BNP Paribas Securities Services is to start offering third-party clearing services for cash equities in Australia by end of 2012, a development that will be instrumental to capturing the opportunities from growing inter-market linkages.
“We have plans to become a clearer on the Australian Securities Exchange (ASX). This will materialise towards the end of the year and we’ll be providing clearing services for cash equities in Australia for financial intermediaries,” said Pierre Jond, head of Australia and New Zealand.
Regionally, BNP Paribas Securities Services offers clearing and custody solutions in India, Hong Kong and Singapore. It was granted clearing membership in India in March 2009, and in June 2010 was admitted as a bank clearing member for listed derivatives on the Singapore Exchange.
Granted a banking license in July 2011 by the Australian Prudential Regulatory Authority, BNP Paribas Securities Services already offers third-party clearing for listed derivatives in Australia. Clearing members for cash equities need to be separately licensed because the ASX maintains individual licensing rulebooks for cash equities and derivatives.
Globally, the introduction of the Dodd-Frank Act in the US and the European market infrastructure regulation is set to drive a significant amount of over-the-counter (OTC) derivatives onto electronic platforms that will have to be cleared by central counterparties. And in September 2011, BNP Paribas extended its collateral management service to include centrally-cleared OTC derivatives introduced by the new regulation.
In April 2010, the Australian Securities and Investments Commission (ASIC) released regulatory guidance on its approach to the licensing and regulation of clearing and settlement facilities in anticipation of more providers looking to operate in Australia. ASIC said its actions were in response to international regulatory developments promoting the use of central counterparty (CCP) clearing and settlement of OTC derivative transactions.
Lawrence Au, head of Asia Pacific, BNP Paribas Securities Services, sees growing opportunities in the region for the firm’s clearing and custody business as the region’s markets open up to competition, resulting in an increased flow of regional liquidity.
"Europe has been trying to harmonise the markets for at least 20 years, so they take a much more liberal stance towards cross border trading to make it easier to operate to compete for liquidity," he said. "Hence, it is much easier setting up clearing business in Europe across borders, markets, asset classes and instruments."
By comparison, Au said Asia was just starting out.
"For a long time, the exchanges in the region didn’t really have to fight for liquidity or actively promote themselves to attract flows," he said. "Over the last couple of years, there’s been increasing pressure because of the alternative platforms coming up, so they are now more open to looking at inter-market linkages.”
Historically, direct investment in the region has been hindered by low market capitalisation, restrictive regulatory environments and capital constraints which prohibit direct access to cash markets. But players say Asian exchanges now stand to gain from the current restricted access international investors have to many Asian markets, by providing tools which grant exposure to specific companies domiciled in Asia. Institutional investors are also increasingly turning to listed and OTC derivatives as a means to access desirable Asian markets.
“What you clearly want to have is a single clearer who is able to trade different geography, different trading venues and different instruments," said Jond. "The more trading venues and geographies you are able to build on your clearer, the more efficient your collateral use is. That’s been our strategy in Europe – one margin call across multiple cities. And that’s what we are aspiring towards in Asia Pacific.”