Sequencing the Asia-Pacific build-out: settlement first, coverage second

The Asia-Pacific region reached its present shape in June 2024 with three offices and fifteen people. Singapore opened as the regional hub in 2022 and carries eight of them. Hong Kong opened in 2023 with four, covering institutions, intermediaries and fund services. Tokyo opened in the first quarter of 2024 with three, covering pharmaceutical and specialty-materials relationships. A representative desk in Seoul is approved and not yet staffed. The order in which those offices opened was not opportunistic. It follows a sequence the firm applies in every region, and that sequence puts settlement, custody and booking ahead of coverage.

The plumbing comes first. Serangoon Depositary has held custody for the regional entities since 2022, before the first Asia-Pacific position was entered. Lantau Fund Services took on fund administration in Hong Kong in 2023. Access to the Pearl River Fixed Income Venue followed in the same year, and the correspondent relationship with Elephanta Mercantile Bank in Mumbai was opened for rupee settlement. Each of those arrangements took between four and eleven months to document and test. A firm that hires coverage bankers first spends those months explaining to clients why a trade cannot settle.

Each office holds a written permissions schedule under the Cross-Border Services and Perimeter policy. Singapore may originate, deploy, book and hold client money for the region. Hong Kong may cover clients, arrange transactions and administer funds, and may not book a position. Tokyo may maintain relationships and conduct diligence, and may neither book nor lend. The schedule is reviewed by the Compliance & Conduct Committee twice a year. It runs to a single page for each office, and every person in the region can state their own office's limits without opening it.

Regional treasury runs through Singapore in three currencies. Balances in Hong Kong and Tokyo are swept weekly and netted, which reduced the average idle balance across the region from US$14 million in 2023 to US$6 million in the first half of 2024. The cost of that discipline is one treasury analyst and a daily reconciliation. The benefit is that capital raised or realised anywhere in the region can be moved within two business days. Capital mobility is a treasury capability before it is an investment philosophy.

The region carried US$71 million of client portfolio at 30 June 2024. The group figure at the end of that year was US$611 million. Six positions were held: two Japanese specialty-materials producers, one Singapore data-analytics business, one Hong Kong financial-systems position and two structured credit facilities to pharmaceutical distributors. None is large. The largest is US$19 million. The region is expected to grow faster than the group between 2027 and 2029, because that is when Programme Latitude funds the Asia-Pacific phase from proceeds realised elsewhere.

Seoul waits on two conditions. The first is a resident compliance officer who can hold the local reporting obligations without a secondment from Singapore. The second is a second settlement route, because a single counterparty in a new market is a concentration the Risk & Valuation Committee will not accept. Neither condition is a matter of cost. Programme Latitude, the expansion programme running from 2026 to 2032, places the Asia-Pacific build-out in 2027 and converts the Seoul desk into an office in that year. Until then the desk will open small and do nothing its schedule does not permit.

Published 2024-06-18 by the Investment Banking division. Research is prepared for eligible counterparties and does not constitute advice.