Asia Pacific Newsletter Issue 46 - Deutsche Bank...Malaysia 55 Chart Definitions 58 Market Structure Nikki Tanner, Head of APAC Market Structure [email protected] Quantitative Content

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May 2018Deutsche BankEquities

Global Market StructureAsia Pacific Newsletter Issue 46

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Global Market Structure

Contents

APAC and ASEAN Summary 4

Hong Kong 8

China 14

Taiwan 19

Japan 23

India 27

South Korea 33

Australia 37

Thailand 41

Singapore 44

Philippines 48

Indonesia 51

Malaysia 55

Chart Definitions 58

Market Structure

Nikki Tanner, Head of APAC Market Structure [email protected]

Quantitative Content

Max Young, APAC Analytics [email protected]

Issue 46, 2018

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APAC and ASEAN Summary

Welcome to Issue 46 of our Market Structure Newsletter where we provide a detailed review of market structure developments for each market across the region. Questions and feedback are always welcome at [email protected].

As we move through 2018 a number of significant events are taking place across the region.

The much anticipated MSCI A-Share inclusion will occur at the end of May, made possible through Chinas continued internalisation, the stability of the Stock Connect trading link and improvements in China’s market microstructure, including reduced stock suspension levels.It has also driven progress in other areas, such as the fourfold increase in Stock Connect quota and greater transparency of the offshore Yuan (CNH) liquidity market.

Outside of China, a key theme across the region has been alignment of settlement cycles, with Thailand, Indonesia and Singapore all moving to T+2 settlement for their cash equity markets this year.Japan is scheduled to move to T+2 in 2019 and perhaps with the increased international investor presence in China, will see this considered in their market also.

Another area of alignment is listing rules, particularly for pre profit companies and those with weighted voting right structures.Hong Kong, China, Singapore and Taiwan are all reviewing and/or implementing changes in this space.

With so much alignment occurring across the region, it was interesting to note a divergence from this theme for the India Offshore Derivatives market. In our India section we look at the continued evolution of this market and development of GIFT city. We hope you enjoy this issue and look forward to discussing any thoughts.

Fig 1: APAC Volatility (30 day index return volatility)

Fig 2: ASEAN Volatility (30 day index return volatility)

Fig 3: APAC Market Share Distribution

Source: Bloomberg, Deutsche Bank Analytics

Fig 4: ASEAN Market Share Distribution

USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan

USAEuropeIndonesiaMalaysiaPhilippinesThailandSingapore

Fig.7 Primary Futures Turnover vs Open Interest

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Fig.4 ASEAN Turnover Velocity by Exchange Free Float

Australia China Hong KongIndia Japan South KoreaTaiwan ASEAN

Indonesia Malaysia Philippines Singapore Thailand






Fig.3 APAC Turnover Velocity by Exchange Free Float


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2014 2015 2016 YTD 2017

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Fig 1. 1. Subdued volatility witnessed throughout 2017 was brought to an abrupt end in the first quarter of 2018 as volatility increased across global markets due to concerns over global trade relations. The trend was echoed in APAC markets as volatility spiked in early February and was sustained into late March.

2. Hong Kong and China experienced the largest increase, roughly tracking that of the US, as markets sold off across the region. Hong Kong ended Q1 quarter with 30 day volatility of 21.5% - the highest in the region. As previous trends have indicated, Australia and India remained the least correlated to the regional volatility upturn, with 30 day volatility of 11.1% and 13.2% respectively as of March-end.

APAC Volatility 4-Apr-18 4-Apr-17 YoY %

Australia 13% 9% 45%China 22% 9% 160%Hong Kong 25% 11% 132%India 13% 9% 53%Japan 21% 12% 76%South Korea 19% 9% 111%Taiwan 20% 8% 169%









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Fig 2. 1. ASEAN volatility increased in a similar manner to APAC markets although to a lesser extent on average, with all markets remaining below 18% throughout the quarter.

2. Volatility in the Philippines remained above its ASEAN peers on average, reaching 18% as of March-end. Indonesia and Singapore experienced the largest YoY increases for the quarter of 90% and 72% respectively.

ASEAN Volatility 4-Apr-18 4-Apr-17 YoY %

Thailand 11% 8% 40%Singapore 15% 9% 72%Malaysia 10% 7% 37%Indonesia 13% 7% 90%Philippines 16% 12% 36%

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Fig 5: Futures Turnover & Open Interest

2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18 2016 2017 18

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Futures activity increased in almost all APAC markets in January before declining through February and March in line with the rise and subsequent dip in global markets. Notably, open interest in Japan remains far higher than that of its Asian peers, peaking in November 2017; a month of increased trading for most Asian markets and positive projections for the Japanese economy. Q1 turnover remains elevated on the previous quarter across the region as more investors appear to take directional positions on the region’s markets.

The free float adjusted measurement of turnover velocity shows annualised market turnover as a percentage of its free float market capitalisation. In APAC it is clear to see that the China market significantly outpaces its regional peers. This is down to comparatively lower levels of stock (free float) available for public trading and higher levels of trading activity, largely driven by retail investors. In the past year this has remained range-bound between 400% and 800%.

In ASEAN Thailand has historically exhibited a higher turnover velocity, while Singapore, Malaysia and Indonesia have exhibited similar trends over time. By comparison, the Philippines remains a small market in terms of value traded and market capitalisation.









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2010 2011 2012 2013 2014 2015 2016 2017 2018

2010 2011 2012 2013 2014 2015 2016 2017 2018

Fig.6 APAC Market Microstructure Matrix

Country % APAC Market

Share

Turnover Velocity

Primary venue

market share

MTD Index Return

(Mar 2018)

YTD Index Return

(Mar 2018)

Avg Spread

(BPS)

Avg Trade

size

30D Avg. Volatility

Avg. Daily Equity

Volume (Mn USD)

Avg. Daily Futures Volume

(Mn USD)

Avg. Daily ETF Volume

(Mn USD)

CHINA 47.25% 729% 40% -3.1% -3.3% 8 6,078 22% 73,626 14,145 1,012.3

JAPAN 21.24% 178% 83% -2.9% -5.6% 6 1,052 21% 31,609 43,526 2,574.0

AUSTRALIA 3.54% 120% 79% -4.2% -5.0% 10 672 13% 5,594 4,600 85.2

SOUTH KOREA 8.42% 312% 54% 0.5% -3.1% 15 38 19% 11,569 16,344 1,537.8

HONG KONG 8.85% 100% 98% -2.5% 0.6% 14 10,208 25% 12,416 32,931 642.3

INDIA 3.85% 133% 89% -3.6% -4.0% 2 198 13% 5,432 4,733 3.6

TAIWAN 3.62% 167% 77% 1.0% 2.6% 23 9,526 20% 5,410 15,913 242.1

THAILAND 1.46% 212% 100% -3.0% 0.8% 44 7,505 11% 2,089 1,014 0.8

SINGAPORE 0.75% 93% 100% -2.6% 0.7% 20 2,091 15% 1,030 511 13.8

MALAYSIA 0.45% 110% 100% 0.4% 3.7% 19 3,189 10% 604 105 0.3

INDONESIA 0.47% 114% 100% -6.4% -2.6% 27 10,431 13% 777 8 0.0

PHILIPPINES 0.11% 38% 100% -5.8% -6.8% 14 2,008 16% 168 0.1









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2010 2011 2012 2013 2014 2015 2016 2017 2018

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All figures represent Q1 or March 2018 data.

6

Japan

South Korea

ChinaHong Kong Taiwan

India

2017 Jun — Consultation on HKEx new Third Board

— HKEx revises stock option position limit model

Jul — HKEx CAS phase II launched

Nov — SFC announces thematic review of prime brokerage and related equity derivative practices

— Stock Connect launches rDVP

— Irish UCITS approved for Stock Connect rDVP

Dec — ID regime details published for Stock Connect

— Announcement that HK will move to ID market

— HKEx confirm listing of dual class shares & new economy stocks on Mainboard

2018 Jan — SFC report on best execution

Feb — SFC report on facilitation

Mar — Hong Kong signs double taxation avoidance agreement with India

Apr — New rules for weighted voting right structures, bio tech issuers & secondary listings

— Announcement of cross listing of Chinese start-ups on HKEX

— SFC report on alternative liquidity pools in HK

Future — HKEX to introduce MSCI Asia Ex Japan Index

Futures on 11 June 2018

— HKEx to pilot non tradable shares

— Consultation on ID trading model

2017 Jan — Substantial shareholding disclosure rules

tightened

Feb — CFFEX relaxes rules on index futures

Jun — MSCI A-share inclusion

Jul — ‘Bond Connect’ programme launched

— Hong Kong RQFII increased to RMB 500 billion.

Oct — Capital gains tax relief extended for Stock Connect

Nov — Stock Connect ID regime announced

— Real DVP for Stock Connect launched

— Foreign ownership limits for investment in securities companies relaxed

— SFC & CSRC sign MoU re supervision of futures market

2018 Jan — First reverse takeover approved in 17 months Mar — Announcement of Chinese Depository

Receipts (CDR)s

Apr — Stock Connect quota increased to RMB 52bn (US $8bn)

— Announcement that Shanghai London Connect will launch this year

— QDLP quota increased to USD 5 billion

Future — MSCI A-Share inclusion 31 May 2018 — Launch of London Shanghai Stock Connect

— Launch of CDRs

— ETF Connect

— IPO Connect

— Review of R/QFII, Stock Connect rules

2017 Feb — SBL ceiling raised from 20% – 30% of stock

average trading volume

Apr — Day trading transaction tax halved

May — Taifex lists first U.S index futures

Jun — TWSE to provide co-lo services by year end

Nov — FSC expects continuous trading to start in 2019

2018 Mar — TWSE signs MoU with Japan and Korea

Exchanges

— Taiwan and Polish Authorities sign FinTech agreement

Apr — Announcement of changes to allow pre-profit companies to list

— Extension of day trading tax relief to 2021

2017 Mar — Launch of ‘Practical Guidelines for Corporate

Governance’

— JPX agrees to information sharing with the Saudi Stock Exchange

Jun — Japan and Australia to cooperate on FinTech

Jul — FSA reappoints commissioner Mori for third term

Sep — Japan and Russia sign double taxation avoidance agreement

— FSA release English Guidebook for ‘Foreign Asset Managers to Establish a Business Base in Japan’

Dec — Details of HFT regulations announced

2018 Apr — HFT registration requirements effective

Mar — JPX to increase closing auction price band

Future — ETF market making on TSE from July 2018

— JPX to increase closing auction price band Q4

— Review of margin trading on PTS

— Move to T + 2 settlement (2019)

2017 Mar — KRX allow borrowing and lending of

government bond collateral

May — KRX tightens short selling disclosure timelines

Jul — New FSC Chairman

Aug — KRX CEO resigns

Nov — Increased penalties for short sell violations

Dec — First listing under ‘Tesla’ policy

— Changes to capital gains tax announced

2018 Feb — Proposed changes to capital gains tax

withdrawn

Mar — Suspension for stock split shortened to 3 days

— SBL collateral expanded to all KOSPI and KOSDAQ stocks

Apr — Proposal to cut stock transaction tax

Future — Corporate Governance disclosure mandatory

for companies meeting certain criteria (2019)

2017 Apr — Increase in ODI levies

May — SEBI launches intermediary portal

Jul — Introduction of GST

Jul — Restrictions placed on issuance of ODI’s with derivative underlyings

Aug — Legal Entity Identifier introduced for select OTC derivatives

Oct — Changes to the block trade window announced

Nov — Consultation on improvements in Corporate Governance

— India agrees double taxation treaty with Hong Kong

2018 Feb — Exchange restricts licenses and market data

for offshore derivatives

— Relaxation of some FPI requirements

Apr — Long term capital gains tax exemption removed

— Circular: ‘Measures to strengthen Algorithmic Trading and Co-location / Proximity Hosting framework’

Future — Investment advisors to be prohibited from

selling investment products

— Introduction of Algo ID

— Introduction of PAN ID

— Restrictions around post trade allocation


Timeline Summaries

7

Thailand

Indonesia

Malaysia

Australia

Philippines

Singapore 2017 Mar — ASX upgrades derivative platform

Jul — ASX launches review of closing price methodology

— ASIC consults on revising the market license regime for domestic and overseas operators

Oct — James Shipton named as new ASIC chairman

Nov — ASIC and CSRC sign FinTech cooperation agreement

— ASX announces replacement of CHESS post-trade platform with distributed ledger technology (DLT)

— ASIC signs FinTech Cooperation Agreement with Canadian regulators

2018 Mar — ASX consults on move away from staggered

opening session

— ASIC opines on Give-Up trades

Future — CHESS replacement due 2021

2017 May — New mid/small cap indexes launched

Jun — Securities Commission announces three-year strategic plan

Oct — Three year stamp tax exemption announced for ETFs and structured warrants

— Consultation on new corporate governance guide

Dec — Bursa Malaysia launches REIT Index

— Bursa Malaysia introduces new trading features

— Bursa Malaysia launches first Islamic securities borrowing, lending framework

2018 Mar — Waiver of stamp duty on mid and small cap

companies for 3 years

Mar — Waiver of trading and clearing fees for six months for new individual investors

Apr — Intra-day short selling permitted for eligible securities

Future — Launch of Alternative Trading System

planned for 2018

— SC Malaysia to create infrastructure for L&I products in 2018

— Stock trading link between Bursa Malaysia and SGX

2017 Feb — SEC launches new investment code

Jul — Bank of Thailand and MAS sign FinTech cooperation agreement

Oct — Consultation: Amendments to capital requirements for asset managers

Nov — Consultation: Cornerstone investments and sale of shares post a secondary listing

2018 Feb — SET extends co-operation agreement with

Korea Exchange

Mar — Market moves to T+2 settlement

Future — Introduction of ‘C’ caution alert

2017 Mar — Close of tax amnesty period

Jun — SPRINT licensing system launched

Jun — Regulator appoints new Commissioned

2018 Mar — Government passes new beneficial

ownership rules

Future — IDX to implement T+2 settlement in

November 2018

— Stock market hedging facilities planned

2017 Jul — PSE appoints new president

Oct — PSE consultation to keep exchange open on days where clearing facilities are suspended

Dec — Announcement of 20% increase in stock transaction tax

— New suitability requirement for company management

2018 Feb — PSE moves to new premises in Bonifacio

Global City

— Javey Francisco named as new SEC Commissioner

Apr — PSE completes PHP 2.9 billion (US $55 million) Rights Offering

— PSE updates front end trading system

Future — SBL framework planned

2017 Jun — SGX launches MSCI index futures

Oct — SGX consultation on principals based market practices

Nov — Re-introduction of lunch break

— MAS and CSRC agree to increase cooperation on market supervision and development

— MAS best execution consultation

Nov — Singapore proposes T+2 settlement and simultaneous money and securities settlement

2018 Feb — SGX launches 50 Indian single stock futures

contracts (NIFTY50)

— SGX advise that their NIFTY suite of derivative products will be available till August 2018

— SGX consults on dual class shares listing framework

Apr — SGX announces non NIFTY successor products for Indian equity derivatives

Future Jun — Launch of Indian equity derivative Nifty

successor products

— SGX to expand Daily Leverage Certificates to 7x and potentially 10x leverage


Timeline Summaries

8

Deutsche BankEquities

Global Market Structure News

Hong Kong

Issue

46 2018

2016 Apr RMB T0 DVP for Stock Connect Jul Closing auction introduced Aug Volatility Control Mechanism introduced Dec Launch of SZSE-HK Stock Connect Dec SFC circular on Manager in Charge Regime Dec SFC guidelines on algorithmic trading controls

2017 Jun Consultation on HKEx new Third Board Jun HKEx revises stock option position limit model Jul HKEx CAS phase II launched Nov SFC announces thematic review of prime brokerage

and related equity derivative practices Nov Stock Connect launches rDVP Nov Irish UCITS approved for Stock Connect rDVP Dec ID regime details published for Stock Connect Dec Announcement that HK will move to ID market Dec HKEx confirm listing of dual class shares & new economy

stocks on Mainboard

2018 Jan SFC report on best execution Feb SFC report on facilitation Mar Hong Kong signs double taxation avoidance agreement

with India Apr New rules for weighted voting right structures, bio tech

issuers & secondary listings Apr Announcement of cross listing of Chinese start-ups

on HKEX Apr SFC report on alternative liquidity pools in HK

Future — HKEX to introduce MSCI Asia Ex Japan Index Futures

on 11 June 2018 — HKEX to pilot scheme listing private equity of Mainland

companies — Consultation on ID trading model

Features Timeline

Growth— HKEX unveil new listing rulesTax— Hong Kong and India sign double taxation

avoidance agreement Control— Updated guidance on dark pools, best execution

and client facilitation

Highlights

Growth— Cross listing of Chinese startups on HKEX— Hong Kong ETF Market UpdatePersonnel— New Chairwomen for HKEX

9

Global Market Structure Hong Kong

Features

HKEX unveil new listing rules

After four years of deliberation, on 24 April 2018 the Stock Exchange of Hong Kong Limited (HKEX) announced liberalisation of the Exchange’s listing rules.

