09 March 2017
Seoul
Reporter: Drew Nicol
Asia may have to stay another day
Beneficial owners across Asia must come to terms with stay protocols in the near future if they want to do business in foreign markets, according to panellists at the Pan Asian Securities Lending Association/Risk Management Association’s conference in Seoul.

A stay protocol is a standard form that promises a globally systemically important bank (G-SIB) will, in the event of a default, freeze all relevant assets for a short time in order to avoid exacerbating market stress through a rush to reclaim collateral.

The protocol is signed on a voluntary basis by participants in a few jurisdictions, but any entities wishing to access those markets for securities finance are also required to sign.

One legal expert at the conference in South Korea explained that the issue for lenders that are expected to adhere to these rules is that, in the case of a default of a major investment bank, the counterparty is forced to hold on to collateral whose value might be crashing.

The potential for lenders to take on losses as a result of a stay protocol has led some legal teams that are new to the requirement to attempt to negotiate the terms, or even to advise against signing.

The relative lack of G-SIBS in Asia means that local securities finance participants have so far operated without the use of stay protocols, but that time is nearly over, according panellists.

Currently, only the UK, Switzerland, Germany and Japan have finalised their stay protocol regulations, but the US is expected to catch up in the first half of this year. The EU passed rules requiring member states to publish legislation as of 1 January 2016, but progress still varies from state to state.

The fact that the stay is voluntary puts the onus for education on these rules on the G-SIBs, which are expected to outline the requirements to their counterparties in jurisdictions that may not have equivalent rules, but that are expected to agree to them to have access to markets that do.

Conference panellists advised attendees to seek legal advice on how to approach incorporating stay protocols in order to remain open for trading in these markets.

More news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Stock loan falls short for buy side as liquidity source
25 July 2017 | London | Reporter: Jenna Lomax
Securities lending was voted the least popular source of liquidity in a survey of European buy-side heads of operations
Hedge fund H1 gains best since 2009
25 July 2017 | London | Reporter: Drew Nicol
The hedge fund industry has recorded one of its strongest H1 performance periods since the financial crisis, according to data and intelligence provider Preqin
Calypso gains stake in Sernova Financial
25 July 2017 | London | Reporter: Drew Nicol
Sernova Financial, which already leverages the Calypso Cloud platform, recreates the shared infrastructure and service items of clearing brokers
RMA keynote The Mooch heads to the West Wing
24 July 2017 | Naples | Reporter: Drew Nicol
Anthony Scaramucci, who appeared as keynote speaker at last year’s RMA securities lending conference in Florida, has been appointed as the White House communications director
Northern Trust’s Q2 lending revenue stutters
24 July 2017 | New York | Reporter: Drew Nicol
Northern Trust saw its securities lending earnings fall to $24.6 million in Q2
New recruits for BNY Mellon's alternative investment team
21 July 2017 | New York | Reporter: Drew Nicol
BNY Mellon has made two senior appointments to its alternative investment services team
Euroclear achieves record-breaking H1 collateral volume
21 July 2017 | Frankfurt | Reporter: Jenna Lomax
Post-trade service provider Euroclear saw achieved "record levels" of collateral outstanding through its Collateral Highway in the first half of 2017