Navigating the twists and turns
04 January 2022
Paul Solway, director and communications officer at PASLA, speaks to SFT about standout events during 2021, the focus of the Association’s development activities and securities lending markets to watch during 2022
Image: stock.adobe.com/Funny Studio
What were the standout events that most shaped the securities lending industry during 2021 from a PASLA perspective?
This has been a year in which bodies representing the global securities lending industry have become more coordinated and more focused on ESG.
As ESG continues to dominate the news and shape priorities for financial institutions, PASLA is proud to be at the forefront of the integration of securities lending with ESG principles. Alongside the Risk Management Association (RMA), we launched the Global Framework for ESG and Securities Lending (GFESL) in May this year. The aim of GFESL is to identify the touchpoints between ESG and securities lending and provide market participants with a framework for making decisions in those areas that align with their organisational ESG objectives.
On the back of GFESL, the five major securities lending associations globally came together to form the Global Alliance of Securities Lending Associations (GASLA). This Alliance aims to seek closer collaboration on global priorities for the industry — for example, to provide insight into ESG integration and advocate for the benefits of transparent and regulated short-selling to liquid and sustainable capital markets.
Another initiative we have been focusing on heavily this year is the standardisation of documentation. This led to PASLA entering into a new legal services arrangement with ISLA in relation to the development of the Global Master Securities Lending Agreement (GMSLA) suite of documents, which becomes effective in
January 2022.
The new arrangement has been agreed by the Boards of the two Associations and will facilitate the support and development of future annexes and addendums identified as requisites for securities lending activity in Asia Pacific markets, with input from specialists from the region.
PASLA’s purpose remains unchanged — to promote open, transparent and efficient securities lending across the Asia Pacific and a key priority is supporting the continued liberalisation of financial markets in mainland China, especially as it relates to hedging tools and securities lending. As foreign investment in Chinese markets reaches record highs, in spite of this year’s volatility, our members and prospective members are very focused on this market.
What were the primary risks and points of inefficiency confronting your members coming into 2022? How well has the industry managed these challenges?
Many PASLA members are global banks and financial institutions across Asia Pacific. They continue to manage a balancing act with limited resources and time as they navigate multiple markets in different time zones, higher revenue targets, funding and balance sheet constraints, cost pressures and heightened local and global competition.
We have seen some of our members remaining in product offerings that are more plain vanilla with an appeal to the mass market. In contrast, some participants have concentrated in niche markets that help generate higher returns — such as China, for example, where we expect the greatest expansion.
There is no right or wrong answer to this as long as sound risk management is applied in the decision-making process. As an industry, though, it is important not to set too many thin margin or loss-making precedents as it is hard to reverse decisions that may have wider market ramifications than anticipated.
What has been top of PASLA’s priority list in terms of regulatory engagement during 2021? And work through your member workstreams and working groups?
Top of the priority list for PASLA would be the launch of the ESG framework and the formation [of GASLA] with our global peers as a unified voice that represents the securities lending industry. Our work with the International Securities Lending Association (ISLA) to bring conformity to the legal documentation repository is also high on our agenda to ensure there is a coordinated industry approach to meet market needs.
Despite the inability to travel and visit local regulators around the region, PASLA has continued to engage with regional exchanges. In Taiwan, we have seen the relaxation of some market rules to improve liquidity and activity. In Indonesia and the Philippines, PASLA has advocated and advised on local SBL exchange-driven platforms and short-selling regulations. In India, we have worked closely with market intermediaries to align with global standards by reducing previous tenure constraints for lending and borrowing contracts of 30 days to up to 12 months.
In China, PASLA has worked very closely with the Asia Securities Industry & Financial Markets Association (ASIFMA) to speak with Chinese regulators and exchanges on the utilisation of the recently available stock borrow facility via the Qualified Foreign Investor (QFI) channel. A number of initiatives are in the pipeline, including reporting of positions as well as creating a uniform interpretation of some rules that would disadvantage certain market participants. PASLA has also continued to work on the previous Connect reforms, but QFI reform outpaces that at this point.
A newly established PASLA Collateral Working Group has created a list of action points across each market to pursue advocacy and promote changes designed to encourage the use of local and global collateral in our region by interacting with exchanges and regulators. A good example of this is the gradual but important take up of Stock and Bond Connect listed securities as collateral, under a pledge structure. PASLA’s other working groups have also delivered high quality webinars throughout the year on topics around ESG, collateral, China, technology and other market updates.