According to the HKEX, the new rules were a product of reviewing the Exchange’s growth objectives against the current market constraints:

The new listing regime is based around the following three main enhancements:

1. To permit listings of biotech issuers that do not meet Main Board financial eligibility tests.

Qualifying criteria includes:

— Market capitilisation ≥ HK $1.5 billion

— Business track record of two years with same management

— Working capital requirements

— Some restrictions on cornerstone investment

2. To permit listings of companies with Weighted Voting Right (WVR) structures.

Company qualifying criteria:

— Market capitilisation ≥ HK$10 billion, with ≥ HK$1 billion revenue if less than HK$40 billion

— Meets ‘innovative’ definition

— Good business growth track record

— Meaningful third party investment

VWR requirements include:

— Individuals only (see below for further information on this point)

— Directors only at listing or afterwards

— Shareholding ≥10% and ≤50% at listing (collectively)

— Transfers prohibited

— event-defined sunset

— allow trusts and legitimate tax planning

— Share-based WVR only with maximum 10x voting power vs. ordinary shares\

— Non-WVR shareholders must have 10% of voting power

3. To establish a new secondary listing route for Greater China and international companies that wish to secondary list in Hong Kong.

Qualifying criteria:

— Listed on a qualifying exchange (NYSE, NASDAQ & LSE’s Main Market)

— Good compliance record

— Market capitilisation ≥ HK$10 billion, with ≥ HK$1 billion revenue if less than HK$40 billion – lower requirements for Chinese issuers.

The Exchange is adding three new chapters in the Main Board Listing Rules to reflect the changes necessary to facilitate the above.

Consultation conclusions

The announcement follows conclusion of a market consultation which garnered 283 responses, which according to the HKEX “showed overwhelming support for the proposals1”.

96% of respondents supported the new Biotech initiatives

84% of respondents supported WVR initiatives

96% of respondents supported the new Secondary listing initiatives2

Some of the proposed rules were updated in response to the comments received, including:

— Providing more guidance on the terms “Sophisticated Investor” and “meaningful investment” in relation to biotech issuers;

— Providing more flexibility on the exclusion of cornerstone investments and subscriptions by existing shareholders from the determination of a public float for pre-profit/pre-revenue biotech issuers;

— Removing the proposal that a WVR beneficiary hold less than a 50% interest in an issuer with a WVR structure at listing ;

— Requiring the Corporate Governance Committee to be made up entirely of independent non-executive directors (rather than a majority as originally proposed) to require them to make recommendations to the board on certain matters; and

— Facilitating confidential filings by eligible applicants under the new concessionary secondary listing route.

Further details of the consultation conclusions can be found here:https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/February-2018-Emerging-and-Innovative-Sectors/Conclusions-(April-2018)/cp201802cc.pdf?la=en

One further change to watch out for

It is also worth noting that the HKEX is considering its stance in relation to corporates holding WVRs, which is not allowed in the current version of the rules. The HKEX notes that they will launch a separate consultation on this matter by 31 July 2018.

HKEX has already lost a potential listing due to this rule, with Tencent Music reported to have decided to list in the US as a Hong Kong listing is not possible due to their corporate entity WVR structure3.

HKEX CEO Mr Charles Li has told media4 that he expects over a dozen new listings as a result of the change, although he would not disclose the names of those expected to list.

Timing

Source: HKEX Enhancing Hong Kong’s Listing Framework

10


Features

Hong Kong and India sign double taxation avoidance agreement

On 19 March 2018, a double taxation avoidance agreement (DTAA) titled, ‘Avoidance of Double Taxation and the Prevention of Fiscal Evasion5‘, was signed between Hong Kong and India.

Both nations agreed to move forward with a DTAA in November 2017 and this document presents full details of the arrangement.

Establishment of a DTAA between India and Hong Kong has important tax implications for international businesses operating in both countries. Generally speaking, businesses in India are taxed on worldwide income whereas businesses in Hong Kong are taxed on domestic Hong Kong income. The result of this is that businesses with operations in both India and Hong Kong have historically been subject to double taxation on this portion of their revenue.

The new DTAA will resolve this situation:

— For Hong Kong companies, tax paid in India will be deducted from tax payable in Hong Kong on the same profits.

— For Indian companies, tax paid in Hong Kong will be deducted from the tax payable in India on the same profits.

Aside from tax relief, the DTAA offers several other benefits, including:

— Lower withholding tax (tax deducted at source) rates, which can be as high as 40% percent in the absence of a DTAA.

— Lower dividend distribution tax, which is an additional tax levied on foreign investors besides the corporate income tax; and

— In certain circumstances, credits for taxes paid on the double-taxed income that can be encashed at a later date.

The DTAA is expected to assist more than 1,500 companies with taxable operations in both locations and is the 86th such agreement signed by India6.

The full DTAA can be found here: https://www.ird.gov.hk/eng/pdf/Agreement_India_HongKong.pdf

Regulator issues updated guidance on dark pools, best execution and client facilitation

The Securities and Futures Commission (SFC) has recently reviewed some key aspects of equity trading, publishing their findings and recommendations in recent months. Highlighted below are some of the SFC’s findings in relation to Dark Pools, Best Execution and Client Facilitation.

Dark Pools - Report on the Thematic Review of Alternative Liquidity Pools in Hong KongDuring 2017 the SFC conducted a thematic review of all 16 Hong Kong dark pools, known locally as Alternative Liquidity Pools or ALPs.

The 16 dark pools make up approximately 1.5% of market turnover in Hong Kong.

(Automated Trading Services, also known as dark pool transactions) Source: HKEX Report on the Thematic Review of Alternative Liquidity Pools in Hong Kong

Findings were published on 9 April 2018 in the ‘Report on the Thematic Review of Alternative Liquidity Pools in Hong Kong’7. In an associated circular8, the SFC highlighted the following areas of concern:

— Routing orders to third-party ALPs – ALP operators which route orders to third-party ALPs should disclose this in their ALP Guidelines along with the opt-out options for the third-party ALPs. These ALP operators should bring their own ALP Guidelines as well as the third-party ALP Guidelines to the attention of users to ensure they are fully informed as to the manner in which the third-party ALPs operate.

— Posting of the same order to both ALP and the exchange – Most ALPs allowed simultaneous posting of an order to both the ALP and the exchange for more crossing opportunities. This arrangement may alter the order priority in the ALP.

The full review, including the SFC’s good practice recommendations, can be found here: http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openAppendix?refNo=18EC25&appendix=0

11


Best Execution - Report on the Thematic Review of Best ExecutionIn January 2018, the SFC released the results of its thematic review of best execution. The review assessed 21 entities, including global financial institutions, asset management firms and local brokers on a variety of best execution topics.

The review produced a range of findings, of which some of the most notable included:

— Some entities inappropriately carved out all OTC products from best execution.

— Some entities considered that they did not owe best execution duties to clients in principal (proprietary) transactions.

— The SFC observed a lack of Compliance oversight in some cases, with Compliance not having sufficient tools to conduct adequate surveillance.

— Some entities did not conduct ongoing monitoring or assessment of the execution quality of the affiliates, connected parties and third parties engaged for execution.

The full review, including the SFC’s good practice recommendations, can be found here:http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openAppendix?refNo=18EC7&appendix=0

Client Facilitation - Circular to licensed corporations on client facilitationThe SFC requires that risk-taking principal activity, or client facilitation, be separate and distinct from agency trading and has set out standards of conduct expected of firms participating in client facilitation.

On 14 February 2018, the SFC published a circular noting the conclusions of their thematic review on client facilitation.

The review produced a range of findings, of which some of the most notable included:

— Some entities did not have sufficient physical or system segregation.

— Client consent was not always obtained and/or the responsibilities for this clearly defined.

— Indicators of interest should only be disseminated when they are based on a genuine client or proprietary intent to trade. Some entities lacked controls to sufficiently verify this.

Full review findings, including the SFC’s good practice recommendations, can be found here:http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openAppendix?refNo=18EC11&appendix=0

12


Highlights

Cross listing of Chinese startups on HKEXIn mid April 2018, HKEX signed a memorandum of understanding (MoU) with China’s National Equities Exchange And Quotations Co., Ltd. (NEEQ), to allow NEEQ issuers to list in Hong Kong without having to de-list in China or obtain any additional listing approvals.

The NEEQ board (also known as The New Third Board) is an over-the-counter exchange for small and medium companies which has over 11,000 stocks listed. This initiative would allow these companies ready access international capital, in addition to the RMB 400 billion (US $63 billion) raised on NEEQ to date9.

Mr. Li Ming, General Manager of the NEEQ, told local media that “After five years, the New Third Board has gathered many innovative companies with great growth potential. The Hong Kong Stock Exchange and NEEQ have distinctive characters in their market positioning, target companies and investor composition. This partnership will be mutually beneficial as it can combine our advantages10.”

A timeline for the project and further detail is pending.

Hong Kong ETF market updateAsia-Pacific based ETFs make up an increasingly large percentage of the global ETF market. As at August 2017, the number of ETFs listed in the Asia Pacific regions was 22% of the global total, with asset under management (AUM) at US$382 billion11.

Hong Kong operates the second largest ETF market in Asia in terms of market capitalisation and the fourth in terms of ETF turnover. ETFs are therefore an important part of the HK market and their regulation of interest to the SFC.

In January 2018 the SFC published a research paper on the Hong Kong ETF market. The paper contains many useful data points on the HK ETF market and according to the SFC is “intended to set the scene in anticipation for more concrete policy discussions on the regulation of ETFs”.

The paper can be found here: http://www.sfc.hk/web/EN/files/PCIP/Research/Research%20Paper_20180116.pdf

New Chairwomen for HKEXOn 26 April, HKEX announced that they have selected Mrs. Cha May-Lung for the position of Chairwomen of the HKEX Board12.

Mrs. Cha has a wealth of industry experience, having served as Deputy Chair of the SEC and Vice-Chair of the China Securities Regulatory Commission.

The appointment is pending approval from Hong Kong’s Chief Executive but if successful, Mrs. Cha’s term will commence from April 2018 for a period of two years.

1.https://www.hkex.com.hk/News/News-Release/2018/180424news?sc_lang=en2.https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2018/180424news/1804242news.pdf?la=en3.https://www.reuters.com/article/us-tencent-music-ipo/tencent-music-invites-banks-to-pitch-for-role-in-up-to-4-billion-u-s-ipo-ifr-idUSKBN1I10ZT4.http://www.scmp.com/business/china-business/article/2143158/new-listing-rules-likely-attract-dozen-applicants-first5.https://www.ird.gov.hk/eng/pdf/Agreement_India_HongKong.pdf6.https://www.india-briefing.com/news/india-hong-kong-double-tax-avoidance-agreement-15704.html/7.http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openAppendix?refNo=18EC25&appendix=08.http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=18EC259.https://www.chinamoneynetwork.com/2018/04/22/in-major-reform-companies-listed-on-chinas-new-third-board-to-be-allowed-to-list-in-hk10.https://www.chinamoneynetwork.com/2018/04/22/in-major-reform-companies-listed-on-chinas-new-third-board-to-be-allowed-to-list-in-hk11.http://www.sfc.hk/web/EN/files/PCIP/Research/Research%20Paper_20180116.pdf12.https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2018/1804262news/1804262news.pdf

13


Analytics


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Hang Seng futures average daily turnover in Q1 2018 was up 50% YoY and increased 46% from Q4 2017.

Average index stock spreads in Hong Kong decreased 1.6% and average trade size fell by 6.9% quarter on quarter.

The Hang Seng Index rose 0.6% in Q1 2018, the second best performing developed market index in the region after Taiwan Stock Exchange Weighted Index. Q4 2017 growth was 10.7%. For Hang Seng index stocks, the closing auction volume has decreased to approximately 10.5% of full day’s volume in 2018 vs 11% in 2017. The list of stocks available to trade in the auction was increased to include Hang Seng SmallCap Index constituents with Phase 2 of the closing auction in July 2017, while short selling in the closing auction was also introduced.

Following announced changes to Hong Kong’s listing rules, trading on Hong Kong’s main board continues to dominate in Hong Kong with GEM and reported Alternative Trading System (ATS) transactions accounting for 0.6% and 1.0% respectively in March 2018.

HighlightsHong Kong experienced a significant pick-up in market activity in Q1 2018, with equities turnover and velocity increasing above 2016 and 2017 levels. Free float turnover peaked in January at USD 323 billion resulting in an increased turnover velocity of 119%.

Average Daily Volume in the futures market also increased markedly, up 191% YoY in Q1 2018 – see Figures 2 and 3.

In Hong Kong, the top two continue to account for the equivalent of the remaining portion of the HK ETF market in terms of turnover. Talk of ETF Connect and regulatory approval for leverage and inverse products in January 2017 likely spurred trading in H1 2017. HK ETFs remain exempt from stamp duty since February 2015. The top traded ETFs are:

1. 2800 HK – Tracker Fund of Hong Kong. State Street Global Advisors. Launched Nov 1999.

2. 2828 HK – Hang Seng H-share Index ETF. Hang Seng Investment Management. Launched Dec 2003.

3. 2823 HK – iShares FTSE A50 China Index ETF. Blackrock Asset Management. Launched Nov 2004.

14



China

2016 Jun Foreign firms given access to CIBM Jun U.S granted US$38Bn RQFII quota Jun China A-shares not added to MSCI EM Jun AMAC releases WOFE guideline Sep CFFEX relaxed options trading requirements Sep Tougher rules for backdoor listings Dec SZ-HK Stock connect Dec First US RQFII 2017 Jan Substantial shareholding disclosure rules tightened Feb CFFEX relaxes rules on index futures Jun MSCI A-share inclusion Jul ‘Bond Connect’ programme launched Jul Hong Kong RQFII increased to RMB 500 billion Oct Capital gains tax relief extended for Stock Connect Nov Stock Connect ID regime announced Nov Real DVP for Stock Connect launched Nov H Share convertability pilot announced Nov Foreign ownership limits for investment in securities

companies relaxed Dec SFC & CSRC sign MoU re surpervision of futures market2018 Jan First reverse takeover approved in 17 months Mar Announcement of Chinese Depository Receipts (CDR)s Apr Stock Connect quota increased to RMB 52bn (US $8bn) Apr Announcement that Shanghai London Connect will launch

this year Apr QDLP quota increased to USD 5 billion

Future — MSCI A-Share inclusion 31 May 2018 — Launch of London Shanghai Stock Connect — Launch of CDRs — ETF Connect — IPO Connect — Review of R/QFII, Stock Connect rules

Features Timeline

Growth— MSCI A-Share inclusion – what you need to know — Shanghai London Stock Connect— Bringing Tech issuers home with domestic listed

depository receipts

Highlights

Growth— Outbound investment scheme resumesListing— Changes to the IPO system delayed to 2020

Control— Merger of banking and insurance regulatorsListing— New delisting rules being considered

Issue

46 2018

15

Global Market Structure China

Features

MSCI A-Share inclusion – what you need to know

The inclusion of China A-Shares in the MSCI Emerging Markets index is likely to be one of the most significant trading events in Asia this year.

Below we highlight some key need-to-know aspects of the inclusion:

— Date: The inclusion is scheduled to be undertaken over two dates, 31 May and 31 August 2018, in order to minimise market impact.

