Trésorier/Treasurer magazine - N°99 - Nov/Dec/Jan 2018 - 33

FORUM
Although largely content with
bank deposits, Asia's corporate
treasurers are highly sensitive to
the risks of relying too heavily on
one instrument to fill their cash
investment needs.

Not only are banks showing a strong appetite for offering
high-quality liquid assets as collateral to secure corporate
cash, but - in league with service providers and market
operators - they are revisiting market practices to make a
previously bank-led market more user-friendly to a wider
range of participants.

Diversifying risk
Although largely content with bank deposits, Asia's corporate
treasurers are highly sensitive to the risks of relying too heavily on one instrument to fill their cash investment needs.
Yields can rise and fall, regulations can change incentives
and appetites overnight, unexpected market events can
impact systemic stability, panellists acknowledged.
"Ten years ago, extreme market stresses prevented corporates from placing deposits and they may face similar
challenges in the future," warned Jack Cheung, CEO of Hong
Kong's Treasury Markets Association, and a former banker.
Whether attracted by the prospect of higher returns or the
need to diversify, treasurers must offset potential gains
against the costs of entering and maintaining participation in
an unfamiliar market.

It has long been practice for new repo participants to trade
via a Tri-Party Agent (TPA) to effectively outsource day-to-day
collateral management operations and reporting.
In recent years, the capabilities of TPAs have evolved steadily
to further simplify the management of market-specific workflows, such as substitutions.
Dennis Zhou, Head of Investment, CGNPC Huasheng Investment, noted that recently-established repo markets - such
as China's exchange-traded market - offered standardised
collateral baskets and high levels of automation. "Screenbased trading and standardisation are preferable to daily negotiations with counterparties on collateral, from a corporate
perspective," he said.
For the time being, Asian corporates are taking a more cautious approach to the repo market than western counterparts, due to a less urgent need to diversify cash investment
options.
"Trends in Europe and the US have driven corporates toward
the repo market, but the Asian market is different, not least
because of higher rates," said Kenneth Ng, Corporate Treasurer at DFS Group.
"Nevertheless, repo could help us diversify." When Asian
corporates are ready to explore the repo markets, the ongoing
changes to market practice currently should ensure an
increasingly smooth on-boarding process.
Euroclear
"Trends in Europe and the US
have driven corporates toward
the repo market, but the Asian
market is different, not least
because of higher rates," said

JAN 2018

Under the new rules, corporate participation is a priority.
"In effect, Basel III's Net Stable Funding Ratio makes cash
raised from non-financial corporates via less than six-month
repo preferable to cash from financial institutions of the
same tenor," explained Yanny Leung, Vice President, Bank
Resource Management, Morgan Stanley.

Similarly, the operational implications of entering the repo
market are being addressed.

- NOV / DEC /

But the impact has been felt most strongly in Europe and the
US, where the repo markets are dominated by the systemically-important banks most affected by post-crisis reforms,
prompting a range of efforts to bolster repo market activity,
seen as critical to day-to-day bank funding operations.

N°99

Repo market activity by many banks has declined in recent
years, largely thanks to higher balance sheet costs resulting
from Basel III.

While all agreed that the various legal agreements governing
repo transactions can be complex and long to negotiate,
Leung pointed out that initiatives such as Euroclear's RepoAccess (which enables non-bank participants to transact
with multiple counterparts under a common agreement) were
already simplifying and shortening the onboarding process.

Alongside the regional differences in the weight of push factors nudging treasurers to consider repo, a major pull factor
- the needs of existing market participants - is also subject
to local variation.

Logistical challenges
Panellists identified three key logistical barriers to Asian
corporates entering into the repo markets: documentation,
operational set-up and board approval.

LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE

funds, thus responding positively to entreaties by banks to
participate in the repo markets.

Kenneth Ng, Corporate Treasurer
at DFS Group.

Table des matières de la publication Trésorier/Treasurer magazine - N°99 - Nov/Dec/Jan 2018