Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian CSD Alliance

1  Less than efficient cross-border activities  Less than efficient asset servicing  Fragmented markets  Multiple access points  Varied market practices Asian CSDs share similar disadvantages…

2 The Pan-Asian CSD Alliance  A Task Force formed by a group of central banks and CSDs in the region  Vision:to gradually improve the post-trade infrastructure for bond clearing and settlement in the region  Issued a White Paper in June 2010, outlining:  Concept of a Common Platform Model (CPM)  Launch of the Pilot Platform CPM offersPilot Platform Better cross-border access to local Asian bonds Greater issuance of local bonds Improved automated process to manage operational risk Access to a larger pool of collateral Reduced costs for post-trade execution A tactical solution to deliver early benefits of the CPM Delivers main functionalities of the CPM Uses existing systems and links and requires minimal efforts to start

3 White Paper proposal: CPM implementation strategy Starting with improvements to interoperability and cross-border access through investor CSD 1, leveraging existing (I)CSD links (Pilot Platform) Gradually improving local market practices, local CSD processes and cross-border links Working together to allow some convergence of developments across markets, leading to harmonisation of processes and a gradual introduction of common systems Note 1: An investor CSD is the local CSD, or any other local entity other than CSDs, that has the right and the capacity to offer settlement and asset servicing on foreign securities to local financial institutions.

4 Common Platform Model New functions provided by the Common Platform

5 Addresses the need for access, harmonisation, and standardisation Provides a common infrastructure platform for cross- border access, asset servicing processing, and clearing and settlement Individual participating CSDs are able to retain autonomy in terms of legal entity, finance, business development and customer relations However, a common infrastructure platform will take time to develop…… Common Platform Model

6 Pilot Platform New functions provided by the Pilot Platform

7 Pilot Platform functionalities and benefits CPM objectivePilot Platform functionalitiesBenefits for participating economies Increase choice for cross-border access Access to Asian and non-Asian debt securities through the investor’s local CSD acting as investor CSD More choice for local investors to access foreign markets Increase issuance of local bonds Increase issuance of local bonds in the Asian time zone, in local as well as foreign currencies, leveraging foreign currency RTGS systems in the region Increased flexibility for local issuers (governments and corporates) to raise funds Improve securities information Extend the coverage of existing databases to include more local securities Promote local securities to foreign investors Improve interoperability Use and improve existing ICSD-CSD and CSD-CSD links Increase activity in local bonds

8 Evolution towards the Common Platform Model  Pilot Platform can leverage local developments ahead of common systems  Improvements to the Pilot Platform should lead to common developments Local developments Harmonisation Common Developments PILOT PLATFORM Gradual removal of barriers IMPROVEMENTS TO THE PILOT PLATFORM 8

9 Progress  The 5 th Task Force Meeting was held in Hong Kong in November 2010  Two experience-sharing workshops were held to discuss the necessary preparation and proposed setup of the Pilot Platform:  between the three early movers (i.e. the HKMA, Bank Negara Malaysia (BNM) and Euroclear) in Hong Kong in October 2010  between the three early movers and interested parties from Indonesia (e.g. Ministry of Finance, Central Bank, CSD and Central Counterparty (CCP)) in Hong Kong in March 2011

10 Prepare for the launch of the Pilot Platform in mid 2011 Deliberate on add-on services to be provided after the launch of the Pilot Platform. –focus on areas with noticeable deficiencies under current market practices. Potential areas to consider include:  corporate action servicing  cross-border collateral management –further research and feasibility studies will be conducted. Way forward

11 Example: Existing corporate action servicing in Asia Major deficiencies : Paying agents do not have a/c positions of bond holders and thus require Asian CSD to provide such information Lack of standardized distribution channels for bond issuers to disseminate corporate information to bond holders Lack of standardized format used in the communication between individual paying agents and bond holders, e.g. some may be done by fax and some by Asian CSD A/c positions Paying Agents (acting on behalf of bond issuers) Notice of corporate actions (proprietary channels and formats) Instructions (e.g. for voting or exercising option etc) (proprietary channels and formats) Asian CSD members (acting on behalf of bond holders) Request for a/c positions Settlement instructions arising from corporate actions

12 Corporate action servicing –to enhance market efficiency in processing corporate actions –to develop standards of communication amongst paying agents, Asian CSDs and their members and to set up a platform linked with Asian CSD’s systems so as to streamline / automate some of the processes Cross-border collateral management –to help banks manage their liquidity more effectively by better utilising foreign securities lodged with ICSDs or overseas CSDs –to establish message link between ICSD and domestic RTGS systems and to agree on a message exchange protocol so that securities transfer and fund transfer can be settled in a coordinated manner Potential add-on services to the Pilot Platform The Pilot Platform will be launched in mid 2011 as scheduled. Work has started to deliberate on the possible add-on services to be provided by the Pilot Platform.

Thank you