— Stock eligibility criteria (figures as at June 2017):

Source: MSCI, as at June 2017

— Stock Connect Quota:

China A-Shares can be accessed by international investors via the Qualified Foreign International Investor (QFII) Scheme, the Renminbi QFII scheme or Stock Connect.

Stock Connect trading is subject to a daily quota:

Available quota = daily quota – buy orders + sell trades + adjustments.

In a move to quash concerns about quota being exceeded on A-Share inclusion date, on 11 April 2018 Stock Connect quota was raised from RMB 13bn (US $2bn) to RMB 52 bn (US $8bn)1, for trading on each of the Shanghai and Shenzhen stock exchanges.

Historical Quota Utilisation Northbound (Trading into China)

Source: HKEX, DB Analytics March 2018

— Closing Price

Many investors will be looking to achieve the closing price for MSCI A-Share inclusion.

Trading hours for both the Shenzhen (SZSE) and Shanghai (SSE) can be seen below:

The mechanism for determining closing price differs for each exchange.

SSE: has no closing auction

Shanghai Exchange Rule 4.1.3: “The closing price of a security is the trading volume-weighted average price of all the trades of such security during the one minute before the last trade (including the last trade) on that day”.

Shenzhen: closing auction

The execution price in a call auction shall be determined according to the following principles:

1) the price that generates the greatest trading volume;

2) the price which allows all the buy orders with a higher bid price and all the sell orders with a lower offer price to be executed;

3) the price which allows at least all the buy orders with identical price or all the sell orders with identical price to be executed.

If no closing price is achieved during the closing call auction, then close price is the same as Shanghai (Rule 4.2.3)

Percentage of total volume traded in the last 10 minutes

Source: Thomson Reuters, DB Analytics, Mar 2018

Distribution of trading volume in the last 10 minutes

C represents the respective closing period on each exchange

Source: Thomson Reuters, DB Analytics, Mar 2018

16


Stock Connect Trading Model

Mandatory pre-trade checks ensure only long sells are executed. Two trading models exist to facilitate the checks:

1) The Integrated model: requires use of an affiliated broker / custodian, so that the broker can do the pre trade check.

2) The Special Segregated Account (SPSA) model: pre trade check done by the exchange. Up to 20 different brokers may be used.

The Hong Kong Stock Exchange plays a key role in set up of SPSA accounts. They mandated a cut-off date of 11 May 2018 for submission of new SPSA accounts for trading the May MSCI A-Share inclusion2.

In summary, inclusion of A-Shares in the MSCI EM index is a significant milestone which would not have been possible without the continued internationalisation of China’s stock market and the ongoing success of the Stock Connect trading link.

The inclusion event has many moving parts and if you have any questions or wish to know more please contact the Market Structure team or your regular DB contact.

Shanghai London Stock Connect On 12 April 2018, People’s Bank of China Governor Yi Gang, confirmed that London Shanghai Stock Connect would be launched this year.

While the name implies a certain similarity to the existing Hong Kong-China Stock Connect model, information released to date indicates that it will be very different.

Rather than a direct link between the two markets, which would not be feasible given the different time-zones, the scheme will utilise depositary receipts. According to Ms. Martina Garcia, Head of Emerging Markets Strategy at London Stock Exchange Group, “Shanghai-listed Chinese firms will be able to issue depository receipts on the London Stock Exchange, and vice versa through the Shanghai-London Stock Connect scheme”3.

There will no doubt be some similarities to the existing Stock Connect link, in that the new link will likely be limited to a selection of eligible issuers and also subject to quota restrictions.

Given the launch is planned for this year, we would expect to see an announcement from the exchanges providing further detail on the link, in the near future.

Bringing Tech issuers home with domestic listed depository receipts

On 31 March 2018, China’s state council announced a pilot depository receipt program which would allow Chinese innovative / tech companies, who have listed overseas, to return to the domestic market via depository receipts.

This new offering would provide an opportunity for companies with weighted voting rights to list domestically and importantly, could provide a faster route to market than through traditional IPO.

The China Securities Regulatory Commission (CSRC) will select the companies to participate in the pilot program. Caixin Global4 has reported that according to the criteria of the pilot (which includes aspects such as minimum market capitilisation), “seven overseas-listed Chinese companies are currently eligible for a secondary listing back home, including Alibaba Group Holding Ltd., JD.com Inc., Baidu Inc., NetEase, China Mobile, China Telecom and Tencent Holdings Ltd.”

Further information on exactly how the pilot program will operate has not yet been released, nor has the CSRC indicated when the program will start.

DB’s Research team has written a report on this topic, looking at aspects such as impact on liquidity, fungibility, stock premiums and potential to impact Stock Connect Southbound trading. This report can be accessed via the Research portal for those subscribed to the service.

17


Highlights

Outbound investment scheme resumes

China’s Qualified Domestic Limited Partnership (QDLP) scheme was launched in 2013 and allowed selected foreign asset managers to sell overseas products directly to Chinese domestic clients. The managers were required to obtain a license and be issued with quota before trading.

Two years ago the scheme was frozen with no new licenses or quota granted since. The main explanation for the suspension was concerns over capital outflows, with media reporting that up to US $1 trillion had left China through various channels that year 5.

According to media reports this February, granting of licenses has resumed with around a dozen managers receiving new licenses. Reuters noted at the time that “the industry had expected that each newly-qualified firm would be allowed to invest up to $50 million under QDLP, but the sources said the quotas were not distributed evenly5”.

Following on from this on 24 April, the State Administration of Foreign Exchange (SAFE) announced that QDLP quota had been increased to USD 5 billion7.

Resumption of the QDLP scheme is another positive step for China at a time when we are seeing greater internationalisation and deregulation of their financial market.

Changes to the IPO system delayed to 2020

China has historically operated an approval based initial public offering (IPO) system, whereby new issuances are required to be approved by the CSRC. This is different from the way in which most markets operate and may have contributed to the long IPO wait list seen in the past few years.

In 2015 the relevant authorities approved a move away from the approval based system, to a registration based system to further align China with its international peers. No material changes have been made yet but local media8 reported in February 2018 that the reform is still planned, but has been delayed with a proposal to allow up until 2020 for implementation.

Merger of banking and insurance regulators

On 13 March 2018 it was announced that the China Banking Regulatory Commission (CBRC) and China Insurance Regulatory Commission (CIRC) would be merged to help resolve existing problems such as unclear responsibilities and cross-regulation.

China’s financial market is becoming increasingly complex, aided by entities such as banks and insurers, moving into non-traditional products and investments. Merger of these two regulators may help increase transparency over such operations.

The new merged entity will report directly to the State Council. The securities regulator, the China Securities Regulatory Commission (CSRC), will remain a separate entity9.

New delisting rules being considered

The CSRC is considering revising de-listing rules, reportedly to improve the quality of listed companies and protect investor interests10.

As at March 2018, the CSRC was requesting input on stricter rules which will put more responsibility on the stock exchanges to establish and implement better controls.

No timeline has been given for publishing the revised rules.

1.http://www.hkex.com.hk/News/News-Release/2018/180411news?sc_lang=en2.https://www.hkex.com.hk/-/media/HKEX-Market/Services/Circulars-and-Notices/Participant-and-Members-Circulars/SEHK/2018/CT02518E.pdf3.https://www.yicaiglobal.com/news/shanghai-london-connect-use-depository-receipts-intra-market-exchanges-lse-official-says4.https://www.caixinglobal.com/2018-03-31/china-unveils-pilot-to-woo-big-tech-names-to-trade-back-home-101229007.html5.https://www.ft.com/content/c64b3fc6-dc2e-11e5-a72f-1e7744c668186.https://www.reuters.com/article/us-china-economy-outbound-investment/china-revives-qdlp-outbound-investment-scheme-in-boost-for-foreign-funds-sources-idUSKBN1FS0DV7.https://www.reuters.com/article/us-china-forexregulator/chinas-forex-regulator-widens-quotas-of-two-outbound-investment-schemes-idUSKBN1HV1IR8.http://www.chinadaily.com.cn/a/201802/23/WS5a8ff31ca3106e7dcc13da8f.html9.https://www.lexology.com/library/detail.aspx?g=a4af297a-3ff9-4551-ad8a-fd5b8c8799c110.http://www.xinhuanet.com/english/2018-03/03/c_137013434.htm

18


Analytics



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China’s CSI 300 Index fell 3.3% in from January through March despite increasing 6.1% in January alone.

So far in 2018, trading in CSI 300 Index stocks has increased in the first 30 minutes of trading, and moved out of the afternoon session slightly.

In terms of value traded, Shenzhen increased its share vs Shanghai and Chi-Next to 53% in March 2018 vs 47% in December 2017. The Chi-Next Board also increased its share to 6.7% over the same period.

Despite the pick-up in futures trading in Q1 2018, trading remains subdued under tight restrictions following the volatility of 2015. Increased margin requirements and position limits have caused both speculators and hedgers alike to cease trading, in turn lowering overall liquidity.

Average index constituent spreads were down 4.0% in Q1 2018 while average trade sizes decreased 19.9%.

HighlightsLower rates of turnover velocity have been sustained in the China market since the volatility experienced in 2015, however the figure remains well above other regional markets. In Q1 2018 turnover peaked in January, totaling US $1.8 trillion – 85% higher than January 2017. Turnover is consistently lower in February due to the market closure during the Chinese New Year holiday.

ETF ADV increased 280% YoY in Q1 2018. 9 new equity ETFs began trading in China in Q1 2018. Similar to Hong Kong, the four most popular ETFs dominate turnover in the market. These track the China 50 A-share and Hang Seng Indexes.

19



Taiwan

Issue

46 2018

2016 Jan New trading halt mechanism for companies Jan HK ETFs list on TWSE Feb Amended Margin Trading & Securities Lending Rules Feb Relaxation of day trading rules May Amendments to research report distribution regulations Jul Launch of first dual currency ETFs Aug Review of AML laws Aug Increased weight in MSCI EM index Nov Nifty50 futures list on TAIFEX 2017 Feb SBL ceiling raised from 20% – 30% of stock average

trading volume Apr Day trading transaction tax halved May Taifex lists first U.S index futures Jun TWSE to provide co-lo services by year end Nov FSC expects continuous trading to start in 2019 2018 Mar TWSE signs MoU with Japan and Korea Exchanges Mar Taiwan and Polish Authorities sign FinTech agreement Apr Announcement of changes to allow pre-profit companies

to list Apr Extension of day trading tax relief to 2021

Features Timeline

Listing — Listing rules relaxed for pre-profit companies

Highlights

Microstructure— TWSE investor conferenceCorporate Governance — Corporate Governance remains a focus in 2018Product— Taiwan stocks added to Nikkei Asia300Microstructure— TWSE signs MoU with Japan and Korea ExchangesFintech— Taiwan and Polish Authorities sign FinTech

agreement

20

Global Market Structure Taiwan

Features

Listing Rules relaxed for pre-profit companies

In the past twelve months we have seen a marked change in the way that Exchanges in this region view pre-profit companies, with changes being made in China (for further information see the China section of this newsletter), Hong Kong and now Taiwan to allow these companies to raise capital through public share issuance.

On 2 April, TWSE issued a press release1 notifying their intent to amend rules governing securities listings to allow large companies which have not yet made a profit, but meet other financial criteria, to apply for listing.

The financial criteria can be summarised as follows:

— Paid in capital > NT$600 million (US $20 million)

— For companies with market capital > NT $5 billion (US $0.16 billion):

— operating income must be greater than NT $5 billion and higher than the previous year;

— cash flow from operating activities in the latest year must be positive; and

— net worth is two thirds or more of the paid-in capital.

— For those with market capital > NT $6 billion (US $0.20 billion):

— operating income must be greater than NT$3 billion and higher than the previous year;

— cash flow from operating activities in the latest year is positive; and

— net worth is two thirds or more of the paid-in capital.

In its statement, the TWSE noted that part of its mission is to help start-ups become listed companies and this move looks to help companies with good future earning potential, raise capital before they turn a profit. This is in-line with many stock exchanges around the world, who have established listing criteria for companies which have reached a certain level of market capitalisation but still operate at a loss.

The press release stated, “the TWSE prompted by economic development and industry trends, is taking into consideration the situation that some startups in Taiwan are unable to generate stable profits in the early stage, but their business models may have great potential and their businesses have grown to a certain size. Such companies are in great need of capital to grow, but lack means to secure listing on an exchange. To encourage and support innovative companies to raise capital before achieving a positive profit, TWSE has reviewed the quantitative listing criteria in Taiwan with reference to listing criteria in other countries, and amended the rules governing review of securities listings to include permission for large companies without profit but meeting certain criteria to apply for listing. As a capital raising and investment platform, TWSE makes it part of its mission to help startups become listed companies and raise capital to facilitate growth”.

Although not explicitly stated, it is understood that the change is effective immediately with TWSE noting that any companies applying under the new criteria must include text to that effect on the cover of their prospectus to ensure investors are fully informed.

21


Highlights

TWSE investor conference

From 21 March to 3 April 2018, the TWSE hosted ‘Institutional Investor Conferences of Foreign Companies Listed on TWSE’.

Eight foreign companies participated in this quarter’s conference, with the chairman, general manager or chief financial officer from each company giving presentations on business activities, financial conditions, industry reports, business plans and development strategies.

According to a TWSE press release,2 the event was well attended by both investors and media.

Further information and videos from the conference can be found here: http://webpro.twse.com.tw/

Corporate Governance remains a focus in 2018

TWSE initiated a Corporate Governance Evaluation program in 2014 and has been continually updating this program in line with global corporate governance standards.

As mentioned in Issue 45 of this newsletter, the program was updated at the beginning of this year, primarily to include reference to G20/OECD principles of corporate governance. Since then, the TWSE has hosted five separate corporate governance focused seminars designed to educate listed companies on how best to comply and demonstrate strong corporate governance.

According to a TWSE press release,3 a large number of listed companies attended and were particularly interested in:

— issues of board performance evaluation;

— release of English financial statements;

— appointment of full-time corporate governance personnel, and

— establishment of adequate corporate social responsibility and governance framework.

Further information and some Q&A examples from the event can be found on the Securities and Futures Bureau website:

https://www.sfb.gov.tw/en/home.jsp?id=25&parentpath=0,8

Taiwan stocks added to Nikkei Asia300

Further to the Corporate Governance theme, 35 Taiwanese listed companies which demonstrated “good corporate governance and revenue growth4” have been added to the Nikkei Asia300.

Nikkei launched this new cross-market index in 2017, with a fund product tracking the index issued in January 2018.

The index is comprised of around 300 well-known and representative listed companies from the ten Asian countries of: China; Hong Kong; Taiwan; South Korea; India; Singapore; Malaysia; Thailand; Indonesia and the Philippines.

According to information released by Nikkei, Taiwanese constituents now make up approximately 13% of the Nikkei Asia300 Index.

TWSE signs MoU with Japan and Korea Exchanges

Follow a series of discussions, on 15 March 2018, TWSE signed a memorandum of understanding (MoU) with Japan Exchange Group, Inc. (JPX) and the Korea Exchange (KRX).

As reported in a TWSE press release5, the purpose of the MoU is to allow the three exchanges to build closer working relationships through information sharing in areas of mutual interest and assist each other in market development.

The Exchanges already list products which reference each other’s markets, with seven of TWSE’s ETFs tracking equities in Japan and TAIEX Futures themselves listed in Japan.

Mr. Jan-yau Hsu, Chairman of TWSE, said, “The Taiwan Stock Exchange has long-term relationships with JPX and KRX. We are excited to extend the cooperation to a trilateral aspect. We look forward to collaborating together to further strengthen our connection, to increase our visibility in Asia Pacific and to provide top notch investment opportunities to investors.”

Taiwan and Polish Authorities sign FinTech agreement

On 6 March 2018, the Financial Supervisory Commission, Taiwan (FSC) and the Polish Financial Supervision Authority (KNF) signed a FinTech co-operation agreement, designed to allow the regulators to work more closely together on FinTech related topics.

As noted in the FSC’s press release6, the agreement establishes a framework which enables both regulators to refer start-ups to their counterparts, provides support to allow the regulatory regime in each jurisdiction to be better understood and shares related information on their respective markets and innovations in financial services.

