Asia turmoil seen stalling broker expansion

The recent turmoil in Asian emerging markets has led some broker-dealers to put expansion decisions on hold and thereby affected uptake of the Citi-UBS post-trade platform launched in Asia in late 2012, says a senior Citi executive. 

The turbulence affecting markets such as India and Indonesia has resulted in a “temporary hiatus” for the entire region, says Lee Waite, global head of direct custody and clearing for Citi markets and securities services business.

In the year to February 12, investors had pulled $29.7 billion out of EM equity and bond funds, bypassing the $29.2 billion outflow for the whole of 2013, according to media reports citing data provider EPFR Global.

This has dampened demand among broker-dealers for Asian expansion and put outsourcing decisions on the backburner. “There was a tremendous amount of interest from broker-dealers wanting to come to Asia,” says New York-based Waite. “Their underlying clients are looking to expand into Asia, which is seen as a growth area.

One way for them to do so would be to outsource their middle- and back-office operations to the Citi-UBS post-trade platform, he notes, hence take-up of the service has been hit in recent months.

“We still have to wait until we get through the eye of the current storm before demand will pick up,” he adds. “But we are happy where we are; we believe Asia will remain as an important part of business growth for many for a long time.”

Still, changes can be made in the region that would reduce the cost of clearing and settlement, argues Waite, such as the introduction of a common settlement infrastructure like Europe’s planned ‘target 2 Securities’. T2S is due to go live in June next year linking 23 national central securities depositories and various central banks.

But the absence of a pan-Asian regulatory body like the European Central Bank means it remains unlikely that Asia will set up a common post-trade infrastructure, says Waite.