GLOBAL - BRIC countries will have enormous growth potential for securities lending over the next 12 months, but barriers yet remain, according to borrowers and lenders.
At a conference held by the International Securities Lending Association (ISLA) in Lisbon, 35% of attendees said Brazil had the biggest potential growth for businesses among the BRIC countries - which include Brazil, Russia, India and China - while 31% said China also presented a large number of opportunities.
However, borrowers and lenders noted that several barriers remained in the two countries.
Robbert Wijgerse, head of securities lending at Robeco, said: "In Brazil, access to the debt market is still complicated. In addition to this, there is an important amount of due diligence to do before trading there. Those two factors do not facilitate our operations in this market."
As for China, the country was characterised as a guarded place where the securities lending industry needed to encourage stock lending.
Carey Chamberlain, director of Asian equity finance trading at HSBC, said: "China has put a lot of effort into securities lending. The next step for the country will now be to introduce borrowings in the Qualified Foreign Institutional Investor (QFII) programme. This should improve market liquidity and enhance market efficiency."
Chinese authorities introduced securities lending last year under a three-phased approach resulting in a central counterparty model in 2011, after which QFII - which was launched in 2002 and allows licensed foreign investors to buy and sell Yuan-denominated 'A' shares in China's mainland stock exchanges - may be allowed to participate in securities borrowing and lending.
Among the BRIC countries, the attendees have also mentioned Russia as one of the most interesting markets for the next three years.
According to Frederick Nadd-Aubert, global head of securities lending marketing at Credit Suisse, there is currently $5bn (€3.5bn) traded on the cash market and a vast activity going on in government planning and IPOs.
He said: "Ignoring Russia could be a mistake. In spite of the fact the market remains volatile and there is no institutional investor and custodian market in the country, Russia offers tremendous opportunities.
"Firstly, because some fund managers are already implemented there and facilitate the lending process. Secondly, because of the new regulation introduced by the authorities and that also aims to facilitate securities lending activities."
Emerging markets remain one of the main focuses for market experts. One-quarter of lenders and borrowers surveyed believe there will be a 25% increase in emerging market securities lending practices in the next three years.
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