This is one of a series of steps undertaken by the FSC to establish Taiwan as a FinTech hub within the region.

1.http://www.twse.com.tw/en/news/newsDetail/ff8080816279a6eb016285d1eb8c008b2.http://www.twse.com.tw/en/news/newsDetail/ff8080816279a6eb01628b100f2500bd3.http://www.twse.com.tw/en/news/newsDetail/ff808081621ebf8c016222816b1e00144.http://www.twse.com.tw/en/news/newsDetail/ff80808161414d290161469bd97c00525.http://www.twse.com.tw/en/news/newsDetail/ff808081621ebf8c016228d5de2a00426. https://www.fsc.gov.tw/en/home.jsp?id=54&parentpath=0,2&mcustomize=multimessa

ge_view.jsp&aplistdn=ou=news,ou=multisite,ou=english,ou=ap_root,o=fsc,c=tw&dataserno=201803070001&dtable=News

22




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Analytics

Index futures turnover in Q1 2018 was elevated against the previous quarter. U.S. Index futures were introduced to the TAIFEX in May 2017. Market index futures continue to turnover significantly more than other contracts.

Average Trade sizes increased 13.5% in Q1 2018 vs Q4 2017 and continue to fluctuate, while average index spreads decreased by 2.5%.

The Taiwan Stock Exchange Weighted Index ended Q1 up 2.6% and was the best performing developed market index in the region.

2018 intra-day volume has shifted very slightly towards the first hour of trading compared to a shift toward the second half of the trading session from 2016 to 2017.

HighlightsQ1 2018 equity market turnover maintained the elevated levels seen in H2 2017. A 50% reduction in day trading transaction tax from 0.003% to 0.0015% in April 2017 was extended to 2021 in April this year.

Average daily value traded was the highest over the past two years in January 2018 at US $6.03 billion.

2 new equity ETFs have begun trading in Taiwan this year. Leveraged and inverse ETFs were introduced in October 2014 and continue to take a growing share of the ETF market in terms of AUM.

23



Japan

Issue

46 2018

2016 Apr FY2016-18 plans announcement Apr Japan’s FSA publishes rules on margin requirements for

OTC derivatives May SBI Japannext upgraded its matching engine Jul TAIEX futures listed on OSE Jul New derivatives trading platform launched Oct Japan Germany tax treaty effective Oct Japan Belgium tax treaty signed Oct Launch of Chi-X dark pool ‘Kai-X’

2017 Mar Launch of ‘Practical Guidelines for Corporate Governance’ Mar JPX agrees to information sharing with the Saudi Stock

Exchange Jun Japan and Australia to cooperate on FinTech Jul FSA reappoints commissioner Mori for third term Sep Japan and Russia sign double taxation avoidance

agreement Sep FSA release English Guidebook for ‘Foreign Asset

Managers to Establish a Business Base in Japan’ Dec Details of HFT regulations announced

2018 Apr HFT registration requirements effective Mar JPX to increase closing auction price band Future — ETF market making on TSE from July 2018 — JPX to increase closing auction price band Q4 2018 — Review of margin trading on PTS — Move to T + 2 settlement (2019)

Features Timeline

Microstructure— JPX to increase closing auction price band — One year out - Japan on schedule to move to T+2 settlement

Control— BoJ ETF buying update— 70 firms to register as HFT

Highlights

Growth— Introduction of ETF Market Making

Control— ‘AI’ – not just for trading

24

Global Market Structure Japan

Features

JPX to increase closing auction price band

JPX has been considering ways to improve their closing auction mechanism to increase the likelihood of stocks matching. After several months of deliberation they have has decided to widen the band for determining closing price.

At present, closing price can be from 1.4% to 3.0% away from last price (depending on the stocks category). Going forward JPX have elected to double this range from 2.8% to 6.0%.

For example, as represented in the diagram below, if the last traded price in continuous trading is 100, under the existing framework the closing price can fall anywhere between 95 – 105. Doubling the price band will allow the stock to close anywhere from 90 – 110.

Source: JPX Roadmap – Cash Equities- March 2018

According to JPX data, this would better align Japan with other international exchanges such as those in the US, UK and Germany.

Closing price band

Source: JPX Roadmap – Cash Equities- March 2018

While it does not happen often, there have been occasions where orders have not matched in the closing auction as the indicative closing price was outside of the allowable band. A poignant example of this occurred during the 31 July 2017 TOPIX rebalance when orders in the Seiko Espon (6724) auction did not match as the indicative closing price was outside of the band.

JPX hope that doubling the closing auction price range will reduce the likelihood of this occurring again.

The new 2.8% to 6.0% range will come into effect in Q4 2018.

One year out - Japan on schedule to move to T+2 settlement

In the fourth quarter of 2017, the Japan Exchange Group (JPX) confirmed its intent to shorten Japan’s settlement cycle to T+2.

The move follows publication in 2016 of findings from the “Final Report of the Working Group on Shortening Stock Settlement Cycle in the Japanese Market1“, which as expected supported the proposal, as it will bring the Japanese market into line with other key developed markets.

Europe

United Kingdom LSE T+2

Germany Deutsche Boerse T+2

France Euronext T+2

Switzerland SIX T+2

Americas

USA NYSE T+2

Canada Toronto T+2

Asia Pacific

Hong KongHKEX Stock Connect (Northbound)

T+2 T+0

ChinaShanghai Shenzhen

A-shares: T+1 *

A-shares: T+0

AustraliaASX

Chi-XT+2

Japan

TSE

Chi-X

SBI Japanext

T+3 (T+2 due 2019)

Taiwan TWSE T+2

South Korea KRX T+2

IndiaNSE

BSET+2

Singapore SGX T+3 (T+2 due H2 2018)

Indonesia IDX T+3 (T+2 due Q4 2018)

Malaysia Bursa Malaysia T+3

Thailand SET T+2

Philippines PSE T+3

http://www.jsda.or.jp/en/activities/research-studies/html/t2_final_report.html

* in practice stocks settle on T+0; cash on T+1

Source: DB Market Structure Global Exchange Guide

JPX is yet to confirm the exact date that the market will move to T+2, although they have indicated dates of April or after 6 May 20192.

The exact date is dependent on the Government’s decision of whether to extend Japan’s national holidays for ten consecutive days from 27 April to 6 May 2019, to coincide with Crown Prince Naruhito’s succession to the throne.

We are following these events closely and will advise the final date once confirmed by JPX.

25


BoJ ETF buying update

In recent editions of this newsletter we have discussed the Bank of Japan (BOJ)s ETF purchases and their impact on the equity market. Carrying on with this theme, we were interested to see that the BoJ had stepped up its ETF purchases in the first quarter of this year.

Per the below chart, the BoJ has made over two trillion yen (US $18bn) worth of ETF purchases so far this year.

Source: Bank of Japan, 28 April 2018

The BoJ has previously committed to spending six trillion yen (US $54 billion) per year on ETF purchases, which if evenly spread would be 1.5 trillion yen (US $13.5 billion) per quarter. A third of this budget was spent in the first quarter of this year.

Media reports indicate that a key driver for the BoJ’s purchases in 2018, has been poor stock market performance, with the market seeing month on month declines in the TOPIX index, which has not occurred since the start of 20163.

BoJ Governor, Mr Haruhiko Kuroda, who was recently appointed to a second term, told reporters in April that the BoJ is considering the size of its balance sheet but that “Debating an exit strategy now would cause confusion,” further stressing that the BOJ will maintain its monetary policy until its inflation target is met4.

70 firms to register under new Low Latency Trading (HFT) regulationIn April of this year, new Low Latency Trading (LLT) rules came into effect in Japan. Under these new requirements, firms meeting LLT (also known as high frequency or high speed trading) criteria are required to register with Japan’s financial regulator and flag their LLT orders as such.

JPX have indicated that they expect around 70 firms to register for LLT5. The registration process will take approximately two months, with the names of registered firms to be published on the Regulators website.

Highlights

Introduction of ETF Market Making

The Tokyo Stock Exchange (TSE) has announced that it will introduce an ETF market making incentive scheme on 2 July 20186.

The scheme is designed to increase the number of quotes available in ETF products, ensuring “a sufficient amount of orders are shown at the fair price, so that investors can buy or sell ETFs at their desired timing”.

Designated market makers will provide quotes on illiquid ETFs for at least 80% of continuous trading. Spread and minimum quantity will be determined on an instrument by instrument basis.

Further information on the ETF market making scheme can be found here: http://www.jpx.co.jp/english/equities/products/etfs/market-making/b5b4pj000001zbcx-att/b5b4pj0000020mqm.pdf

‘AI’ – not just for trading

On 19 March 2018, JPX issued a statement advising that they have introduced Artificial Intelligence (AI) into their trade surveillance operations.

According to the statement, the use of AI “enables surveillance personnel to finish preliminary investigations more quickly and focus on detailed investigations. While the final decision on conducting such investigations will continue to be made by surveillance personnel, this initiative facilitates even more in-depth and detailed investigations and is expected to improve their market monitoring functions, thereby protecting the fairness and credibility of the TSE market7.”

1.https://www.jpx.co.jp/english/rules-participants/public-comment/detail/d04/b5b4pj000001td2v-att/TSE-e.pdf2.https://www.bloomberg.com/news/articles/2018-04-03/the-tokyo-whale-steps-up-with-record-purchases-of-japan-s-stocks3.https://money.usnews.com/investing/news/articles/2018-04-03/bojs-kuroda-says-premature-to-debate-slowdown-in-etf-buying4.https://www.reuters.com/article/japan-exchange-high-frequency-traders/about-70-hft-traders-to-be-registered-in-japan-jpx-idUSL4N1QB2F15.http://www.jpx.co.jp/english/equities/products/etfs/market-making/index.html6.http://www.jpx.co.jp/english/corporate/news-releases/0060/20180319-01.html

26




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Average spreads increased 5.1% while the average trade sizes decreased 6.7% QoQ.

Daily trading has remained roughly unchanged throughout the day though increased slightly into the close in JPXNK 400 index stocks, with 15% of daily volume trading at the close to date in 2018. Japan remains one of the only developed markets in APAC not to have a closing auction mechanism.

TOSTNET share of trading increased to around 13% as of April 2018, and Q1 trading saw a very small share of value traded move to TOSTNET and Chi-X from JPX and Japannext.

HighlightsTotal turnover in Q1 2018 was 35.7% higher than Q4 2017, and 7.3% higher than Q1 2017. Global political and economic tensions weighed on Japanese securities in mid-2017, and while equities benefitted from the global equity rally into January 2018, Japanese equity indices moved in line with those of the U.S. and Europe ending the quarter down markedly.

Both equities and futures ADV reached two-year highs in February 2018 of US $47.5 billion and US $36.5 billion respectively. The BOJ continues to purchase ETFs at a rate of ¥6 trillion annually and questions remain over the viability of the impact to equities. Turnover does not reflect the large increases in ETF AUM as a result. Japan remains the largest market in Asia for ETFs in terms of AUM and turnover.

27



India

Issue

46 2018

2016 Jan Algo trading test facility launched by BSE Feb India Budget Highlights Feb FII holding falls to three-year low in December quarter Jul NSE launches Nifty50 based leveraged and inverse

products on HKEx Jul Approval for new exchange in ‘GIFT’ city

2017 Apr Increase in ODI levies May SEBI launches intermediary portal Jul Introduction of GST Jul Restrictions placed on issuance of ODI’s with

derivative underlyings Aug Legal Entity Identifier introduced for select OTC derivatives Oct Changes to the block trade window announced Nov Consultation on improvements in Corporate Governance Nov India agrees double taxation treaty with Hong Kong 2018 Feb Exchange restricts licenses and market data for

offshore derivatives Feb Relaxation of some FPI requirements Apr Long term capital gains tax exemption removed Apr Circular: ‘Measures to strengthen Algorithmic Trading

and Co-location / Proximity Hosting framework’Future — Investment advisors to be prohibited from selling

investment products — Introduction of Algo ID — Introduction of PAN ID — Restrictions around post trade allocation

Features Timeline

Control— Continued evolution of the Indian offshore

derivative marketsListing— GIFT city, a recapControl— New algo and co-location requirements Tax— Long term capital gains tax goes live

Highlights

Control— Outcomes from SEBI Board Meeting – Corporate

GovernanceGrowth— Relaxation of some FPI requirements

28

Global Market Structure India

Features

Continued evolution of the Indian offshore derivative market

The last twelve months have seen considerable changes to the way in which international investors access derivatives on Indian equities underlyings, resulting in liquidity shifts and questions around how best to access this market going forward.

International investors have historically had three options when accessing derivatives on Indian underlyings:

I. Through obtaining a Foreign Portfolio Investor (FPI) license and trading the onshore listed derivative market;

II. Through trading Offshore Derivative Instruments (ODIs), issued by FPIs referencing onshore listed derivatives; or

III. Through trading listed Indian derivative instruments on offshore exchanges.

In July 2017, the Securities and Exchange Board of India (SEBI) published a circular1 restricting the issuance of ODIs referencing onshore listed derivative underlyings unless derivative positions that are taken by the ODI issuing FPI are for hedging the equity shares held by it, on a one to one basis. This move closed the ODI channel for many investors, leading to an increase in FPI applications and liquidity shift to offshore exchanges.

Up until February 2018, it was possible to trade Indian index futures on multiple offshore exchanges, but single stock futures were offered only on the Dubai Gold and Commodities Exchange (DGCX). On 5 February 2018, the Singapore Exchange (SGX) became the second venue to offer Indian single stock futures, listing 50 contracts.

The increase in offshore availability of these products and shift in liquidity was not lost on Indian authorities. On 9 February 2018, the three main Indian Exchanges issued a joint press release2 restricting licenses and distribution of market data used to facilitate offshore transactions in Indian derivatives. The press release noted that “volumes in derivative trading based on Indian securities including indices have reached large proportions in some of the foreign jurisdictions, resulting in migration of liquidity from India, which is not in the best interest of Indian markets”.

Impact

The impact of the Exchange’s press release is multifaceted. The most obvious impact is that licensed index derivative products such as Nifty and Sensex will no longer be available on offshore venues. The impact on offshore listed Indian single stock futures appears less clear cut, with restrictions on market data feeds bringing into question the mechanics of pricing these contracts.

The Indian Exchange’s press release also noted that they will no longer license or provide market data to any index provider for offshore Indian derivative products, where the weight of Indian securities in the index is 25% or higher. Global index provider MSCI responded with their own press release3 dated 15 February 2018, in which they describe the change as “anti-competitive measures restricting the accessibility of the Indian equity market”.

The alternatives

Going forward, access to derivatives on Indian underlyings will be available:

I. Through licensing as a Foreign Portfolio Investor (FPI) and accessing the onshore derivative market (this has not changed)

II. Through trading products listed on offshore exchanges

SGX has issued a press release4 to assure investors that their full suite of Indian products will be available until August 2018.

They have also announced that they will list new India equity derivative products in June 2018, “to provide market participants with continuity and the ability to seamlessly transition their current India risk management exposures”5. The primary difference between the new and existing product is that the new product will be based on a reference price, rather than an index, which may not be as attractive to all investors.

Questions have been raised as to whether Indian authorities will take further action to restrict the trading of Indian derivatives on SGX. One option would be to pursue legal action, based on copyright or infringement but based on attempts to do this previously, it wouldn’t’ appear that they have a strong case. In 2005, the New York Mercantile Exchange (NYMEX) took the Intercontinental Exchange (ICE) to court over the use of NYMEX settlement prices for ICE derivative contracts. The court ruled that settlement prices were not copyrightable and that ICE had not engaged in copyright or trademark infringement when referencing NYMEX’s publicly available settlement prices in its contracts. As SGX isn’t using settlement prices directly, it would appear that Indian authorities are in an even weaker position than NYMEX to prove copyright or trademark infringement in this case.

With regards other venues, the Osaka Stock Exchange confirmed that they would stop offering Nifty50 futures beyond the June 2018 contract6 and we are yet to see announcements from other exchanges on the future of their offerings.

III. Via new derivatives exchanges established in Gujarat International Financial Tec-City (GIFT City).

See the following article, ‘GIFT city, a recap’ for further information on this options.

