What has been Scotiabank’s prime services strategy over the past few years for developing new regions across the bank’s footprint?
John Stracquadanio: When we first began to expand our prime services business in select regions globally, we wanted to ensure that we created a global network that allowed our clients, in Canada and elsewhere, to have the same Scotiabank experience and receive the same level of service, regardless of where their underlying assets were actually domiciled.
We have grown our client base across Scotiabank’s global footprint and we have reshaped our teams to create a solid team and infrastructure that is relevant and delivers high-quality service.
Are Scotiabank’s securities lending and prime brokerage services part of your initial offering when entering a new region or does this come after traditional products are established?
Stracquadanio: At Scotiabank, securities lending and prime brokerage, either in a cash or synthetic form, continues to be a core product within our global banking and markets business. We approach our customers with advice and multi-product solutions aligned to their needs.
Our strategy involves complementing these products with other services and products such as agency equity execution. This can be done in partnership with our equity division or as a built in-house solution.
The securities lending and prime brokerage services are catalysts for our expansion in a region. They allow us to be consistent in terms of our locations, our behaviour toward inventory acquisition, securities lending and coverage of clients from a regional perspective. Although there are regional nuances, this allows us to be consistent in the way we serve our clients.
We tailor our products to be region-specific, while adhering to Scotiabank’s business model. Although we aim to be as consistent as possible, there are some regional differences between our products in Europe, North America and Asia.
When we look at Asia and how it fits within Scotiabank’s global footprint, we see the importance not only of having a clear understanding of the region, but how important it is to have an actual bricks-and-mortar regional presence. While our team in North America can explain the benefits of entering the Asian market to our clients, to effectively manage a global portfolio, it’s extremely important to have subject matter expertise on the ground and supporting tools available within the region.
Everything is changing very rapidly, nowhere more so than Asia. Our mantra is ‘start small, build out and deliver high quality service’.
How does the prime services team approach emerging markets and is there any correlation that allows products to translate between similar emerging regions?
Stracquadanio: Taking Latin America as an example, Scotiabank has had a longstanding traditional banking presence in the region. The assumption was that this would give our prime services business an advantage, however, it didn’t immediately translate well into our other products due regional nuances.
In Latin America, investors generally do not use margin or securities lending extensively. The markets weren’t ready for us.
It was challenging to create a product that worked for all of Latin America because each market is so different, and we have found this to be the same in Asia. You cannot have a broad-brush product like the one you could have for Europe or the US.
Once you understood the nuances of the Latin America markets, with mandatory CCP markets and less developed clients, were you able to apply those lessons to Asia?
Stracquadanio: There are similarities in terms of our approach to a developing legal and regulatory securities lending environment.
But it is not as easily transferred as one might think. A product for Peru couldn’t be translated for Indonesia, or even Colombia. These markets are customer-driven and each is unique.
Ramsay Carter: At the same time, the use of mandatory central counterparties (CCPs) in Latin America has actually helped us better understand the risk in these lesser developed markets.
That is where there is a correlation between Asian and Latin American markets.
What was Scotiabank’s prime services strategy when pushing into Asia?
Carter: Scotiabank has been present in Asia in many forms over the past 50 years, so it is not a new geography for us.
Regarding our prime services offering in Asia, we have spent the last few years ensuring that we have the right mix of talent and product, supported by strong infrastructure, so we are confident in our offering and have room to grow.
We have particularly focused on ensuring our expansion is strategic and that it fulfills both client and shareholder needs.
From a broader equity perspective, Scotiabank is truly global in terms of our knowledge and coverage in key industries, such as energy and infrastructure and we will continue to focus on these strengths.
Our initial market focus was on Singapore and other developed markets in Asia.
Now that we have established ourselves in these markets, we are looking to further expand our geographic suite across Asia.
In Asia, we offer a focused and disciplined product, bordering on a boutique approach. We are a financing solution that resonates very well with a lot of the global funds, although we have also had success with Asia-based funds.
To keep developing the range of our products, we are also stepping up our dialogue with Canadian investors who are looking to Asia.
There are several large and well-known Canadian pension funds with a global presence, but also many smaller investor pools that are looking for opportunities on portfolio diversification.
How important is Asia to Scotiabank as a market?
Kirtes Bharti: For securities lending, we see ourselves as a niche provider. We value our relationships with other prime providers and have always been relatively collegial. We are not trying to take market share, but to build our own business on a steady basis. We do not focus on mass volume, but on creating a niche for ourselves.
For example, there are certain Canadian managers who can only lend to Canadian entities, and not all global banks have Canadian entities. This provides us a niche opportunity.
At the same time, we are fully aware that the developed markets in Asia are well covered already, therefore, we are looking for opportunities in emerging markets, such as South Korea and India.
South Korea is a good example. Managing the mandatory intermediary CCP model is more complex for those less experienced entities in that market than for us.
Thanks to our experience building Latin American products, we were able to adapt products to operate in South Korea without having to start from scratch.
Turning to India, the offshore securities lending activity is limited. We have taken it upon ourselves to explore this untapped market.
We are ahead of the curve in terms of being fully compliant with Basel III, which makes the process easier. We believe that some of our colleagues in the industry will choose to shy away from these emerging markets due to Basel III-related liquidity considerations.
In India, the securities lending framework is unique compared to the rest of Asia’s frameworks, it is not widely utilised by onshore or offshore participants. We see accessing India securities lending is a niche where we can leverage our Latin American experience to our advantage.
Has there been any pushback from regulators of emerging markets on the launch of a securities lending market, due to its short selling connection?
Bharti: From our experience, we see Asian regulators as being very open and transparent on how they conduct themselves. Within all the emerging markets, retail investment is significant. In South Korea and Taiwan, it can be as much as 70 to 80 percent retail flow.
We recognise one of the regulator’s priorities is to protect its home investors. Short selling certainly has a negative perception, but at the same time, Asian regulators in our experience certainly appreciate it’s a very important component of building capital markets.
At times they have had to be conservative and implement some rules that differ from how developed markets operate.
Associations such as PASLA are constantly engaging in dialogue with regulators to refine best practice and cultivate a framework that promotes the practice of securities lending and short selling in a fair and regulated environment.