PASLA is committed to a more inclusive securities lending market and we were pleased to deliver a number of events on this topic during 2021. These included a virtual workshop on unconscious bias and an in-person get-together with PASLA members and market participants to officially kick off the PASLA Inclusion Network.
Which markets in the Asia-Pacific region offer strong opportunities as emerging and frontier securities lending markets? What steps are needed to develop these markets?
As mentioned previously, China has a number of initiatives in the pipeline and it will continue to generate strong opportunities in the years to come.
The Philippines working group at PASLA has continued to support the Philippines Stock Exchange (PSE) in addressing market concerns. One of the immediate priorities is the upcoming changes for short selling regulations to allow use of GMSLA and offshore collateral.
For Indonesia, the working group has assisted Bank Indonesia on its plans for introducing securities lending for Indonesian bonds.
PASLA is one of five regional trade associations to join GASLA in September. What are your objectives as a founder member?
GASLA provides a common voice for the global securities lending market, advocating for transparent and standardised practices that include the integration of ESG factors and the important digital evolution that supports efficient, liquid, and sustainable capital markets.
As a collective global voice for the securities lending industry, GASLA seeks to enable positive and impactful engagement with stakeholders, including regulators, policymakers, and standard-setting bodies in all regions. GASLA was formed with inclusivity as a core principle and welcomes securities lending and financial markets associations globally.
Many regional issues are morphing into global issues as regulators collaborate more closely across jurisdictions and regions while industry participants are thinking, acting and executing more globally. With the formation of GASLA, the aim is to avoid replication across different regions. This serves as a platform for knowledge sharing around the pertinent issues affecting us globally, such as ESG.
What is top of PASLA’s working agenda moving into 2022?
China will be a top priority because of its size, progressive reforms and importance to our members. We will also be focusing on more emerging markets like the Philippines and Indonesia by engaging local regulators and exchanges as they develop their securities lending frameworks and regulations.
ESG will remain at the centre of what we do. Working alongside our GASLA partners will enable us to support the ESG agenda more effectively for our member firms as the road ahead twists and turns, but ultimately becomes clearer.
This has been a year in which bodies representing the global securities lending industry have become more coordinated and more focused on ESG.
As ESG continues to dominate the news and shape priorities for financial institutions, PASLA is proud to be at the forefront of the integration of securities lending with ESG principles. Alongside the Risk Management Association (RMA), we launched the Global Framework for ESG and Securities Lending (GFESL) in May this year. The aim of GFESL is to identify the touchpoints between ESG and securities lending and provide market participants with a framework for making decisions in those areas that align with their organisational ESG objectives.
On the back of GFESL, the five major securities lending associations globally came together to form the Global Alliance of Securities Lending Associations (GASLA). This Alliance aims to seek closer collaboration on global priorities for the industry — for example, to provide insight into ESG integration and advocate for the benefits of transparent and regulated short-selling to liquid and sustainable capital markets.
Another initiative we have been focusing on heavily this year is the standardisation of documentation. This led to PASLA entering into a new legal services arrangement with ISLA in relation to the development of the Global Master Securities Lending Agreement (GMSLA) suite of documents, which becomes effective in
January 2022.
The new arrangement has been agreed by the Boards of the two Associations and will facilitate the support and development of future annexes and addendums identified as requisites for securities lending activity in Asia Pacific markets, with input from specialists from the region.
PASLA’s purpose remains unchanged — to promote open, transparent and efficient securities lending across the Asia Pacific and a key priority is supporting the continued liberalisation of financial markets in mainland China, especially as it relates to hedging tools and securities lending. As foreign investment in Chinese markets reaches record highs, in spite of this year’s volatility, our members and prospective members are very focused on this market.
What were the primary risks and points of inefficiency confronting your members coming into 2022? How well has the industry managed these challenges?
Many PASLA members are global banks and financial institutions across Asia Pacific. They continue to manage a balancing act with limited resources and time as they navigate multiple markets in different time zones, higher revenue targets, funding and balance sheet constraints, cost pressures and heightened local and global competition.