In summary, the changes to trading of Indian derivatives will have widespread implications. Of particular interest is the speed at which new and competitive products are being developed. We will continue to update you via our news emails, however please feel free to reach out if you would like to discuss directly.

29


GIFT city, a recap

GIFT city is located in Gujarat International Finance Tec-City, a special economic zone within India. It has been designed to act as an offshore financial market, while physically located in India. Both the NSE and BSE set up their own exchanges in GIFT city during 2017, offering index equity derivatives, selected India and global single stock derivatives, as well as currency and commodity derivatives.

India International Exchange “IndiaINX”, a subsidiary of BSE offers a range BSE’s products. NSE IFSC Limited “NSE IFSC”, a subsidiary of NSE, offers a range of NSE’s products.

Trading and settlement is conducted in USD, with collateral held in foreign currencies. Margining is based on SPAN®. Please note that at present, our understanding is that it is not permissible for brokers to issue ODIs from GIFT city exchanges.

A host of incentives have been put in place to entice investors to these exchanges, including tax relief and lowered trading costs. Of particular importance is that, providing certain KYC requirements are met, investors need not obtain special licenses to trade in GIFT city exchanges. As these exchanges are set up as “offshore exchanges”, participation by Indian domestic investors is restricted.

Prescriptive rules exist to ensure that the activities of brokers trading on GIFT city exchanges, are ring fenced from their other onshore activities. This may have contributed to the relatively slow uptake from international brokers to date as it means that these brokers would need to establish separate operations within Gujarat, set apart from those they already have in other parts of India.

In terms of volume of trading on GIFT, in a recent press release7 published on 20 March 2018, BSE announced that they hold 72.4% market share and that their “cumulative total trading turnover crossed the USD 24 billion mark driven by a substantial jump in its trading volume which increased to over 1.5 million contracts”. They went on to note that “The compounded monthly growth rate of the India INX trading volume for the period between October 2017 and February 2018 was 54% per month”.

One important aspect which remains outstanding is Commodity Futures Trading Commission (CFTC) ‘foreign part 30’ license which would allow US based funds to trade GIFT products. Applications for this license have been submitted and local media have indicated that approval by way of a no action letter, may only be a matter of weeks away8.

New algo and co-location requirements

There has been much discussion over the past two years regarding implementation of algo trading controls in India’s domestic market. Various controls were put forward by SEBI in a discussion paper titled “Strengthening of the Regulatory framework for Algorithmic Trading & Co-location”, published in 2016. Since then, SEBI has been considering how best to move forward and on 9 April 2018 published a circular “Measures to strengthen Algorithmic Trading and Co-location / Proximity Hosting framework9”, which outlines the direction in which SEBI seeks to move forward.

Measures proposed in the circular have been summarised as follows:

1. Introduction of a managed co-location service

Space in the exchange’s co-location facility will be allotted to eligible vendors, through whom small and medium sized members can access the exchange’s co-location services. This option is provided for those small and medium sized members who otherwise would not use co-location due to lack of hardware or technical expertise.

2. Stock exchanges to publish latency figures on their website

3. Tick by tick data to be provided free of charge

4. Revision of criteria for high order to trade ratio penalties

At present, orders placed within +/- 1% of the last traded price are excluded from the calculation of order to trade ratio. This will decrease to +/- 0.75%.

5. Tagging of Algo orders

Stock exchanges shall allot a unique identifier to each algorithm approved by them. This identifier will be submitted with each algo order. This will be required by 30 September 2018.

Compared to the proposals put forward by SEBI in 2016, this new framework appears to be less impactful, both from an end client and market perspective.

30


Long term capital gains tax goes live

In Issue 45 of this Newsletter we discussed the government’s decision to remove the exemption on long term capital gains tax (LTCGT), effective 1 April 2018.

Following the announcement the government issued a Frequently Asked Questions (FAQ) document to clarify aspects such as the calculation of capital gains and application of the tax.

Among the points clarified we noted specifically that:

— LTCG arising from share transfers made between 1 Feb 2018 and 31 March 2018, remained exempt (Q11 and Q19 of the FAQ).

— Calculation of ‘gains’ for listed shares is full transfer consideration less cost of acquisition, whereby:

— Cost of Acquisition = Higher of actual cost or fair market value (FMV) on 31 Jan 2018 (highest price quote on the exchange on 31 Jan 2018).

— If actual cost is less than FMV on 31 Jan 2018, FMV will be deemed as the cost of acquisition.

— If full transfer consideration is less than FMW, then the full transfer consideration or the actual cost (whichever is higher) will be deemed to be the cost of acquisition.

— Illustrative examples in Q7 of the FAQ

— Loss set off:

— Long term capital loss arising from transfer made on or after 1 April 2018 can be carried forward (for eight years) for set-off against any other long term capital gains. (i.e. no cross set off between short term and long term)

— (Q23 and Q24 of the FAQ)

Impact

Looking at market activity in March, mutual fund outflow grew by 105%10 from the prior month, resulting in net flows hitting a 20 month low, likely driven by the introduction of LTCGT on 1 April, with investors electing to close positions which would be taxable after 1 April 2018.

Month Inflows (Rs cr)Outflows

(Rs cr)Net Inflows

(Rs cr)

Mar-18 39,102 36,148 2,954

Feb-18 32,297 17,614 14,683

Jan-18 44,232 30,828 13,404

Dec-17 38,263 23,342 14,921

Nov-17 37,758 18,250 19,508

Oct-17 28,526 13,308 15,218

Sep-17 32,845 14,835 18,010

Aug-17 31,079 11,564 19,515

Jul-17 26,761 14,724 12,037

Jun-17 25,247 17,794 7,453

May-17 22,870 12,662 10,208

Apr-17 19,180 10,338 8,842

Total 3,78,160 2,21,407 1,56,753Source: AMFI

The LTCGT FAQ document can be found here: https://www.incometaxindia.gov.in/Lists/Latest%20News/Attachments/216/FAQ-on-LTCG.pdf

31


Highlights

Outcomes from SEBI Board meeting – Corporate Governance

Key decisions from SEBI’s Board meeting were published in a press release11 on 28 March 2018. A range of topics were covered, including Corporate Governance and algo trading and co-location.

We have discussed the algo trading and co-location developments in the features section above and would like to highlight the Corporate Governance changes here.

Approximately 80 Corporate Governance recommendations were put forward for SEBI’s consideration by a panel led by prominent banker Mr. Uday Kotak. SEBI approved around half of the recommendations including some key points such as:

— Enhancing the role of audit, remuneration & risk management panels.

— Implementing stricter eligibility requirements for independent directors.

— Disclosure of expertise/skills of directors

— Enhanced disclosure of related party transactions (RPTs) and related parties to be permitted to vote against RPTs

— Requiring at least one female independent director in the top 500 listed companies.

Full details of all changes can be found in the press release here:https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-meeting_38473.html

Relaxation of some FPI requirements

A week after the aforementioned restrictions to offshore derivatives were announced, SEBI softened the blow somewhat by publishing plans to make it administratively easier to gain and maintain FPI status.

In a circular titled ‘Easing of Access Norms for investment by FPIs’12, SEBI announced a wide range of changes to FPI regulation, as follows:

a. Removal of requirement for prior approval for change in local custodian/ Designated Depository Participant.

b. Rationalisation of procedure for submission of Protected Cell Companies (PCC), Multi Class Share vehicles (MCV) declarations and undertakings, along with Investor grouping requirements at time of continuance of registration of FPIs.

c. Placing reliance on due diligence carried out by Designated Depository Participant (DDP) at the time of change of Custodian / DDP

d. Exemption for FPIs which have Multiple Investment Managers (MIM) structure from having to seek prior approval from SEBI in case of Free of Cost (FOC) transfer of assets.

e. Simplification of process for addition of share class.

f. Permitting FPIs operating under the MIM structure to appoint multiple custodians.

g. Permitting appropriately regulated Private Bank/ Merchant Bank to invest on their behalf and also on behalf of their clients.

The last point is of particular interest, as prior to this change, Private Banks and Merchant Banks were restricted to proprietary activities only. Subject to various conditions, these entities are now allowed to trade on behalf of their clients.

1. https://www.sebi.gov.in/legal/circulars/jul-2017/guidelines-for-issuance-of-odis-with-derivative-as-underlying-by-the-odi-issuing-fpis_35266.html2. https://www.nseindia.com/content/press/PR_cc_09022018.pdf3. https://www.msci.com/documents/10199/804c4e20-77d0-4b57-8838-e3dc02af14da4. http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_

Content&B=AnnouncementToday&F=2LYCOPNVF9Q75QA0&H=4ec60f3f3458ca6a37d50df51fdb24cf8c759bcfa16fb99969c1e9f6909854ad5. http://www.sgx.com/wps/wcm/connect/sgx_en/home/higlights/news_releases/sgx_updates_on_india_equity_derivatives_plans6. http://www.jpx.co.jp/english/news/2040/20180304-01.html7. http://www.indiainx.com/media/73/India%20INX%20PRESS%20RELEASE%20MARCH%20TWENTEETH$dc83c0d8-6880-4016-806b-4130635b4dd0.pdf8. http://www.business-standard.com/article/markets/us-commodity-futures-trading-commission-likely-to-okay-nse-for-derivatives-118030500727_1.html9. https://www.sebi.gov.in/legal/circulars/apr-2018/measures-to-strengthen-algorithmic-trading-and-co-location-proximity-hosting-framework_38605.html10. https://www.indiainfoline.com/article/print/news-mutual-funds/net-inflows-in-equity-mutual-funds-decline-80-mom-to-rs2-954cr-in-march-118040900027_1.html11. https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-meeting_38473.html12. https://www.sebi.gov.in/legal/circulars/feb-2018/easing-of-access-norms-for-investment-by-fpis_37866.html

32


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9:45 10:25 11:05 11:45 13:20 14:00 14:40 15:20 16:00

2016 2017 2018

Following the ODI restrictions introduced in July, there was a slight elevation in notional values of open interest in offshore contracts in H2 2017, in particular the SGX NIFTY 50 futures contract. However since the introduction of restrictions on market data and NIFTY product licenses values have retracted. Despite SGX’s response by listing successor products foreign investors remain uncertain as to whether India exposure will remain offshore or be moved onshore to India’s new GIFT City exchanges. This is a development we are monitoring and will be producing a standalone analysis on – please reach out for more information.

Index spreads in India have decreased 3.1% while trade sizes increased 3.9% QoQ from Q4 2017 to Q1 2018.

The Nifty 50 Index decreased 3.1% in the first quarter, and the Sensex Index declined 2.5%.

In absence of a formal closing auction mechanism, Indian stocks continue to trade 20% of day’s volume over the last 30 minutes of trading.

Market share of turnover captured by the NSE has increased slightly to almost 90% in March 2018, despite remaining stable throughout 2017.

HighlightsTotal turnover in Q1 for India’s key equity markets increased 31.9% YoY, and 2.8% QoQ. Turnover peaked at a 2 year high in January 2018, in line with many other APAC markets.

Despite restrictions on ODIs (P-notes) equities and futures ADV remained elevated in Q1 2018.

The spike in ETF trading in November 2017 was caused by an increase in trading of a small number of ETFs tracking the PSU banks whose prices shot up following the announcement of a recapitalisation package from the government, which in turn caused a significant short squeeze on the shares. As a result, ETFs tracking certain bank indices soared in a matter of days.

The Indian government has pushed ETFs since Q4 2016 while a number of ETF providers have reportedly cut their fees as AUM has increased.

1. https://www.thehindubusinessline.com/money-and-banking/psubank-bears-mauled-in-shortsqueeze/article9924151.ece

33


South Korea

Issue

46 2018


2016 May Order visibility restrictions relaxed Jun New short position disclosure rules Jun Pilot testing begins for ‘Omnibus Account’ for

foreign investors Aug Announcement of planned 30min extension

to trading hours2017 Mar KRX allow borrowing and lending of government bond

collateral May KRX tightens short selling disclosure timelines Jul New FSC Chairman Aug KRX CEO resigns Nov Increased penalties for short sell violations Dec First listing under ‘Tesla’ policy Dec Changes to capital gains tax announced

2018 Feb Proposed changes to capital gains tax withdrawn Mar Suspension for stock split shortened to 3 days Mar SBL collateral expanded to all KOSPI and KOSDAQ stocks Apr Proposal to cut stock transaction tax

Future — Corporate Governance disclosure mandatory for

companies meeting certain criteria (2019)

Features Timeline

TaxProposal to cut stock transaction tax MicrostructureKRX shortens suspension period for stock splits to three daysControlFSC to require companies to publish corporate governance reports from 2019

HighightsGrowthKorea Securities Depository expands list of securities eligible for collateral for SBL transactionsControlFSC policy roadmap for 2018

34

Global Market Structure South Korea

Features

Proposal to cut stock transaction tax

At a National Assembly meeting on 2 April 2018, a group of lawmakers proposed a reduction to securities transaction tax.1

Currently the securities transaction tax is charged on stock sale transactions at 0.3% for trades executed on exchange and 0.5% for over the counter (OTC) trades.

The proposal suggested lowering the transaction tax as outlined in the table below.

Market tradedCurrent Securities

Transaction Tax Rate

Proposed Securities Transaction Tax Rate

(if accepted)

KOSPI0.3%

(including 0.15% of special agricultural tax)

0.25% (including 0.15% of

special agricultural tax)

KOSDAQ, KONEX, K-OTC

0.3% 0.1%

OTC 0.5% 0.1%

The proposal must be reviewed and passed by the National Assembly before it can be enacted and implemented. Should the proposed bill be passed, trading costs for investors would be reduced significantly in the South Korea market.

There has been no indication as to the timing of the review process or when the market can expect an announcement.

Korea Stock Exchange shortens suspension period for stock splits to three days

The Korea Stock Exchange (KRX) has recently shortened the suspension period mandated when a stock split occurs from fifteen to three days, effective 16 March 2018 2

It has not been possible for KRX to do away with the suspensions period entirely as at present there is a certain amount of non-automated work which takes place while the stock is suspended. KRX has said in a statement that it has formed a task force to address these processes with an aim of removing the suspension entirely by the end of 2018.

News of the reduced suspension period was well received by investors holding Samsung Electronics shares, as the company had announced its intent to undertake a 50:1 stock split on 30 April 2018. Samsung is the most expensive stock in the Korean market and constitutes approximately 33% of the country’s KOSPI Index in terms of market capitalisation3. With the stock so heavily traded given its size and inclusion in global indices, the shorter suspension period will reduce uncertainty in the market.

Other stock splits in that Korea market that will benefit in 2018 include: JW Life Science, Mando, FILA Korea, and Boryung Pharmaceutical.

Regulator announces measures to increase activity in KOSDAQ market

In line with other markets in the region, Korea’s Financial Services Commission (FSC) has announced measures to support start-ups and innovative businesses. The measures are designed to stimulate Korea’s secondary KOSDAQ market and increase competition with the KOSPI market.

The announcement included the following measures under four categories as below.

1. Incentives to attract institutional investors:

By way of a new index and launch of an investment fund for KOSDAQ firms.

— KOSDAQ Scale-up Fund: A new fund of KRW 300 billion (US $279 million) is to be formed with capital from the KRX and KSD to invest in KOSDAQ-listed firms. Expected in first half of 2018.

— KRX 300 Index: launched in February 2018 incorporating KOSPI and KOSDAQ-listed companies.

2. Review of KOSDAQ listing requirements

Listing prerequisites are to be altered to focus more on the growth potential of firms seeking public listings.

— Removal of rules acting as impediments to listing for start-ups including profit and capital impairment requirements.

— Firms will be allowed to list if they meet only one of the following threshold requirements: pre-tax profit, market capitalisation and equity capital.

— To facilitate more listings under the recently introduced “Tesla Policy” underwriters with a track record of such listings will be exempt from rules requiring the repurchase of shares for 90% of the IPO price should retail investors exercise their put-back options within six months. Put-back options were introduced by the government to protect retail investors, forcing the underwriter to guarantee a repurchase of the stock at 90% of the value for up to six months should the value fall post-IPO.

