the future of post-trade infrastructure in Asian bond markets Adam Wilson Hong Kong 2011

Asian Bond Markets Resilience of Asian Local Currency (LCY) Bonds –Strong issuance and growth despite difficult global conditions in 2008 and 2009 with substantial growth in trading in 2010 –National reform and liberalization efforts are paying off –Regional efforts, such as ABMI and ABF, complement and support national efforts 2 Source: ABD/ABMI/ABMF

Asian Bond Markets - what is broken? Despite the efforts, inter-dependence of the region is low … Stronger regional cooperation is necessary. –Efforts of ASEAN Capital Market Forum (ACMF) could be expanded to the Plus Three countries etc, may assist in facilitating integration of capital markets in the region. –We need a policy framework to utilize knowledge and expertise in the region. The ABMI Group of Experts (GOE) was formed and found: –Cross-border bond transaction costs in ASEAN+3 region are higher and vary significantly among the countries –Recommendations Assessments on feasibilities of Regional Settlement Intermediaries (RSI) to improve cross-border bond settlements. Recommendation to reduce market barriers. 3 Source: ABD/ABMI/ABMF

4 Area of influence Improve information flows in the markets Timely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws. Improve information flows in the markets Timely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws. Identification of Major Barriers (GOE) Messaging format Settlement cycle Securities numbering Pre - matching FX controls conversion, repatriation Taxes Physical certificates Investor registration Omnibus accounts Cash controls credit balances, overdrafts Number of markets involved More Fewer Private sector Public sector Quotas Source: ABD/ABMI/ABMF

5 What is important? Securities Markets Internationalisation to extend reach and attract foreign investment Increased liquidity and depth for all investors (domestic and international) A cost effective capital raising mechanism Efficient markets always striving for

6 Market efficiency –Sufficient regulation –Standards –High availability, security, scalability –Low total cost of investing including settlement –Straight Through Processing (STP) automation –Operational efficiency of market participants Factors effecting market efficiency

7 Area of influence Improve information flows in the markets Timely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws. Improve information flows in the markets Timely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws. Standardisation and agreed Market Practice can assist in solving some of these barriers Messaging format Settlement cycle Securities numbering Pre - matching FX controls conversion, repatriation Taxes Physical certificates Investor registration Omnibus accounts Cash controls credit balances, overdrafts Number of markets involved More Fewer Private sector Public sector Quotas Source: ABD/ABMI/ABMF

Harmonisation of market practices: SMPG process 8 Administration Publication Review, discussion & refinement Collate common elements, specify additional country requirements, identify further opportunities for harmonization Analyze & document local practices Securities Market Practice Group (SMPG) National Market Practice Groups (NMPG)

ABMF A similar process 9 Administration Publication Review, discussion & refinement Collate common elements, specify additional country requirements, identify further opportunities for harmonization Analyze & document local practices ABMF Sub-Forum 2 National Market Practice Groups (NMPG) National representatives

From… a country mindset worth… from an institutional mindset Overcoming natural behavior: –My country market practices are better than the others –Why would my country have to change? –What X is saying is right but he is from country A so… –Will this have an impact on my institution system. –What is my national community going to think about me? 10

… to a regional mindset… Through –An open mind towards other market practices –Keeping open agenda  hidden agenda –Regional focus –National empowerment and conviction –Trust in the facilitators Check list after each decision: –Is it best for the region? –Is it the most cost effective for most regional players? –Will it ease the life of all regional and global foreign investors? 11

… to a global mindset. 12 Through –An interest in what the rest of the world is doing –Trust in the international experts –Participation to SMPG Open to feedback from SMPG Publication on –Participation to ISO process Check list after each decision: –Is it in line with international practices? –If not, can we justify it?

All this… Acknowledging and accepting differences Knowledge Make sure all participants have the same level of understanding Language Make sure all participants have the time to talk Culture Make sure all participants have the opportunity to share their views (by written or orally) 13

Summary For such a process to work 14 Open your mind Think RegionalThink global Be structured Reuse what already exists

15 Thank you