Asia Securities Lending Forecast to Grow by 25% Next Year

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Hot off the press following our inaugural Securities Financing Forum in Hong Kong yesterday, my report looks at reasons to be cheerful about securities lending in Asia.

The Forum was chaired by CNBC’s Steve Sedgwick who did a great job ensuring a lively debate with a first rate line up of 150 experienced panelists and delegates. We had representatives from beneficial owners, agent lenders, prime brokers and hedge funds from across Asia. Dr Michael McKenzie from the University of Sydney spoke about the role of short selling in financial markets in his excellent keynote speech. We’ve posted market statistics and the results of the interactive questions on our website at http://www.dataexplorers.com/hklive.

As I’ve highlighted, Asia is the driving force for global securities lending at the moment. Whilst the regulatory environment varies across the region, the backdrop of rising securities valuations and a thriving IPO market has created a solid foundation for securities lending growth. Asia’s contribution has increased from 14% to 18% over the past year and half the delegates predicted the region’s contribution will increase by between 20-25% over the coming year.

What is remarkable is that the smaller Hong Kong market has now overtaken Japan as the top Asian market by securities lending revenues – for the first time. This has been driven by demand to borrow outstripping supply, leading to high fees being charged by custodians.

Regulation across Asia was the hot topic of the day. It’s no surprise that the regulatory environment is evolving at different rates across the region, with some markets still in an embryonic state. The speed and clarity of regulatory reform will impact the future success of securities lending in Asia. While regulation in Australia was chastised for inhibiting liquidity in its approach to securities lending, delegates heaped praise on Hong Kong’s regulatory body, the SFC, which was congratulated for its non interventionist approach during the crisis and dialogue with the market. Some held up the SFC as a ‘model’ regulator which ensured the region did not experience the same declines as seen in the mature markets of Europe and the US.

The ongoing debate about the need for a central counterparty for our industry threw up some interesting results, with half the audience not thinking it was necessary – being either suspicious of it or because they did not consider it to be of interest to beneficial owners.