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Country Profile: Singapore’s securities finance market

15 March 2017

Regulations would bring Singapore in line with international short-selling guidelines, with tri-party collateral management set to be increasingly adopted by local banks

Singapore equity data supplied by IHS Markit
  • Singapore is the sixth largest market in Asia Pacific
  • Singapore stock lending revenues grew by 6% in 2016 to $33m
  •   Average fees fell by 8bps to 1.1% which was counteracted by a 12% jump in balances
  •   Noble and Semcorp Marine generated the most revenue for lenders
  •   Inventories grew by 8% to $38.5bn, a new all-time high

Market participants have witnessed Singapore’s capital market rules and infrastructure mature over time, aligning with international best practice. Political and economic stability have also attracted companies to the region. It remains, however, more of a back-office hub and struggles to match the lending and borrowing levels of its main rival Hong Kong – where most brokers choose to set up shop and do business.

Back in 2014 the average value of lendable equity securities totalled $50bn (all figures USD). This figure has reduced in recent years ($43bn in 2015, $37bn in 2016) although the value of equity securities on loan has remained relatively constant around US$2.7bn and average fees have stayed just north of 1.1%.

Singapore Exchange (SGX) is the preferred listing location for close to 800 companies, including a large proportion of foreign listings.

The Monetary Authority of Singapore (MAS) recently proposed new rules that would require investors to report short sales of shares – a further sign authorities are stepping up scrutiny of investors who take a negative view on listed companies and aggressively sell their shares.

However, MAS has said short selling "can enhance the price discovery process and maintain market discipline". Its proposals aim to enhance transparency by requiring market participants to mark short-sell orders to the exchange and report short positions above a certain threshold.

MAS said the regulations would bring Singapore in line with international short-selling guidelines. The rules would apply to the immediate legal owners of the stocks, while designated market makers would be exempt. The regulator intends to give the industry four months to implement the new rules, once they are finally published. Reportable positions include those equivalent to or more than 0.05% of eligible shares or S$1m ($700,000) in aggregate value.

Tri-party collateral management is set to be being increasingly adopted by local banks, which are facing increasing regulatory demands along with their global peers. "In Singapore we are seeing some local players upgrading their systems in order to become active," says Davin Cheung, global funding and financing sales, APAC, Clearstream Banking.

"They are not active yet partly because system and relevant support capability is not there to support tri-party, but some are willing to invest good amounts of money to update and prepare for OTC derivatives margin rule implementations and selection of third-party collateral agents. That is quite a significant development over the past 12 to 24 months."

Looking ahead, the Singapore market’s defensive nature helps cushion against downside risks in a risk-off environment. The dividend yield is one of the highest in the region, while healthy balance sheets and free-cashflow generation are supporting dividend payout ratios. There are tentative signs of earnings bottoming.

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