Securities Financing in Asia-Pacific

Can you explain your position and how you plan to develop the BNP Paribas’ securities finance business in the various countries of the APAC region?

As head of BNP Paribas’ Market and Financing Services business in APAC for a year now, I am responsible for the bank’s clients in the region and the growth of our products and services. This involves developing new trading partnerships, exploring new markets and building new client relationships.

At BNP Paribas, our securities financing franchise is organised globally; leveraging on international clients that hold domestic market assets and local client relationships that invest across global markets.

This product architecture means that our Market and Financing Services product teams enjoy a level of autonomy in the way we integrate solutions for our clients, as many of the cash and securities flows take place, intra-regionally, within APAC. This autonomy, of course, comes with a corresponding level of control and responsibility to ensure that our activities are growing in a controlled and secured manner, within the risk, compliance and regulatory guidelines of the bank and our clients.

What are your plans and key priorities to develop the securities finance business of BNP Paribas in the APAC region?

Here are our key priorities:

Increase the pool of lendable inventory: securities finance is still very much a market driven by demand. Borrowers remain sensitive to the size and quality of participating portfolios within lending and borrowing programmes, as available inventory often outstrips demand, across the market. On the lending side, clients continue to search for additional revenues in a risk-controlled manner and our lending programmes are designed to match these expectations.

Enhance the client experience. Over the last two years, we have been delivering significant change to our securities financing products. One important tenet of these developments has been to future-proof our programmes with the anticipated regulatory, infrastructure and short to long term technological developments.
These upgrades include the utilisation of a Transfer Account structure to bulk deliver securities to market borrowers, and the development and deployment of a completely new client web-based reporting portal. These are just some examples of the way in which the client experience is being enhanced across all the important aspects clients value, such as performance, efficiency, risk-control and accessibility to accurate and timely information.

Grow our business in certain markets. As their regulatory framework is evolving, we believe it is the right time to accelerate our participation in markets such as South Korea, Taiwan and Japan. In South Korea, the expected lifting of the stock short-selling ban should reinvigorate market demand. Fresh new inventory to accompany the anticipated growth and activity in the market will need to be sourced.

Reinforce our footprint in the financing space. Term trades designed to improve regulatory liquidity ratios continue to grow and deliver sound and stable benefits to participants. We expect that ACGBs¹ will continue to be sought after, as long as collateral takers accept collateral of a lower credit rating, a prevalent strategy where under an agency lending model, associated risks are typically mitigated by the indemnification offered by the Agent Lender.

Lastly, we ambition to go beyond single solutions and open a more holistic world of opportunities to our clients for a more efficient integrated model. For example, at BNP Paribas, a client can leverage our agency lending infrastructure to lend to BNP Paribas as a counterparty, while using BNP Paribas to manage the collateral under a tri-party management structure.

What are the challenges APAC clients are facing in the securities finance business and how do we address them?

In securities finance, our asset owners and asset managers clients are facing a new economic cycle of increasing interest rates, which in turn, puts downward pressure on the value of fixed income securities investments made during the previous cycle of flat or negative interest rates. One of the challenges our clients have, is how to try and avoid selling these assets today at a discounted value. Our securities lending and financing solutions allow them to participate in repurchase agreement transactions (REPOs), directly with BNP Paribas, to postpone asset sales and smoothen the negative accounting impact.

Another challenge all clients perpetually face is that of generating revenues while at the same time reducing costs. This is often a global challenge rather than one specific to the APAC region. This trend is often seen as one that allows businesses to focus on delivering core services and generating alpha, in a controlled manner, so a development we expect to see more of, in the coming 12 months. Our lending and financing services not only offer various routes to distribute liquidity and generate revenues, but they also provide a model where our entire suite of services vertically integrate the trading, back-office, trade maintenance and reporting aspects of the transaction. We believe this transversal approach delivers a strong value proposition to our clients, that addresses their expectations and challenges.

Which trends do you anticipate in the short term for the securities finance business?

Our clients are becoming more and more sophisticated with often strong direct connections to market counterparties. For strategic reasons, these clients are happy to leverage our financing/lending infrastructure, while at the same time, maintaining a desire to be involved in the trading aspects of a transaction. Where appropriate, we welcome this coupled approach and involve our clients in the negotiation of structured transactions. This way, our clients benefit from maintaining direct exposure with market contacts keeping them informed of trends, demand, fee levels and general market and industry commentary.

How do you anticipate that the settlement cycle will change in the various APAC markets following the recent events (North America has adopted T+1 recently)?

The possible and progressive move into T+1 settlement cycles in APAC markets is likely to be an area of focus across all market participants. A key priority will be to accommodate these changes while minimising any negative impact to the quality of our lending service or our clients’ capacity to mobilise their securities, when needed. Additionally, with the potential evolution surrounding China’s onshore repo market, this development could be of strong interest to us, materialising new opportunities related to the search and supply of liquid collateral.

In what areas of your business are you prioritising investment?

We have committed significant investment budget and resources over the past few years and continue to do so, to advance the growth ambitions of our products, globally. A key aspect of these development plans has been to constantly streamline and integrate our processes across the entire lifecycle of a loan. This will help ensure the business is perfectly positioned for the anticipated global move to shorten settlement cycles.

In addition, we have built a new Agency Lending application within our client portal NeoLink which features ‘state-of-the-art’ reporting functionality, covering performance metrics and risk and compliance KPIs. This allows lenders to have a more ‘hands on’ experience in their securities lending programmes. This new application is scheduled to be delivered to clients, soon in-2025 and we expect the functionality to continuously evolve each year, adapting to what our clients want to see and do.

Notes :

¹ ACGB: Australian Commonwealth Government Bonds