SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

OVERVIEW OF THE SECURITIES FINANCING MARKETS

> Asia Pacific

As displayed in figure 16, the Asia Pacific equities lendable assets reached USD66bn in Q2 2010 for a total on loan of USD4bn. If compared with Europe, it is not a very active market with an average ratio of “total on loan/lendable assets” of only 6%.

Figure 16: Lendable assets and total on loan, Asia Pacific (Q2 2010)

Lendable assets (USD MM) Total on loan (USD MM) Total on loan (%)

Asia Pacific bonds

Non available Non available

Non available

Asia Pacific equities

41,820

6%

658,613

15,612

6%

> Japanese

283,275

12,034

9%

> Hong Kong

140,219

7,792

6%

> Australia

135,592

1.4

6,382

6%

> Other Asia Pacific

99,527

Source: RMA quaterly aggregate data survey, Q2 2010

With USD28bn of lendable assets and a USD1.6bn total on loan in Q2 2010, the Japanese equities lending market remains the largest in Asia, accounting for 37% of equities lent in value. Despite a 28% decline compared to Q2 2009 (USD21.6bn on loan), the Japanese equi- ties lending market still comfortably exceeds both the Hong Kong and Australian markets. The Australian compulsory superannuation scheme is an important driver for growth on the supply side of securities lending in Australia. It was introduced in 1992 and began as a 3% compulsory superannuation contribution by the employer of any worker in the country. Over the years it has grown to 9% where it currently stands today. These massive superannua- tion funds represent a very large and growing pool of assets, and one that has historically engaged in securities lending 8 . The expansion of securities lending and borrowing into new markets Continuing deregulation and tax changes make possible the establishment of new se- curities lending markets. The list of new markets continues to grow. Latin America for example, in particular Brazil, continues as a promising and yet largely under-penetrated region for borrowing and lending. Other markets to watch include Eastern Europe, Israel and a few in Asia. General themes in these markets include the potential to earn significant spreads in the early stages, often less-developed legal, tax and regulatory regimes, and a shortened market development cycle 9 .

1.4.2

Analysis of ICMA data (European repo market)

In terms of market size, the European repo market is much bigger than the European secu- rities lending market, since repo has become the main refinancing product in Europe. As the unsecured money markets get more limited and expensive, the secured repo product became the way that banks managed liquidity and collateral and is now the predominant method. The last survey conducted by ICMA shows in Europe a proportion of 85% for repos and 15% only for securities lending as at December 2009.

8 Source : Australian Securities Lending Association (ASLA) 9 Source : Investor Services Journal, ”Securities Lending Market Guide 2009”, 2009

Securities Lending & Repo markets | page 27