3. Autonomy and independence of KOSDAQ market

KRX will make operational changes to increase competition between KOSDAQ and KOSPI markets. The following amendments are expected in the first half of 2018.

— Chairman of KOSDAQ Market Committee to no longer report to CEO and be an external expert to instil a private organisation mind-set to the committee.

— Listing and delisting evaluation authority will report to the KOSDAQ Market Committee rather than the CEO.

4. Investor protection and market integrity

The following initiatives will be implemented to improve the investment environment for investors.

— Increased post-IPO supervision to ensure that the altered listing rules do not compromise the quality of listed firms in the market. Moreover there will be increased scrutiny in reviewing companies for de-listing.

— KOSDAQ listing rules will be altered to restrict the largest shareholders and underwriters from selling shares for a given period to better protect investors and avoid conflicts of interest.

Unless mentioned explicitly all of the above changes are intended to go live in the first half of 2018 according to the FSC.4

35


FSC to require firms to publish Corporate Governance reports from 2019

After low participation rates and poor quality of information received in Korea’s “comply and explain” Corporate Governance framework, introduced in March 2017, the KRX and FSC have decided to make Corporate Governance disclosure mandatory for listed companies meeting certain criteria.

From 2019, KOSPI-listed companies will be required to make Corporate Governance disclosures provided they have a total asset value greater than KRW 2 trillion (US $1.86 billion), expanding to include all KOSPI-listed companies from 2021.

The FSC and KRX will release guidelines as to the disclosure requirements by July 2018. It was also stated that violations of the rules including non-disclosure and substandard disclosure will be subject to disciplinary measures which will be announced at a later date.

The announcement, released on 22 March 2018 also confirms that a similar scheme is being considered for KOSDAQ-listed firms, and further details will be released in due course.5

Highlights

Korea Securities Depository expands list of securities eligible as collateral for SBL transactions

Due to increased demand in the local securities borrowing and lending (SBL) market, the KSD announced on 29 March 2018 that it would increase the number eligible stocks available to use as collateral in SBL transactions6.

As of 2 April 2018 participants will be able to use all KOSPI and KOSDAQ listed stocks, rather than being restricted to constituents of the KOSPI 200 Index. In addition the limit on the amount of financial bonds constituting collateral for a transaction was increased from 20% to 30%.

The KSD reported in the announcement on 29 March that the SBL market almost doubled from 2013 to 2017 (KRW 55.7 trillion to KRW 107.8 trillion), so the increased list should alleviate lack of collateral in the market.

What’s more, the government has a broader agenda to boost activity in KOSDAQ market and so hopes that activity may increase by allowing the use of KOSDAQ stocks as collateral.

For more information please see the KSD Notice: https://www.ksd.or.kr/eng/bbs/bbsDetails.home?bbsId=KOR-BBS-000000000001&nttId=21507&pageIndex=1&txtType=null&txtKeyword=null&menuNo=28&relComCode

FSC policy roadmap for 2018

The FSC released their financial policy roadmap in January 2018 outlining various measures to stimulate activity in the market. Promoting FinTech and sustainable growth for the Korean economy were at the centre of the policy announcement, with further information on specific developments to follow.

The announcement listed four key policy tasks and commitments under each as below:

1. Trustworthy finance with financial reforms and fair market order

— Better governance in financial institutions

— Consolidated supervision on ‘financial conglomerates’

— Advancement in corporate governance

2. Productive finance to support innovation-led growth for the Korean economy

— Start-up ecosystem

— Amendments to capital requirements

— Future potential as ‘collateral’

3. Inclusive finance to better serve those underserved or marginalized

— Financial support for low-income households

— Alleviation of financial cost for low-income households

— Debt relief for long-overdue small loans

4. Innovative finance to promote competition and innovation in financial services

— Regulatory approval for new business

— ‘Fintech Policy Roadmap’

— Regulatory sandbox

— ‘Special Act to Foster Financial Innovation’

More information on the above can be found in the FSC announcement here:

https://www.fsc.go.kr/eng/new_press/releases.jsp?menu=01&bbsid=BBS0048.

1. http://likms.assembly.go.kr/bill/billDetail.do?billId=PRC_X1K8T0M3B3P0N1R8U1R7Q0B7P9P8M72. http://global.krx.co.kr/contents/GLB/02/0203/0203000000/GLB0203000000.jsp#ab8758eced0475769e200e7e309baf77=13. Source: Thomson Reuters4. http://www.fsc.go.kr/eng/new_press/releases.jsp?menu=01&bbsid=BBS00485. https://www.fsc.go.kr/eng/new_press/releases.jsp?menu=01&bbsid=BBS0048 6. https://www.ksd.or.kr/eng/bbs/bbsDetails.home?bbsId=KOR-BBS-000000000001&nttId=21507&pageIndex=1&txtType=null&txtKeyword=null&menuNo=28&relComCode

36




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Korean Index futures volumes remained elevated after spiking in April 2017 around the initiation of tensions with the North. Perceived progress in reducing global tensions with North Korea could explain the sustained increase in Korea futures trading.

Average trade sizes of Kospi 200 Index constituents increased 2.5% QoQ while index spreads remained unchanged on average.

On 1 August 2016 Korea extended trading hours by 30 minutes to 15.30hrs and introduced a closing auction from 15.20 to 15.30hrs. Accordingly trading volumes are split across the two closing periods in 2016, while 2018 has seen volume decrease 0.6% to 8.4% of day’s volume at the close with a slight increase on the open.

The Kospi market has regained some market share of value traded which the Kosdaq market gained in Q4 2017. The government is continuing to introduce initiatives to vitalise the Kosdaq market including launching a new index, trading incentives and a new investment fund – see the above feature section for more detail.

The KOSDAQ market increased its market share to 54% of turnover in Q4 2017 with the KOSPI market making up the remaining 46% having historically held the majority in recent years.

HighlightsAfter spiking in November 2017, equity market turnover has remained higher into Q1 2018. A proposed increase to capital gains tax was suspended in February after being announce in December, alleviating many foreign investors’ concerns that they would become eligible should they hold more than 5% of a stock’s outstanding shares.

South Korea is the second largest ETF market in APAC after Japan in terms of turnover and has the highest number of ETFs listed in the region. 19 new equity ETFs began trading in the first quarter.

37


Australia

Issue

46 2018


2016 Jan ASIC backs ‘blockchain’ tech Mar ASX moved to T+2 settlements May ASIC launches consultation on disclosure

of information in prospectuses Sep Updated listing admission rules due to come into effect 2017 Mar ASX upgrades derivative platform Jul ASX launches review of closing price methodology Jul ASIC consults on revising the market license regime for

domestic and overseas operators Oct James Shipton named as new ASIC chairman Nov ASIC and CSRC sign FinTech cooperation agreement Nov ASX announces replacement of CHESS post-trade

platform with distributed ledger technology (DLT) Nov ASIC signs FinTech Cooperation Agreement with

Canadian regulators

2018 Mar ASX consults on move away from staggered opening

session Mar ASIC opines on Give-Up trades

Future — CHESS replacement due 2021

Features Timeline

GrowthASX considering move away from staggered openingMicrostructureASIC opines on Give Ups

Highlights

GrowthProgress with ASX CHESS replacement

ControlASIC industry funding update

38

Global Market Structure Australia

Features

ASX considering move away from staggered opening

On 21 March, the Australian Stock Exchange (ASX) released a consultation paper titled “Management of the ASX Market”, which amongst other things, reviews the current market practise of staggered group openings.

At present, the ASX commences trading every morning with a rotating series of opening auctions across five alphabetical groups of securities. Opening times are approximately two minutes, fifteen seconds apart with the exact times randomised, as outlined below:

Group 1 10:00:00 am +/- 15 secs 0-9 and A-B (e.g. ANZ, BHP)

Group 2 10:02:15 am +/- 15 secs C-F (e.g. CPU, FXJ)

Group 3 10:04:30 am +/- 15 secs G-M (e.g. GPT)

Group 4 10:06:45 am +/- 15 secs N-R (e.g. QAN)

Group 5 10:09:00 am +/- 15 secs S-Z (e.g. TLS)

The existing staggered open is somewhat of a legacy framework and is no longer in line with global stock market practise. As part of its review, ASX examined the opening auction mechanisms of 34 other exchanges and found that none operated a staggered opening session.

The consultation suggests that respondents consider the option of ASX moving to a single opening for all securities and asks whether this would be supported and what if any, issues respondents believe it will bring.

Those in favour of changing to one opening session are likely to be driven by factors such as:

— Simplicity;

— Alignment with global markets;

— Reduced possibility for error (through not managing open and pre-open stocks together);

— Improved pricing of derivative products (which is possible when the market is fully open, rather than staggered with some constituents open and others closed); and

— Faster and simpler recovery from outages.

Those in opposition will be wary that:

— It may be more demanding for traders to manage opening orders within a shorter timeframe;

— There may be a higher proportion of manual style trading in the Australian market, making the above more impactful; and

— Any change will result in brokers needing to invest in technology and possibly update algorithm logic.

The consultation closed on 30 April and the market now awaits the ASX’s conclusions.

ASIC opines on Give UpsASIC’s latest ‘Market Integrity Update – Issue 91 ’ touches on an important topic for many market participants, being the treatment of ‘give-up’ trades.

To begin, ASIC clarifies what constitutes a give-up, in that:

“a ‘give up’ occurs when a client arranges with its executing broker for their obligations under a cash market transaction to be settled by another broker acting as principal”.

They go on to provide guidance on their expectations for give-up trades:

— We expect executing brokers to make sure they have clear instructions from their client about whether an instruction is an order to buy or sell ‘physical’ cash equities or an instruction to open or close an OTC equity swap position.”

— We also expect clients, executing brokers and swap counterparties to comply with their obligations under the Corporations Act and the market integrity rules, including:

— the ‘naked’ short sales prohibition (section 1020B)

— executing brokers’ obligation to ask a seller if it is short selling (section 102AE)

— obligations to report short sale transactions and short positions (sections 1020AB and 1020AC)

— market participants’ pre-and-post-trade transparency obligations under the market integrity rules

— the takeover provisions in Chapter 6 (including relevant interest reporting obligations and ‘anti-creep’ provisions) and requirements for foreign investment proposals to be made to the Foreign Investment Review Board under the Foreign Acquisitions and Takeovers Act 1975.

The full Market Integrity Update – Issue 91, can be found here: http://asic.gov.au/about-asic/corporate-publications/newsletters/market-integrity-update/market-integrity-update-issue-91-march-2018/#give-ups

39


1. https://www.asx.com.au/documents/public-consultations/asx-market-management-consultation-21march2018.pdf2. http://asic.gov.au/about-asic/corporate-publications/newsletters/market-integrity-update/market-integrity-update-issue-91-march-2018/#give-ups3. https://www.asx.com.au/documents/public-consultations/chess-replacement-new-scope-and-implementation-plan.pdf4. http://download.asic.gov.au/media/4685852/summary-of-2017-18-indicative-levies-published-28-march-2018.pdf

Highlights

Progress with ASX CHESS replacement

On 27 April, ASX released a consultation paper outlining the planned new features and timetable for replacing their Clearing House Electronic Subregister System (CHESS) with a system based on distributed ledger technology (DLT).

This is not a new initiative but one that has been in the making for the past two-and-a-half years. ASX’s work during this time included:

— assessing user requirements through a consultation process across a diverse set of users during 2017;

— independent 3rd party technology assessments, to enable ASX to assess the functional, capacity, security and resilience capabilities of the DLT-based platform;

— a comprehensive review of the architecture of the DLT-based platform to assess its capability to enable customers to choose whether to use message based interaction (as is available in CHESS) or to integrate more fully with the platform and access the data sharing benefits that this provides; and

— reviewing, in conjunction with industry experts, the existing CHESS message structure, identifying redundant or seldom used messages and mapping the remainder to the new ISO 20022 global messaging standard.

As per the consultation, ASX expects to be in a position to launch the CHESS replaced in Q1 2021

The consultation period closes on 22 June 2018 and the full consultation paper can be found here: https://www.asx.com.au/documents/public-consultations/chess-replacement-new-scope-and-implementation-plan.pdf

ASIC industry funding update

On 1 July 2017 industry funding arrangements become law in Australia. Under this arrangement, all organisations regulated by ASIC are required to contribute towards ASIC’s regulatory costs.

Some participants pay a flat levy, with the cost of regulating a subsector shared equally among the entities operating in that subsector. Others pay a graduated levy, with the entity’s size or level of business activity determining their share of costs.

In March of this year, ASIC published estimated levies which included:

The above information is based on current estimates and ASIC is expected to finalise these estimates and begin reaching out to users from June 2018.

40




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Average spreads in ASX 200 stocks decreased by 1.5% and average trade size increased 5.3% from Q4 2017 to Q1 2018.

ASX 200 index stocks trade a high percentage of day’s volume in the closing auction. To date in 2018, that percentage is roughly 25.3% of the day’s volume. Due to a lower sample size YTD versus full year 2017, one would expect his value to be reduced over the year.

Chi-X’s market share in Australia of lit trading has remained stable at roughly 21% through Q1 2018, up from around 18% in Q3 2017.

Highlights2018 Q1 turnover in Australian equities increased 11.7% YoY, maintaining higher levels seen throughout 2017.

Six new ETFs began trading in the first quarter. In terms of turnover the ETF market remains small; equivalent to around 2% of the equities market. ASIC has continued to push its investor education agenda, with ASX reporting that 31% of adults hold shares while the number of young investors is increasing.


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41



Thailand

Issue

46 2018

2016 Jan SEC looks at tighter trading penalties Jan Thai bourse and SEC to launch “Digital IPO” Jan SEC’s three-year strategic plan Feb Public hearing on draft revisions to market

infrastructure rules 2017 Feb SEC launches new investment code Jul Bank of Thailand and MAS sign FinTech Cooperation

Agreement Oct Consultation: Amendments to capital requirements

for asset managers Nov Consultation: Cornerstone investments and sale of

shares post a secondary listing 2018 Feb SET extends co-operation agreement with Korea Exchange Mar Market moves to T+2 settlement

Future July Introduction of ‘C’ caution alert

Features Timeline

Microstructure— Thailand’s seamless transition to T+2 Control— SET to introduce new “C” caution sign

Highlights

Growth — SET Extends Co-operation Agreement with Korea

ExchangePersonnel — New President appointed to SET Board

42

Global Market Structure Thailand

Features

Thailand’s seamless transition to T+2

On 2 March 2018, the Stock Exchange of Thailand (SET) transitioned from a T+3 to a T+2 settlement cycle for cash equities.

This move is in line with many exchanges across the US and more recently Asia, who have opted to shorten their settlement cycles. Within the region both Singapore and Japan have committed to move to T+2 within the next 12 months.

Why the drive towards T+2?

There are multiple reasons, firstly from an investor’s perspective a shorter settlement cycle allows capital to be turned over more quickly, leading to faster return on investment. Secondly, it makes multi market trading easier when more markets adopt the same settlement standards and lastly, according to the SET it reduces clearing and settlement risk as well as cost1.

The smooth transition demonstrates the collaboration between key capital market stakeholders, including the SET, Securities and Exchange Commission (SEC), The Bank of Thailand, security firms, custodians, asset management firms and banks, who all worked closely to plan and execute the T+2 move.

SET to introduce new “C” caution sign

From 2 July 2018, a “C” for ‘Caution’ alert will be shown on a listed company’s security if the company has suffered a significant decline in financial performance or business operation2.

The decision to introduce the new alert status was made following discussions with market participants undertaken by the SET last year. According to SET, this new alert will help protect investors and encourage listed companies to resolve the issues which led to “C” alert status.

In line with existing treatment for other alert types, SET will publicly announce that a company is being put on “C” alert, the day prior to the alert being posted. Companies under “C” alert have a deadline of 15 days to provide a plan to resolve their status.

The “C” alert will come into effect on 2 July 2018 and use financial information from listed companies financial statements ended 30 June 2018.

Highlights

SET Extends Co-operation Agreement with Korea Exchange

On 5 February 2018, SET signed a memorandum of understanding (MoU) with the Korea Exchange (KRX) to aide capital market development and business opportunities between the two markets. This agreement extends the union between the two trading venues, which was first established in 2006.

