Asian brokers guarded on outsourcing, survey indicates

BNP Paribas maintains that attitudes around third-party clearing are shifting, despite a low uptake by brokerages.
Asian brokers guarded on outsourcing, survey indicates

Only 34% of Asian brokerages are either outsourcing or planning to outsource parts of their post-trade processes, finds a survey by BNP Paribas Securities Services and Swift (Society for Worldwide Interbank Financial Telecommunication).

The remaining 66% say they would not consider outsourcing, according to the poll of 50 Asian brokers across the region. By comparison, 60% of international brokerages say they are already outsourcing, or are considering it.

BNP Paribas acknowledges the scepticism towards outsourcing among Asian brokers, who have taken a 'wait-and-see' approach. But the bank suggests it is an increasingly accepted practice in the region, with 62% of respondents saying they viewed outsourcing as a way of better managing costs and services.

"Europe has been outsourcing for the past decade, while in Asia it has only been an option for two or three years," says Barnaby Nelson, BNP Paribas Securities Services’ head of client development in Asia for bank, broker-dealers and corporate issuers.

"What we're seeing here, in terms of attitudes and developments, is consistent with Europe seven-to-eight years ago,” notes Nelson, who expects that significant inroads in the region will be made next year.

BNP Paribas provides outsourcing services to brokerages in Asia, along with a number of other banks, including HSBC, Citi and Standard Chartered.   

Post-trade clearing and settlement typically forms the core of an outsourcing service suite, but regulatory restrictions in Asian markets have meant that the roll-out of services has been reliant on rule changes in individual countries.

Hong Kong and Singapore were among the first major Asian markets to allow outsourced brokerage services, with clearing for more than 5% of Hong Kong stock exchange turnover now outsourced to third-parties, according to BNP Paribas figures. 

Asia's largest brokers are the most serious in considering large-scale outsourcing, says Nelson, with competitive pressure as their main motivation. Outsourcing back-office functions saves costs that can be re-directed to trading resources.

Brokers who opt for tri-party settlement agency services gain what BNP Paribas calls a "credit uplift", as trading settlements are carried out using the service provider’s cash and securities accounts. As a result, the bank takes on counterparty risk for the brokerages’ clients.

“Hence [the brokerage clients] see a AA rated company and not a potentially unrated broker,” says Nelson. "It helps the broker to target more clients than they could on their own", such as conservative pension funds.

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