Securities lending is a lucrative financial market activity that temporarily transfers securities from one party to another. Singapore’s well-developed financial landscape and sound regulatory environment make it an attractive destination for those interested in undertaking securities lending activities. Here are some tips to help you get started with securities lending in Singapore.
Understand securities lending basics
Before diving into the specifics of security lending in Singapore, it is essential to understand the basics of this type of transaction activity. This includes understanding the parties involved, their respective rights and obligations, and the various risks associated with these transactions.
Familiarise yourself with the regulatory environment
Securities lending in Singapore is a highly regulated activity, with the Monetary Authority of Singapore (MAS) being the primary regulator in this field. Familiarising yourself with the regulatory environment governing securities lending activities, such as understanding MAS’s requirements for obtaining approval and ongoing compliance obligations, is essential.
Choose an appropriate platform
A suitable infrastructure or platform should be established to participate in securities lending transactions. Depending on your needs, these platforms can range from traditional custodians to specialised technology-driven providers. Selecting the right platform will help ensure smooth operations when conducting security loans and related activities.
Establish processes and procedures
Having effective processes and procedures helps reduce the risk associated with securities lending activities by providing greater control and oversight. These should cover trade documentation, settlement, collateral management, legal compliance, reporting and more.
Manage counterparty risk
Securities lending carries with it the risk of counterparties defaulting on their obligations. As such, it is essential to undertake appropriate due diligence on potential counterparties to reduce this risk. This includes evaluating factors such as financial strength and creditworthiness.
Understand key terms of the agreement
Before entering into a securities loan agreement, it is essential to understand all the key contractual provisions that apply to your transaction. These may include commitment fees, recall provisions, termination rights, and indemnification clauses.
Comply with MAS regulations
As mentioned, securities lending is a highly regulated activity in Singapore. As such, they are ensuring that the activities undertaken to comply with the relevant MAS regulations are essential. This includes obtaining the necessary approval for security loan transactions and regularly reviewing compliance requirements.
Be aware of legal implications
Securities lending agreements are legally binding contracts between two counterparty parties and, as such, can have far-reaching legal implications if not properly managed or discharged. Thus, knowing the potential legal ramifications is essential before entering into any securities loan agreement.
Monitor collateral closely
In addition to understanding all the contractual provisions related to a securities loan agreement, it is also essential to closely monitor all forms of collateral associated with these transactions. This includes understanding the types of collateral accepted, evaluating their quality and regularly reviewing the value of such assets.
Manage cash flow risks
Securities lending activities often involve the transfer of significant sums of money between counterparties. As such, it is essential to manage all associated cash flow risks, including ensuring that sufficient funds are available for settlement promptly.
Financial technologies like blockchain can help streamline securities loan operations while increasing transparency and reducing risk. Such technologies can be used to automate various processes related to trade execution, settlement and more.
Reap the benefits
Following these tips will help get you started with securities lending in Singapore and take advantage of the many benefits that come with this activity. These include improved liquidity, reduced settlement risk and cost savings, among many others.
At the end of the day
Securities lending is a popular activity in Singapore and can be highly rewarding for those willing to take it up. By following these tips on getting started with securities lending in Singapore, participants can ensure that their activities comply with all MAS regulations while reaping the full potential benefits of this business.
With careful planning, sufficient preparation, and adherence to compliance requirements, those who choose to embark on this venture will be well-positioned to enjoy a successful journey into the world of securities lending.