A number of countries in Asia could still be defined as
frontier markets and therefore require synthetic or other
bespoke market access solutions. As a result, in many respects
the region remains a fragmented CSD environment, further
complicated by the fact that many banks still clear through
their EU or US entities.
The Asian securities lending market is characterised by
comparatively high volumes, offset by a rich specials market
generating high returns, says Philip Morgan, head of business
development at Pirum Systems.
"Settlement transaction costs are generally quite high, which
when paired with both new loan and return volumes can be a
significant factor in ensuring a profitable programme. There is
typically more sensitivity around the recalls process and sell
fails in Asian markets due to quite strict policies around
settlement failures on the exchanges, which often results in
clients holding higher buffers (up to 50% in some cases) for
in-region securities. This means that significant specials
revenue can be left on the table."
By closing the right position and using tools that allow
minimum duration and return size, agent lenders can limit their
transaction costs. Additionally, markets such as India have
very specific CCP requirements and unique operating models,
which require local technology builds.
Without technology, trading and post-trade activities can be
prone to errors from the manual processes involved. "Automated
trading platforms and post-trade technology not only allow
agent lenders and broker dealers to optimise their efficiency,
but also reduce costs and minimise the risk of manual input
errors," says Andrew McCardle, head of EquiLend
"Market data allows lenders and borrowers to make
informed trading decisions. However, there are still some
domestic markets within the region that are reluctant to accept
technology vendors as eagerly as the global participants have.
Even when you have a global standard, it does not mean that
those standards are adopted by all markets."
McCardle suggests that beneficial owners in Asia Pacific face
the same issues as their peers in other parts of the world and
are demanding a similar level of clarification on performance.
"There is certainly a better understanding of benchmarking by
beneficial owners in smaller regional markets than there ever
has been, due to the work agents have undertaken to educate
Real-time processing and a obtaining a multi-asset view of all
securities and associated collateral are becoming central
requirements. Broadridge’s head of strategy and
business development Asia, James Marsden, says that he is
surprised by the number of legacy systems that are unable to
cope with the shortening settlement cycles coming through in
Asia Pacific markets, such as the move to T+2 in Australia and
New Zealand and forthcoming changes in Japan.
"These shortening settlement cycles increase the need to borrow
due to the higher likelihood of failed settlements with
non-residents as a result of time zone differences," says
Marsden. "As the market evolves we expect this drive towards
greater transparency to become a feature of Asian markets. The
ability to aggregate data, visualise it in a way that supports
strategic decision making and then automate internal, client
and regulatory reporting of this data is the key to dealing
with the demands of the new market and regulatory