Almost half (49.5%) of conference delegates said there would be a shortfall of eligible collateral over the next 12 to 24 months, according to a poll conducted at Clearstream and SGX’s Global Securities Financing (GSF) Conference Asia in Singapore.
Some 4.9% of delegates, representing pan-regional institutions, infrastructures, investment banks, universal banks and central banks, thought the shortfall would be “significant”.
“There is plenty of collateral in the market globally, but much of it is fragmented and so difficult to unlock and mobilise. As a result, institutions are losing money through inefficient collateral management,” said Stefan Lepp, member of the executive board and head of GSF at Clearstream.
The poll reflects the increasing concern of market participants, both in Asia and globally, about a potential shortfall of high-quality collateral in light of new rules demanding OTC derivatives to be collateralised and traded via central counterparties.
To the same question in regards to a potential shortfall, 28.4% of delegates said there would be no shortfall and 17.3% said they did not know.
While 93.4% of delegates “agreed” or “strongly agreed” that sourcing the most appropriate collateral to cover global exposures had become a priority, 83.8% indicated that they will still have “much work to undertake” to move towards a more efficient collateral management solution in their institutions. Only 2% said they had “no more work to undertake” in this area.
Lepp said that a number of factors would likely lead to a shift to more secured lending and stronger demand for collateral management in Asia.
Over a third of delegates (37.8%) said improvement of collateral management availability was the main influence in Asian investors’ shift from unsecured to secured lending. Although the largest portion (39.8%) cited the main reason being “the local regulator adopting new rules to encourage secured lending”, while 22.4% said lower cost for secured lending.
The poll explored the possibility of using firms’ Singapore-held assets as collateral. Some 44.3% of delegates said an “efficient collateral management solution” would be an important deciding factor for their institution, 22.7% said “competitive pricing”, 18.2% said “trusted collateral management provider” and 14.8% said “global connectivity”.
The conference also revealed that tri-party repos would become increasingly attractive to corporates as a replacement to cash deposits, with 84.5% of the delegates agreeing that this would be case.