We have seen some of our members remaining in product offerings that are more plain vanilla with an appeal to the mass market. In contrast, some participants have concentrated in niche markets that help generate higher returns — such as China, for example, where we expect the greatest expansion.
There is no right or wrong answer to this as long as sound risk management is applied in the decision-making process. As an industry, though, it is important not to set too many thin margin or loss-making precedents as it is hard to reverse decisions that may have wider market ramifications than anticipated.
What has been top of PASLA’s priority list in terms of regulatory engagement during 2021? And work through your member workstreams and working groups?
Top of the priority list for PASLA would be the launch of the ESG framework and the formation [of GASLA] with our global peers as a unified voice that represents the securities lending industry. Our work with the International Securities Lending Association (ISLA) to bring conformity to the legal documentation repository is also high on our agenda to ensure there is a coordinated industry approach to meet market needs.
Despite the inability to travel and visit local regulators around the region, PASLA has continued to engage with regional exchanges. In Taiwan, we have seen the relaxation of some market rules to improve liquidity and activity. In Indonesia and the Philippines, PASLA has advocated and advised on local SBL exchange-driven platforms and short-selling regulations. In India, we have worked closely with market intermediaries to align with global standards by reducing previous tenure constraints for lending and borrowing contracts of 30 days to up to 12 months.
In China, PASLA has worked very closely with the Asia Securities Industry & Financial Markets Association (ASIFMA) to speak with Chinese regulators and exchanges on the utilisation of the recently available stock borrow facility via the Qualified Foreign Investor (QFI) channel. A number of initiatives are in the pipeline, including reporting of positions as well as creating a uniform interpretation of some rules that would disadvantage certain market participants. PASLA has also continued to work on the previous Connect reforms, but QFI reform outpaces that at this point.
A newly established PASLA Collateral Working Group has created a list of action points across each market to pursue advocacy and promote changes designed to encourage the use of local and global collateral in our region by interacting with exchanges and regulators. A good example of this is the gradual but important take up of Stock and Bond Connect listed securities as collateral, under a pledge structure. PASLA’s other working groups have also delivered high quality webinars throughout the year on topics around ESG, collateral, China, technology and other market updates.
PASLA is committed to a more inclusive securities lending market and we were pleased to deliver a number of events on this topic during 2021. These included a virtual workshop on unconscious bias and an in-person get-together with PASLA members and market participants to officially kick off the PASLA Inclusion Network.
Which markets in the Asia-Pacific region offer strong opportunities as emerging and frontier securities lending markets? What steps are needed to develop these markets?
As mentioned previously, China has a number of initiatives in the pipeline and it will continue to generate strong opportunities in the years to come.
The Philippines working group at PASLA has continued to support the Philippines Stock Exchange (PSE) in addressing market concerns. One of the immediate priorities is the upcoming changes for short selling regulations to allow use of GMSLA and offshore collateral.
For Indonesia, the working group has assisted Bank Indonesia on its plans for introducing securities lending for Indonesian bonds.
PASLA is one of five regional trade associations to join GASLA in September. What are your objectives as a founder member?
GASLA provides a common voice for the global securities lending market, advocating for transparent and standardised practices that include the integration of ESG factors and the important digital evolution that supports efficient, liquid, and sustainable capital markets.
As a collective global voice for the securities lending industry, GASLA seeks to enable positive and impactful engagement with stakeholders, including regulators, policymakers, and standard-setting bodies in all regions. GASLA was formed with inclusivity as a core principle and welcomes securities lending and financial markets associations globally.
Many regional issues are morphing into global issues as regulators collaborate more closely across jurisdictions and regions while industry participants are thinking, acting and executing more globally. With the formation of GASLA, the aim is to avoid replication across different regions. This serves as a platform for knowledge sharing around the pertinent issues affecting us globally, such as ESG.
What is top of PASLA’s working agenda moving into 2022?
China will be a top priority because of its size, progressive reforms and importance to our members. We will also be focusing on more emerging markets like the Philippines and Indonesia by engaging local regulators and exchanges as they develop their securities lending frameworks and regulations.
ESG will remain at the centre of what we do. Working alongside our GASLA partners will enable us to support the ESG agenda more effectively for our member firms as the road ahead twists and turns, but ultimately becomes clearer.
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