SET President Mr. Kesara Manchusree said, “The MoU between SET and KRX, spanning another five years from today to February 4, 2023, underscores SET’s strategic plan to enhance fundraising and investment in order to create business opportunities for long-term growth in the region. The extension of the MoU period would foster our long-term relationship and synergize concerted efforts on new products and services development. The agreement also embraces cooperation for improving IT infrastructure, investment activities to expand investors’ opportunities, seeking the possibility of collaborative investment as well as information sharing to further strengthen the development of the two capital markets.3“

New President Appointed to SET Board

Mr. Pakorn Peetathawatchai has been appointed as the SET’s thirteenth president, beginning his four-year term on 1 June 2018.

Mr. Peetathawatchai joined SET in 2010 as Senior Executive Vice President, Head of Markets Division and is currently Head of Corporate Strategy Division and Head of Finance & Investment Division. He has a Doctoral of Business Administration in Finance and Economics from Boston University, a Master of Business Administration in Finance from University of Wisconsin, and Bachelor of Engineering in Electronics from King Mongkut’s Institute of Technology Ladkrabang.

It is understood that Mr. Peetathawatchai plans to continue the exchange’s ongoing projects, including supporting start-up and FinTech initiatives4.

1. https://www.set.or.th/tplus2/en/about.html2. https://www.set.or.th/set/newsdetails.do?newsId=15203799741850&sequence=2018023269&language=en&country=US3. https://www.set.or.th/set/newsdetails.do?newsId=15177879496500&sequence=2018008543&language=en&country=US4. https://www.bangkokpost.com/business/news/1416074/pakorn-peetathawatchai-named-sets-next-president

43

Global Market Structure Thailand



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Peaks in SET 50 futures trading occurred in September and October 2016 and 2017. The late King of Thailand passed away on the 13th October 2016 while his funeral took place 1 year later.

Trade sizes and spreads of SET 50 stocks decreased 4.2% and 2.0% respectively QoQ following an increase during the period from mid-September to mid-October where trade sizes and spreads were higher.

With a formal closing auction mechanism Thai Index stocks traded 12% of day’s volume in the closing session in 2017, an increase from 10% in 2016. To April-end there has been an increase in open traded volume and slight decrease to 11% through the close.

HighlightsQ1 2018 turnover increased 46.3% on Q1 2017 and 31.2% on Q4 2017. Velocity spiked in September 2017 as turnover peaked relative to market capitalisation. 2018 values remain on trend with those of 2017.

Two ETFs dominate the Thai ETF market – both key index trackers. Both are managed by Bangkok Capital Asset Management (BCAP): BCAP MSCI Thailand ETF, and BCAP SET100 ETF. The latter of the two began trading in September 2017 and was heavily traded throughout Q4. One new ETF, the BCAP Mid Small Cap CG ETF was heavily traded in March after being listing that same month.

Q1 ADV has subsequently increased as the SET Index was one of the few APAC indices to retrieve a positive return over the quarter.


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Singapore

Issue

46 2018


2016 May SGX introduces requirement for 6 monthly update

on suspended stocks May SGX launches MSCI China Free Index Futures and

Options contracts Jul SGX to move regulatory function to new subsidiary Jul Hardware failure closes SGX for half a day Sep Minimum traded price requirements come into force 2017 Jun MAS consults on Robo-Advisors Jun SGX launches MSCI index futures Oct SGX consultation on principals based market practices Nov Re-introduction of lunch break Nov MAS and CSRC agree to increase cooperation on market

supervision and development Nov MAS best execution consultation Nov Singapore proposes T+2 settlement and simultaneous

money and securities settlement2018 Feb SGX launches 50 Indian single stock futures contracts

(NIFTY50) Feb SGX advise that their NIFTY suite of derivative products

will be available till August 2018 Feb SGX consults on dual class shares listing framework Apr SGX announces non NIFTY successor products for Indian

equity derivatives

Future June Launch of Indian equity derivative Nifty

successor products

Features Timeline

Products — SGX to launch successor products to NIFTY index futures

Consultation — SGX consults on dual class shares listing framework

Highlights

Consultation — MAS consultation to move popular OTC derivative on exchange

Growth — SGX announce Fast Track programme for companies with good Corporate Governance

45

Global Market Structure Singapore


Features

SGX to launch successor products to India NIFTY Index futures

On 11 April 2018, SGX updated the market on plans to introduce successor products to the SGX listed NIFTY futures, following an announcement from Indian exchanges to cut off data feeds and impose index licensing restrictions on foreign venues.1

SGX confirmed that the following products would commence trading on Monday 4 June 2018, to replace the existing NIFTY contracts:

— SGX India Futures

— SGX India Options (on futures)

— SGX India Bank Futures

According to SGX the new contracts will retain existing financial specifications (contract size, tick size, pricing) and operational parameters (ticker symbol, trading hours, contract months) therefore requiring minimal changes from exchange members. Moreover SGX has stated that existing positions in NIFTY 50 Futures and Options, and Bank NIFTY Futures will be seamlessly novated to the new SGX India products, as of 4 June 2018.

The contracts’ settlement price will be calculated using public closing prices of futures contracts listed on India’s National Stock Exchange (NSE) and NSE IFSC (in GIFT City). The SGX will average the prices of the identical contracts listed on each exchange therefore implying zero basis risk against the previous contracts, as they will settle at the same price as the existing SGX NIFTY futures.

The settlement arrangement will therefore be similar to that of SGX’s Indian Single Stock Futures which began trading in February of this year. While the NSE has stated that it is examining the legitimacy of the products2, SGX has expressed its confidence that the products are entirely legal.

The new products have received approval from regulators in Singapore, USA (CFTC) and Hong Kong (SFC).

In the same announcement, SGX stated that work remains ongoing to establish a “joint trading and clearing model” in India’s GIFT City that would link the NSE and SGX. There has been no indication of a timeline for the plans.

SGX consults on dual class shares listing framework

After receiving “broad support” for proposals relating to dual class shares, SGX has issued a new consultation on investor safeguards.

In the new consultation paper, the SGX has proposed amendments to listing rules that would allow companies with dual class share structures to list provided they meet existing Mainboard admission criteria, as well as certain suitability requirements.3

SGX has suggested that, in addition to current listing rules, companies must satisfy the exchange of their suitability to list and proposes considering the following factors:

— The business model of the company;

— Operating track record of the company;

— The role and contribution of intended multi-vote shareholders to the success of the company;

— How actively involved the intended multi-vote shareholders are in the company; and

— Participation by sophisticated investors.

Moreover, the Exchange has proposed a number of safeguards against entrenchment and expropriation:

— A maximum voting differential of 10:1 for multi-vote shares vs ordinary shares.

— The voting differential must be fixed at the point of listing i.e. the number of votes a mutli-vote share holds is fixed.

— Additional multi-vote shares can only be listed via a rights issue in conjunction with ordinary shares thus preserving the voting differential.

— Corporate actions (e.g. buy-back) must not distort the voting differential.

— Multi-vote shareholders must be a director or non-executive director and remain so for as long as he/she holds the shares. The holder does not need to be an executive director.

— Mutli-vote shares are automatically converted to ordinary shares (single vote) if sold. This includes a sale to another holder of multi-vote shares. They must also be converted if the holder ceases to be a director for any reason.

— Shareholders holding ordinary shares must hold at least 10% of the total voting rights. SGX Is considering whether to calculate total voting rights using a one-share-one vote basis or including the multiple votes.

— Shareholders holding an amount of ordinary shares equaling at least 10% of the total voting rights collectively, may demand a general meeting.

— For the following corporate actions, where shareholder approval is sought, multi-vote shares will carry one vote per share (“enhanced voting process”):

— Changes to articles of association;

— Changes to rights attached to any class of shares;

— Appointment and removal of independent directors;

— Appointment and removal of auditors;

— Winding up of the issuer; and

— Delisting.

The consultation closed on 27 April 2018.

46

HighlightsSGX announce Fast Track programme for companies with good Corporate Governance

On 4 April 2018 SGX launched its ‘Fast Track’ programme, giving listed firms with a good Corporate Governance standing and track record, priority when undergoing corporate actions.4

“Companies in the programme will have prioritised clearance for selected corporate action submissions to SGX RegCo”, say SGX. Such submissions could include circulars, requests for waiver and applications for share placement. Companies will be assessed on internal and external criteria based on current Corporate Governance standards, their historical standing and quality of disclosures, while reviews will be continuous.

SGX maintains a list of firms currently part of the programme on its website.5

SGX expressed its views on the importance of incentives as well as disciplinary measures when it comes to compliance with Corporate Governance standards and feels the Fast Track initiative gives firms an advantage in a faster time to market with important corporate actions. The programme became effective immediately following the announcement.

MAS and financial industry to develop guidance on responsible use of data analytics

The MAS announced on 2 April 2018 that it was working with a number of financial industry stakeholders to produce material advocating the prudent use of data, analytics and artificial intelligence (AI).

The regulator is bringing together thought leaders, and financial industry practitioners in AI and data analytics to draft principles which will be brought to market for consultation in Q2 2018. While supporting the adoption of new technologies to advance the financial sector, the MAS has expressed its concerns around missuses of the practices. Chief Data Officer of MAS, Dr David Hardoon said, “MAS looks forward to working with the industry to encourage innovative uses of these technologies while putting in place the right conditions for their ethical use based on the principles of fairness, accountability, and good governance”.

The industry stakeholders involved are listed in the MAS announcement.6

1. hhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/higlights/news_releases/sgx_updates_on_india_equity_derivatives_plans2. http://www.business-standard.com/article/news-ians/nse-examining-sgx-s-announcement-to-list-indian-derivative-products-118041101072_1.html3. https://www.sgx.com/wps/wcm/connect/sgx_en/home/regulation_v2/consultations_and_publications/PC/Consultation+Paper+on+Proposed+Listing+Framework+for+Dual+Class+Share+Structures4. http://www.sgx.com/wps/wcm/connect/sgx_en/home/higlights/news_releases/sgx_regco_launches_sgx_fast_track_programme_for_companies_with_good_corporate_governance_standing5. http://www.sgx.com/wps/portal/sgxweb/home/regulation/consult_pub/listing_compliance_bulletin/sgx_fast_track6. http://www.mas.gov.sg/News-and-Publications/Media-Releases/2018/MAS-and-financial-industry-to-develop-guidance-on-responsible-use-of-data-analytics.aspx

47


Analytics



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Trading in the FTSE Straits Times Index Futures contract remains sporadic and negligible as liquidity has shifted to the MSCI Singapore contract.

Average spreads for Straits Times Index stocks remained roughly unchanged from the previous quarter, while trade sizes increased 3.6% on average.

Closing auction volume has increased slightly to 13.3% of day’s volume. As expected, following the introduction of a lunch break in November 2017, volumes have increased in the succeeding re-opening period thus far in 2018.

HighlightsTotal turnover in Singapore equities in Q1 2018 was up 28.1% year on year and increased 28.3% on Q4 2017.

ETF ADV in Q1 2018 increased 78% versus the same period in 2017. Of the 13 listed ETFs in Singapore two consistently dominate turnover in the market:

1. STTF SP – SPDR Straits Times Index ETF. State Street Global Advisors. Launched April 2002.

2. INDIA SP – iShares MSCI India Index ETF. Blackrock. Launched June 2006.

The spike in ETF trading in February and March 2018 was caused by a one-off increase in trading in one particular ETF – Lyxor China Enterprise HSCEI UCITS ETF.



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Philippines

Issue

46 2018


2016 Jul SEC imposed a minimum 15% public float requirement 2017 May PSE appoints new president Oct PSE consultation to keep exchange open on days where

clearing facilities are suspended Dec Annoucement of 20% increase in stock transaction tax Dec New suitability requirement for company management

2018 Feb PSE moves to new premises in Bonifacio Global City Feb Javey Francisco named as new SEC Commissioner Apr PSE completes PHP 2.9 billion (US $55 million) Rights

Offering Apr PSE updates front end trading system Future — SBL framework planned

Features Timeline

Growth — Stock exchange ownership update — PSE completes PHP 2.9 billion (US $55 million) Rights Offering

Highlights

Microstructure — PSE’s updated front end trading system

Growth — New trading floor for PSE

Personnel — Javey Francisco named as new SEC Commissioner

49

Global Market Structure Philippines

Features

Stock exchange ownership update

It has been a long standing goal of the Philippines Stock Exchange (PSE) to acquire the Philippine Dealing System Holdings Corp. (PDS), as this would merge securities, fixed income and foreign exchange within the same organisation.

Key in preventing the acquisition to date has been a local requirement which states that “… no industry or business group may beneficially own or control, directly or indirectly, more than twenty percent of the Exchange1.” Proceeding in accordance with this rule would require PSE shareholders to divest some of their stocks to ensure that upon PSE & PDS merger, their combined shareholding in both entities would fall under the 20% threshold. PSE has not been able to convince its shareholders to take this necessary step and as such, the acquisition has stalled.

PSE is not alone in its desire to control the local fixed income and FX market. In March 2018, state run ‘Landbank’ announced its intent to purchase 66.67% of PDS and have subsequently offered to purchase PSE’s 20% shareholding. According to local media2, PSE is yet to decide how they will respond to the offer.

PSE completes PHP 2.9 billion (US $55 million) Rights Offering

PSE issued 11.5 million new shares in a rights offering which completed on 26 April 2018.

PSE Chairman Mr. Jose Pardo explained to media that “This SRO (securities rights offering) provided investors greater opportunities to own shares of PSE, which has been profitable for several years and regularly distributes a substantial amount of dividends to shareholders year in and year out. Now that the shares can be traded in the market, investors can be shareholders of a bigger, more robust PSE3“.

Media reports4 indicate that some of the proceeds from the rights offering are earmarked to fund purchase of PDS, which as noted in the prior article, remains in limbo. If the acquisition does not proceed it has been reported that the funds will be used for system upgrades and other improvements.

Highlights

PSE’s updated front end trading system

On 20 April 2018 the Philippines Stock Exchange (PSE) released a new version of the PSE Tadex TP system, introducing enhanced functionalities including:

— Duplicate Order – a new duplicate last shortcut [Ctrl + Z] may be used to duplicate the last order sent.

— Order Ticket – the size of the order ticket including the font, buttons, and fields has increased.

— Password Expiration – a new feature that sends users email notification days before their password expires.

— Security Search Box – a security search box has been added next to the client account search box of selected components namely executions, orders, order summary, and positions.

— Volume Ahead – a new feature that allows the trader to check the number and position of a selected order in the queue of orders for a selected security.

— Wash Sale – a new feature that checks and restricts clients from performing a wash sale.

Further details and illustrative examples can be found in an announcement on the PSE website, here:

http://www.pse.com.ph/stockMarket/announcements.html

The enhanced functionalities will be available for trading participants effective 23 April 2018.

New trading floor for PSE

On 19 February 2018, PSE celebrated its move to Bonifacio Global City. The PSE’s new building, located on 5th Avenue and 28th Street has an external ticker board, showing real-time stock prices and market data. It also houses a museum showcasing the history of the PSE and its predecessor bourses.

In a PSE press release, Chairman Mr. Jose Pardo said, “For the first time, traders from the old Manila Stock Exchange and the old Makati Stock Exchange now share one trading floor. What better place to witness this unification and to pursue our aspirations to become a world-class exchange than here at the world-class Bonifacio Global City, one of the most modern and progressive places in the country.”

Javey Francisco named as new SEC Commissioner

Mr. Javey Francisco has been appointed Commissioner of the Philippines Securities and Exchange Commission (SEC), replacing Mr. Blas James Viterbo.

Mr Viterbo was appointed to the role in 2014 and was due to hold the post until 2021 but resigned, citing health reasons on 1 February 2018.

New Commissioner Francisco has been with the SEC for 17 years, beginning his tenure as Securities Counsel II at the SEC Davao Extension Office in 2001 and is currently serving as Director of the Davao Extension Office5.

He has philosophy and law degrees from Ateneo de Davao University and a master’s degree in management from the University of the Philippines.

