The large and mature Australian securities lending industry receives relatively little attention from the international media, but plenty of attention from the big international securities finance players. The market has seen booming growth in both pension and hedge funds, which are flooding the securities lending market with supply and demand.
"In the last two years we've seen an explosion in demand to borrow domestic equities," says a leading Australian custodian. "There's been lots of index arbitrage trading and a lot of merger and acquisition activity with hedge funds. In the last 18 months our equity loans desk has quadrupled in size, and all indications show it will double again in the next year."
An important driver for this growth on the supply side of securities lending is a compulsory superannuation scheme – mandatory employer payments into employees' pension funds – which the Australian government introduced in 1992. Initially 2%, this...
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