy but SSGA, iShares, HSBC and others are off and running to build it up through educational seminars and discussion with regulators. Given their experience of how well it works in the US and the challenges being thrown at ETFs in Europe, they have the experience and skill to get it on its feet “within 2 years”.
Presentation: Launching Asian quantitative strategy
Chris Pearce, Marshall Wace
Dr André Stern, Founder and Principal, Oxford Asset Management
Philip Winter, Director, Global Prime Finance Asia, Deutsche Bank
Adam York, Head of Equity Finance and Delta One Sales, Asia-Pacific, HSBC
Oxford Asset Management’s Andre Stern gave his unique viewpoint its customary entertaining airing. Prime Brokers from Deutsche Band and HSBC gave as good as they got when he described having multiple PBs as “spray and pray”. Most of his ire was directed at European regulators, which came as no surprise. Central counterparts, transparency and new regulation will damage markets. “The world has to be careful what it wishes for”. One panelist gave an insight into how crowded and expensive short selling is in Hong Kong when he said that recently 30 funds rang up to borrow the same stock on one day.
Academic Presentations
Dr Dragon Tang, Associate Professor of Finance, School of Economics & Finance, Faculty of Business & Economics, The University of Hong Kong
Dr Zsuzsa Reka Huszar, Assistant Professor, Finance, National University of Singapore
Dragon Tang of The University of Hong Kong showed that he is breathing fire into the topical world of Government bond borrowing and his work will be avidly followed by us as he makes further progress. For now, the audience was interested in conclusions that Utilization leads the fee for European Government bonds. Zsusa Husar of The National University of Singapore gave a tour de force on why regulators should make laws based upon empirical evidence rather than knee jerk reactions. In Japan, all forms of short selling add value to the local market and price efficiency without exaggerating volatility.
Risk v Reward: Agency Lending
After so much factual and verbal evidence of the “squeeze” to prime broker profit margins due to high lending fees (a global phenomenon as far as specials are concerned) it was obvious to dive straight into this topic when faced with a panel of the people who set the rates. As expected, they did not offer up much sympathy and said they had little choice but to maximize the return from lending and if the borrowers didn’t like it they could vote with their feet and return stock. Any fee rises would be done across the book, commented a direct lender from the audience when pushed on this by a major prime broker. However, this comment came from a very large Custodian in the break out session, “the beauty of this market is that the price is set by supply and demand. If the price is too steep this will impact demand and so far it isn’t but, we ARE sensitive to this.” We also had a good debate on the safe custody of assets in light of recent tales of misappropriated client assets in a recent US brokerage bankruptcy. A hedge fund in the audience commented that they are very interested in this area and prime brokers who have partnered with Custodians are on the right track.
The panel consensus was that certain beneficial owners were still unrealistic in their income expectations. Some were close to leaving this business if they couldn’t generate a minimum income (hence the need to accurately price specials in this low interest rate period in time). We debated how the Agent Lenders could unlock more supply and it did not sound like there were any silver bullets on this point but that steady education was required for beneficial owners in emerging Asian markets. This was a lively panel with lots of audience participation and we’d like to thank those involved.
Panel: The future - what factors will affect the securities financing industry in Asia?
Kirtes Bharti, Credit Suisse
Lawrence Komo, Citi
Francesco Squillacioti, Senior Managing Director, Regional Business Director, Asia-Pacific, State Street
While Asia is a bright spot, Citi’s Lawrence Komo brought us back to earth with some useful reminders to trim our largesse. Many of the audience worked for banks headquartered in the US or Europe. Such firms are under great pressure to cut costs. Life is all about efficiency and cost savings in some senses. Another panellist countered that he had been in Asia long enough to know the time it takes for new markets, such as China, to fully open up to short selling. He said that bankers coming to Asia from the West looking for easy pickings would be heading for a fall: “They will find that markets are more complex to trade in, we work harder and you will be paid less.” I wonder if that last part will be true for long!
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