PASLA And RMA Hold First Joint Sec Lending Gathering In Hong Kong

The Pan Asian Securities Lending Association (PASLA) held its annual conference in Hong Kong last week, co hosted for the first time with PASLA's sister U.S. organization, the Risk Management Association (RMA). The conference was well attended by market practitioners

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The Pan Asian Securities Lending Association (PASLA) held its annual conference in Hong Kong last week, co-hosted for the first time with PASLA’s sister U.S. organization, the Risk Management Association (RMA).

The conference was well-attended by market practitioners from all segments of the securities lending industry, according to an HSBC spokesman. Representatives from a number of exchanges, depositories and regulators across the region provided updates on the development of securities lending in their respective markets, the spokesman said.

Some of the highlights of the conference follow:

In Hong Kong, the Securities and Futures Commission said that, in conjunction with Hong Kong Exchanges and Clearing, it will initiate market consultation exercises to assess participants’ views on the following issues:

The viability of creating a central onshore stock borrowing and lending (SBL) utility to act as a counterpart in certain SBL transactions

The potential for reviewing the existing tick rule with a view to removing the restrictions placed on borrowers where short sales are required to be executed at or above the current best offered price.

The Taiwan Stock Exchange (TSE) announced that scripless local government bonds were expected to be approved as acceptable collateral for securities lending transactions during the second quarter of 2004.

At present, only eligible listed stocks (as announced by TSE on a quarterly basis) on the TSE, the GreTai Securities Market and ETFs and TWD cash are acceptable as collateral for securities lending transactions.

The TSE also announced that the introduction of new functionality to the existing securities lending and borrowing system in the second quarter of 2004 would enable market participants to:

Effect partial returns on stock lending transactions for all three types of SBL transactions

Rollover a securities loan transaction for an additional period of up to six months once the initial six-month maximum loan term has matured

Receive returned cash collateral (with interest) from the TSE directly into cash accounts held with their custodian bank, rather than receiving it to the custodian account via the local broker.

In Korea, the Korea Securities Depository (KSD) outlined the following developments to the existing SBL infrastructure:

He Ministry of Finance is expected by June 2004 to publish further clarifications to the existing rules relating to tax on manufactured dividends.

Partial returns of loans are expected to be permitted from the beginning of May 2004

The KSD is working towards an extension to the current permitted limit of KRW5 billion of securities that non-residents can borrow from local investors.

In China, a panel of industry experts reviewed the existing legislation, pointing out that short-selling was not currently permitted in the market. A bill seeking to address this restriction may be submitted later this year, according to some attendees, although that potential development was not confirmed, said the HSBC spokesman.

Further development will be required in other areas before SBL becomes viable in China, some attendees said, including the establishment of the concept of close out-netting, a fundamental component of all market-standard SBL agreements, which does not currently exist in China.

The Securities and Exchange Commission (SEC) provided a number of updates on the current SBL market regulations in Thailand:

The SEC and the Bank of Thailand are reviewing the feasibility of removing the current restriction forbidding banks from lending to non-residents

The SEC expects a relaxation of the existing restrictions that prevent mutual and private funds from engaging in short selling activity during the third quarter of 2004

The Thailand Securities Depository (TSD) is developing a market standard SBL legal agreement, based on the Global Master Securities Lending Agreement to be used by all market participants.

In an effort to lower the barriers to entry for small- to medium-sized market participants to the securities lending and borrowing market, the TSD is also considering creating a central service utility for SBL intermediaries, including brokers and custodians. The utility will provide matching and delivery facilities with the objective of increasing lending and borrowing activity.