1. http://business.inquirer.net/245357/enforce-pse-ownership-rules2. https://www.rappler.com/business/201394-landbank-offer-pse-philippine-dealing-system-holdings-corporation3. http://www.pse.com.ph/stockMarket/pressRoom-pressReleases.html?id=PSE_PRRLS201800000144. http://business.inquirer.net/248082/pse-completes-p2-9b-rights-offer5. https://www.philstar.com/headlines/2018/04/24/1808854/new-sec-commissioner-named

50

Global Market Structure Philippines

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PSEi Index stocks registered a 2.2% decrease in spreads and a 5.4% decrease in average trade sizes. Although average trade sizes have fluctuated considerably in recent years the overall trend remains a decreasing one. Average sizes in Q1 2018 were 57% lower than those in Q1 2015.

PSI constituent stocks trade a considerable amount in the closing auction. With 30 constituents, on average 31% traded at the market close to date in 2018 – the highest of any APAC market.

HighlightsThe PSI Index retreated 5.7% in the first quarter of 2018 versus a gain of 25.1% in 2017.

There remains only one listed ETF in the Philippines. FMETF PM – First Metro Philippine Equity ETF. First Metro Asset Management. Launched Dec 2013.

51


Indonesia

Issue

46 2018


2016 Jan Indonesia considers creating new board for SMEs

to go public Jan IDX announce plans to ease margin trading rules

with levels of classification Feb Foreign ownership limits relaxed for 35 sectors Feb SEC announces results of listed company anti

corruption assessment Apr SEC launches public consultation on information

disclosure for REITs May IDX tightens stock price rules Jun OJK launched online service for reporting, licensing

& registration Jul Tax amnesty launched 2017 Mar Close of tax amnesty period Jun SPRINT licensing system launched Jun Regulator appoints new Commissioner

2018 Mar Government passes new beneficial ownership rules Future — IDX to implement T+2 settlement in November 2018 — Stock market hedging facilities planned

Features Timeline

Microstructure — IDX to implement T+2 settlement in November 2018

Control — Government passes new beneficial ownership rules

Highlights

Performance — IPO update — Foreign Direct Investment in Indonesia up 12.4% in Q1 2018

52

Global Market Structure Indonesia

Features

IDX to implement T+2 settlement in November 2018

In line with moves made by the majority of markets across Asia, the Indonesia Stock Exchange (IDX) is planning to move from T+3 to T+2 settlement in November of this year.

The local Self-Regulatory Organisations (SROs) IDX, Indonesia Central Securities Depository (KSEI) and Indonesia Clearing and Guarantee Corporation (KPEI) released the following tentative schedule for implementation of the T+2 settlement cycle.

Activity Parties involved Target date

Adjustment / revision of regulations

SRO and FSA (OJK) Jul 2018

Preparation for system readiness

SRO Apr – Jun 2018

Preparation for system readiness with market participants, internal systems readiness and industry wide testing

SRO, exchange members, custodian banks, customers

Apr – Sept 2018

Implementation phase including mock tests, pre-live and system deployment

SRO, exchange members, custodian banks, customers

Oct – Nov 2018

Live T+2SRO, exchange members, custodian banks, customers

21 Nov 2018

This move will better align IDX with its APAC neighbours, which as can be seen below, have or are planning, a move to T+2 settlement.

Trading Venue Settlement Cycle

Hong Kong T+2

HK-Shanghai Connect T+0 (Northbound)

HK-Shenzhen Connect T+0 (Northbound)

China Shanghai Shenzhen

A-shares: T+1 B-shares (USD denominated): T+3 A-shares: T+0 B-shares (HKD denominated): T+3

Australia

ASX T+2

Chi-X T+2

Japan

TSE T+3 (T+2 due 2019)

Chi-X T+3 (T+2 due 2019)

SBI Japannext T+3 (T+2 due 2019)

Taiwan T+2

South Korea T+2

India

NSE T+2

BSE T+2

Singapore T+3 (T+2 due H2 2018)

Indonesia T+3 (T+2 due Q4 2018)

Malaysia T+3

Thailand T+2

Philippines T+3

Government passes new beneficial ownership rules

On 5 March 2018, the Indonesian government released a new presidential regulation (“PR 13”) requiring Indonesian companies to identify and disclose the firm’s beneficial owners to the local regulators.

A beneficial owner is broadly someone who can exercise control over the company and can be defined by a number of factors including (but not limited to):

— Holds 25% of issued shares or voting rights;

— Entitled to receive more than 25% of profits;

— Has authority to appoint, replace or dismiss board members; or

— Has the ability to control the company without limitation.

Foreign ownership restrictions exist in Indonesia and vary across certain industries. Foreign investors could be affected if existing positions in restricted sectors meet traditionally recognised legal ownership limits but not beneficial ownership permissions. Beneficial owners may effectively control voting or economic rights without being legal owners – an approach taken by some foreign investors in sectors where restrictions apply. The regulation does not state that such structures will be subject to scrutiny, however they may become more exposed to inquiry.

Firms are required to comply with the regulation by 5 March 2019, after which disclosure will be required annually and within three business days of any changes.1

53


1. http://www.shlegal.com/news-insights/new-beneficial-ownership-rules-in-indonesia 2. http://www.bkpm.go.id/images/uploads/file_siaran_pers/Paparan_Press_Release_TW_I_2018_-_ENG.pdf 3. https://www.indonesia-investments.com/news/todays-headlines/foreign-direct-investment-in-indonesia-rose-12.4-in-q1-2018/item8769

Highlights

IPO update in 2018

At the beginning of the year the Indonesian government set a target of 50 initial public offerings in 2018, a 35% increase on the 2017 count of 37.

As of April 2018, seven new firms had listed on the IDX, a little behind the twelve per quarter government wish and bringing the grand total to 570 listed firms. The government and financial regulator continue to pursue reforms to increase trading activity in ASEAN’s third largest equity market.

Foreign Direct Investment in Indonesia up 12.4% in Q1 2018

Total direct investment in Indonesia was reported to have increased 11.8% year-on-year to IDR 185.3 trillion (US $13.3 billion) to the end of Q1 2018.

Foreign and domestic direct investment accounted for 58.8% and 41.2% of the total respectively, with the domestic portion equalling IDR 76.4 trillion (US $5. 5 billion).

The first quarter figure is 24% of the target set by the BKPM (Investment Coordination Board of Indonesia) of IDR 765 trillion (US $54.8 billion) as can be seen below.

Investment Realisation in Q1 2018

Source: BKPM2

Sources of the foreign funds originated from the following, in descending order:

Singapore (US $2.6 billion), Japan (US $1.4 billion), South Korea (US $900 million), China (US $700 million), and Hong Kong (US $500 million)3.

54


Analytics


Fig 2: Equities(Cash) and Futures Monthly ADV

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60%

80%

100%

120%

140%

160%

180%




US

$ M

illio

ns

SGX MSCI Indo Futures

0

2

4

6

8

10




-3

-2

-1

0

1

2

3

4

5

%




% o

f fu

ll d

ay v

olu

me

0

2

4

6

8

10

12

14

9:45 10:25 11:05 11:45 13:20 14:00 14:40 15:20 16:00

2016 2017 2018


Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)



0

4000

8000

12000

16000

20000

0

5

10

15

20

25

30

35


HighlightsTotal value traded in March 2018 reached US $17.1 billion, exceeding the high for 2017 of US $15.2 billion reached in December.

After falling from December to January, equities average daily value traded increased consecutively month-on-month to exceed the high for 2017, reaching US $777 million in March 2018.

The number of domestically listed ETFs remains at 14 as of the end of Q1 2018. 3 were listed in 2017. ETF ADV remains a fraction of that of equities and futures, reaching US $6,968 in March 2018.

Indonesia’s benchmark index was up 3.7% in Q1 2018, the highest of the ASEAN markets. Its 2017 return was 19.9%.

55


Malaysia

Issue

46 2018


2016 Feb IOSCO to set up APAC hub in Malaysia Jul Securities Commission consults on REITs Jul Securities Commission consults on CIS 2017 May New mid/small cap indexes launched Jun Securities Commission announces three-year

strategic plan Oct Three year stamp tax exemption announced for ETFs

and structured warrants Oct Consultation on new corporate governance guide Dec Bursa Malaysia launches REIT Index Dec Bursa Malaysia introduces new trading features Dec Bursa Malaysia launches first Islamic securities borrowing,

lending framework2018 Mar Waiver of stamp duty on mid and small cap companies

for 3 years Mar Waiver of trading and clearing fees for six months for

new individual investors Apr Intra-day short selling permitted for eligible securities Future — Launch of Alternative Trading System planned for 2018 — SC Malaysia to create infrastructure for L&I products

in 2018 — Stock trading link between Bursa Malaysia and SGX

Features Timeline

Control — Market structure changes to improve “market vibrancy”

Highlights

Growth — Listing incentives for SME program to boost LEAP Market — Stock trading link between Malaysia and Singapore — Capital expenditure to double in 2018 for market development

56

Global Market Structure Malaysia

Features

Market structure changes to increase “Market Vibrancy”

On 6 February 2018, Bursa Malaysia announced it would make a number of changes to the trading environment in order to increase participation from a range of investors. The announcement included the following:

1. Waiver of stamp duty on mid and small cap companies for 3 years

— Effective 1 March 2018 to 28 February 2021

— Eligible companies must have market capitalisation between RM 200 million (USD 51.2 million) and RM 2 billion (USD 512.2 million)

— Eligible list to be reviewed annually

— Expected to impact approx. 31% of market in terms of market cap (mid + small caps).

2. Waiver of trading and clearing fees for six months for new individual investors

— Applicable to investors who open an account between 1 March and 31 August 2018.

3. Relaxed margin financing rules

— Existing limit of 200% of funds will be removed.

4. Intra-day short selling permitted

— Introduced 16 April 2018

— Only permitted for eligible securities (currently 280 and reviewed every six months).

— Stocks will be suspended from short selling if their price falls by more than 15% of previous day closing price or, if the short selling volume exceeds 3% of outstanding shares per security (current daily maximum limit).

5. Stock trading link between Bursa Malaysia and Singapore Exchange

— New initiative to allow trading and settlement of stocks on each other’s exchanges. Please see the ‘Highlights’ section following for further information.

Points 1, 2, 3 all became effective on 1 March 20181.

The above developments are designed to increase the attractiveness of Bursa Malaysia as a trading venue. The Exchange is currently ranked 4th ASEAN market for Q1 2018 in terms of value traded, behind Thailand, Singapore, and Indonesia.

Highlights

Listing incentives for SME’s to boost LEAP market

On 30 March 2018, Malaysia’s Prime Minister announced a new listing incentives programme for Small and Medium Enterprises (SME) listing on Bursa Malaysia’s ‘Leading Entrepreneur Accelerator Platform’ (LEAP).

According to media2, funding of RM 2.95 billion (US $756 million) will be available for the programme, with some of the incentives including:

— Grants for companies newly listed on the LEAP market

— Loans for high performing companies

— Funding for training

SME’s are an important part of Malaysia’s economy.3 In their statement, Bursa Malaysia explained that SMEs account for 65.3% of the nation’s employment, 36.6% of GDP and 18.6% of exports.

Stock trading link between Bursa Malaysia and SGX

As part of February’s market ‘vibrancy’ announcements, Malaysia’s Prime Minister has confirmed that Bursa Malaysia will be working with the Singapore Exchange (SGX) to create a stock market trading link between the two nations.

Once completed, the link will provide access to 1,600 listed companies in a “convenient and efficient manner4”. Local media have suggested that the link will be in place before the end of this year5, however operational detail such as access, quota, and eligible securities has yet to be announced.

The link will be of greater interest to retail investors as institutional participants looking to trade Malaysia and Singapore equities can already access both markets through their international brokers.

Capital expenditure for market development to double in 2018

According to its 2017 annual report6, Bursa Malaysia plans to increase capital expenditure two-fold on capital market development initiatives. Capital expenditure rose 28.6% to RM 13.5 million (US $3.5 million) in 2017.

The report states that multiple projects are currently underway, leveraging digital technology to modernise market infrastructure, improve the experience for customers, and attract issuers and investors.

57

Global Market Structure Malaysia

Analytics

1. http://www.bursamalaysia.com/corporate/media-centre/media-releases/55212. https://www.nst.com.my/news/nation/2018/03/351129/pm-announces-11-incentives-bumiputera3. http://www.bursamalaysia.com/corporate/media-centre/media-releases/5593 4. http://www.bursamalaysia.com/corporate/media-centre/media-releases/5509 5. https://www.straitstimes.com/business/companies-markets/trading-link-for-spore-malaysia-stock-exchanges-by-year-end6. http://bursa.listedcompany.com/newsroom/Annual_Report_2017_of_Bursa_Malaysia_Berhad_1.pdf



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETF

s (

US

$ M

illio

ns)

0.0

0.2

0.4

0.6

0.8

1.0

0.0

0.1

0.2

0.3

0.4

0.5

0.6




Turn

ove

r V

elo

city

(%

)

Tu

rno

ver

(Bill

ion

s U

SD

)

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%



2016 Turnover

2018 Velocity

2016 Velocity



US

$ M

illio

ns

FTSE KL Futures

0

50

100

150

200

250




% o

f fu

ll d

ay v

olu

me

0

2

4

6

8

10

12

14

16

9:00 9:40 10:20 11:00 11:40 12:20 14:35 15:15 16:35 15:35 16:15

2016 2017 2018



0

1

2

3

4

5

%



Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)



0

1000

2000

3000

4000

5000

6000

0

5

10

15

20

25

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Oct-17 Jan-18 Jan-17 Apr-16 Jul-16 Apr-17 Jul-17 Oct-16

The volume profile for Malaysian equities remains roughly unchanged from 2017. Closing auction volume for index stocks remains around 15% of day’s volume. Participation in the last 30 minutes of trading picked up slightly in 2017 versus previous years.

HighlightsTotal turnover increased 28.2% YoY and 15.3% QoQ in Q1 2018 from 2017, reaching a two-year high of US $16.9 billion in January.

With new initiatives to increase equity market activity including trading incentives, intra-day short-selling and waiving of stamp duty we would expect both institutional and retail participation to increase in 2018.

Plans to encourage growth in the local ETF market from the Securities Commission are now being implemented and although no new ETFs were listed in Malaysia in 2017 or 2018 to date, the broadening of distribution channels appears to have increased participation significantly in recent months with ADV increasing through Q4 2017 and Q1 2018.

58

Chart DefinitionsVolatility: Standard deviation of index price returns over last 30 day period

Market Share: Percentage distribution of total value traded (USD) on the exchange/venue year to data

Turnover Velocity: Ratio of USD volume traded on the exchange versus exchange market cap for the given month, annualised

ETF Volume: Total traded value (USD) of listed equity ETFs for the given month, average

Futures Volume: Total traded value (USD) of equity index futures for the given month, average

Equities Volume: Total traded value (USD) of listed stocks on equity exchanges in respective country for the given month, average

Primary Index* Spread: Primary index bid/ask spread, averaged over the trading day

Average Trade Size: Bid/Ask size of primary index constituent averaged over the day, across constituents

Index Price Change: Monthly percent change in country’s primary index level benchmarked to beginning of the year level

*List of primary indices by country:

Australia S&P/ASX 200 IndexChina Shanghai Shenzhen CSI 300 IndexSingapore FTSE Straits Times IndexHong Kong Hang Seng IndexIndonesia Jakarta SE Composite IndexMalaysia FTSE Bursa Malaysia KLCI IndexKorea Korea SE Kospi 200 IndexIndia CNX Nifty IndexPhilippines Philippine SE Composite IndexThailand SET 50 IndexJapan TOPIX Stock Price IndexTaiwan Taiwan SE Weighted IndexUnited States S&P 500 IndexEurope Europe 600 EUR Price Index

Deutsche Bank may from time to time modify the methods, processes and parameters used in the analyses and/or as described in this material. Any descriptions of such models, processes, or parameters, or the analyses resulting from them, are only represented to be accurate as of the date of this material. These materials are generic in nature. There may be regional differences in the processes, parameters and models in Deutsche Bank’s products.


Issue

45 2018


59

Disclaimer

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Asia Pacific Newsletter Issue 46 - Deutsche Bank...Malaysia 55 Chart Definitions 58 Market Structure Nikki Tanner, Head of APAC Market Structure [email protected] Quantitative Content