the future of post-trade infrastructure in Asian bond marketsAdam Wilson

Hong Kong 2011

Asian Bond Markets

Resilience of Asian Local Currency (LCY) Bonds – Strong issuance and growth despite difficult global

conditions in 2008 and 2009 with substantial growth in trading in 2010

– National reform and liberalization efforts are paying off– Regional efforts, such as ABMI and ABF, complement and

support national efforts

2Source: ABD/ABMI/ABMF

Asian Bond Markets - what is broken?

• Despite the efforts, inter-dependence of the region is low … Stronger regional cooperation is necessary.– Efforts of ASEAN Capital Market Forum (ACMF) could be

expanded to the Plus Three countries etc, may assist in facilitating integration of capital markets in the region.

– We need a policy framework to utilize knowledge and expertise in the region.

• The ABMI Group of Experts (GOE) was formed and found:– Cross-border bond transaction costs in ASEAN+3 region are

higher and vary significantly among the countries– Recommendations

• Assessments on feasibilities of Regional Settlement Intermediaries (RSI) to improve cross-border bond settlements.

• Recommendation to reduce market barriers.

3Source: ABD/ABMI/ABMF

4

Area of influence

Improve information flows in the marketsTimely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws.

Improve information flows in the marketsTimely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws.

Identification of Major Barriers (GOE)

Messaging format

Settlement cycle

Securities numberingPre -

matching

FX controlsconversion, repatriation

Taxes

Physical certificates

Investor registration

Omnibus accounts

Cash controlscredit balances, overdrafts

Nu

mb

er

of

mark

ets

in

volv

ed

More

Fe

wer

Private sector Public sector

Quotas

Source: ABD/ABMI/ABMF

5

What is important?Securities Markets

• Internationalisation to extend reach and attract foreign investment

• Increased liquidity and depth for all investors (domestic and international)

• A cost effective capital raising mechanism

Efficient markets always striving for

6

Market efficiency

– Sufficient regulation– Standards – High availability, security,

scalability– Low total cost of investing

including settlement – Straight Through Processing

(STP) automation– Operational efficiency of market

participants

Factors effecting market efficiency

7

Area of influence

Improve information flows in the marketsTimely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws.

Improve information flows in the marketsTimely information, uniform disclosure, price transparency, market statistics, information on corporate actions and legal information such as bankruptcy and insolvency laws.

Standardisation and agreed Market Practice can assist in solving some of these barriers

Settlement cycle

Securities numberingPre -

matching

FX controlsconversion, repatriation

Taxes

Physical certificates

Investor registration

Omnibus accounts

Cash controlscredit balances, overdrafts

Nu

mb

er

of

mark

ets

in

volv

ed

More

Fe

wer

Private sector Public sector

Quotas

Source: ABD/ABMI/ABMF

Harmonisation of market practices: SMPG process

8

Administration

www.smpg.info Publication

Review, discussion & refinement

Collate common elements, specify additional country

requirements, identify further opportunities for

harmonization

Analyze & document local practices

Securities Market Practice Group (SMPG)

National Market Practice Groups (NMPG)National Market Practice Groups (NMPG)

National Market Practice Groups (NMPG)

ABMFA similar process

9

Administration

http://asean3abmf.adb.org Publication

Review, discussion & refinement

Collate common elements, specify additional country

requirements, identify further opportunities for

harmonization

Analyze & document local practices

ABMF Sub-Forum 2

National Market Practice Groups (NMPG)National Market Practice Groups (NMPG)

National representatives

From… a country mindsetworth… from an institutional mindset

• Overcoming natural behavior:– My country market practices are better than the others

– Why would my country have to change?

– What X is saying is right but he is from country A so…

– Will this have an impact on my institution system.

– What is my national community going to think about me?

10

… to a regional mindset…

• Through– An open mind towards other market practices– Keeping open agenda hidden agenda– Regional focus– National empowerment and conviction– Trust in the facilitators

• Check list after each decision:– Is it best for the region?– Is it the most cost effective for most regional players?– Will it ease the life of all regional and global foreign investors?

11

… to a global mindset.

12

• Through– An interest in what the rest of the world is doing– Trust in the international experts– Participation to SMPG

• Open to feedback from SMPG• Publication on www.smpg.info

– Participation to ISO 20022 process

• Check list after each decision:– Is it in line with international practices? – If not, can we justify it?

All this…Acknowledging and accepting differences

KnowledgeMake sure all participants have the same level of

understanding

Language Make sure all participants have the time to talk

CultureMake sure all participants have the opportunity to

share their views (by written or orally)

13

SummaryFor such a process to work

14

Open your mind

Think RegionalThink global

Be structured

Reuse what already exists

15

Thank you