Ed Donald, Global Head of Repo at Standard Chartered, spoke to Global Investor about the bank’s financing capabilities and key repo and collateral trends across Asia Pacific.
Standard Chartered has established Asia divisions focused on repo and collateral. How would you summarise the firm’s offering at present?
We’ve had an integrated repo & collateral trading desk in Asia for many years now and have deep expertise in local repo markets. We are a primary dealer in many of the local sovereign bond markets and can offer offshore secured financing as well as onshore local currency financing in many of these markets. In addition, we provide clients with bespoke solutions helping them to solve their collateral and liquidity challenges, optimising capital and regulatory ratios, through the use of repos and collateral swaps for example. Being a local custodian or sub-custodian in many of these markets gives us a solid footing.
Repo and collateral markets are bespoke in Asia. The market is more fragmented than in other regions. What capabilities are required in order to successfully service your client base?
Standard Chartered Bank has had a presence in several Asian countries for over 160 years, so we understand the complexities around regional markets. Technical product expertise is also key and in some cases we are asked to advise local regulators on the best way to develop repo markets and open them to internationalisation. We have developed broad relationships with clients and partnerships with infrastructure providers over time and this really helps us to have a better idea of what can be done. I also feel that our unique history in the region amongst other things reflects our solid commitment to Asia and that is valued by clients.
Are you seeing a move from unsecured to secured financing in the region? If so, why do you think this is occurring?
The main reason is regulatory reform which has forced some banks’ hands: for example, margin reform has meant some smaller banks and securities houses have had to focus on collateral in more detail, with all that entails, in order to get ahead of regulatory deadlines. More broadly, the regulatory landscape for securities financing has changed a lot post financial crisis. Whereas previously the repo market was consolidated across a small handful of large dealers, mainly based in the west, post-crisis regulation has raised the cost of capital and balance sheets globally. This means there is a huge benefit to be gained from optimising asset and collateral holdings and banks that understand regional requirements such as Standard Chartered are in a good position to help clients achieve that.
What are the new ways of doing business across repo and collateral? Are peer-to-peer structures becoming more prevalent?
Asia is still very relationship driven and we ensure we take a partnership approach with our clients – we don’t close them out over reporting periods in particular – which has meant we have built up trust with consistent and stable pricing. Repo is still relatively new in Asia compared to Europe or the US, for a number of different reasons. The fragmentation of markets here means peer-to-peer will be difficult. Legal approaches, jurisdictions, netting, differences in central bank and regulator methods of transmitting monetary policy all add to the complexity. It is certainly noticeable however that over the last couple of years we have seen a real growth in the amount of institutions becoming involved in the market.
How would you summarise the potential impact of Bond Connect on the repo and collateral markets?
China is one of the largest equity and bond markets in the world and is on the path of opening up domestic securities markets in response to a clear demand. This is a very large strategic market for Standard Chartered. We were the first foreign bank to gain a China fund custody licence last year and we eagerly look forward to Bond Connect repo being launched, potentially scheduled for later this year. We have seen a great deal of interest in this from our international clients, but the challenge I foresee is whether some of the operating parameters such as the legal documentation and execution platforms will be easy enough for clients to access, as traditionally the offshore repo markets operate in a very different way to the onshore CNY market.