The Association of South East Asian Nations (ASEAN) Trading Link. By Attys. Francis E. Lim and Regina P. Geraldez

Transcription

1 The Association of South East Asian Nations (ASEAN) Trading Link By Attys. Francis E. Lim and Regina P. Geraldez

2 Outline of the Presentation: 1. ASEAN Trading Link (ATL) Backgrounder 2. How the ATL Works 3. Issues and Challenges to the Implementation of the ATL

3 Background: History April 2008, 12th ASEAN Finance Ministers Meeting (AFMM), Vietnam ASEAN Capital Market Forum (ACMF) proposed to develop an Implementation Plan to Promote the Development of an Integrated Capital Market to Achieve the Objectives of the ASEAN Economic Community Blueprint 2015 (Implementation Plan 2015). The AFMM approved the proposal and requested the ACMF to submit the Implementation Plan at the next AFMM in Thailand.

4 Background: History April 2009, Pattaya, Thailand The Implementation Plan 2015 was endorsed by the AFM. October The ASEAN Exchanges Brand Identity was approved by the CEOs of the ASEAN exchanges. The logo represents the spirit of cooperation between South East Asia Nations, based on the common colors of each nation s flags. Images from

5 Background: History April the AFM formally launched the ASEAN Exchanges. Image from

6 Background: Purpose Promote the growth of the ASEAN capital market by driving cross-border collaboration, streamlining access to ASEAN, creating ASEAN centric products, and implementing targeted promotional initiatives. Speed up ASEAN integration by enhancing access and liquidity in capital markets across regions.

7 Background: Purpose Create economies of scale which can compete with the increasing size of emerging markets, particularly China, India, Brazil and Russia. ASEAN Exchanges combined number of listed companies: 3,613. ASEAN Exchanges combined GDP: UDS 1.8 Trillion.

8 Background ASEAN Exchanges Partners 1. Bursa Malaysia (BM); 2. Singapore Exchange Limited(SGX); 3. Stock Exchange of Thailand (SET); 4. Philippine Stock Exchange (PSE); 5. Indonesia Stock Exchange (IDX); 6. Hochiminh Stock Exchange (HOSE); and 7. Hanoi Stock Exchange (HNX).

9 Background ASEAN Exchanges Partners One of the world s largest exchanges. Lists over 1,000 companies, including the world s largest plantation company and the world s most successful budget airline.

10 Background ASEAN Exchanges Partners Singapore Exchange Limited (SGX) One of Asia s most vibrant exchanges Singapore = Switzerland of Asia Lists over 780 companies including the world s five star airline. The only Asian exchange accessible to traders in London and New York on the same trading day.

11 Background ASEAN Exchanges Partners Stock Exchange of Thailand (SET) 541 listed companies. Home to some of the largest integrated energy companies in South East Asia

12 Background ASEAN Exchanges Partners Philippine Stock Exchange (PSE) Lists over 250 companies One of the longest operating stock exchanges in SEA Currently maintains two trading floors, one in Makati City s Central Business District and one at its headquarters in Pasig City.

13 Background ASEAN Exchanges Partners Indonesia Stock Exchange (IDX) 18 th largest economy in the world Indonesia is the only member of G-20 from the South East Asia IDX is one of the oldest exchanges in Asia List over 420 companies

14 Background ASEAN Exchanges Partners Hochiminh Stock Exchange (HOSE) One of the world s youngest exchanges Introduced online trading in early 2009 Lists 275 companies

15 Background ASEAN Exchanges Partners Hanoi Stock Exchange (HNX) Total listed value of approximately USD3.5 Billion

16 How the ATL Works 3 Main Components 1. Intra ASEAN Network (IAN) - the infrastructure connecting the various national exchanges. 2. ASEAN Common Exchange (ACE) gateways - a series of hubs located at each exchange which provide the connecting point between the exchanges. 3. Neutral Access Point (NAP) - provides access for parties from outside the ASEAN market such as non-asean brokers, outside vendors or international institutional investors.

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18 How the ATL Works Mechanism Order routing across all of the ASEAN exchanges will be one of the features enabled by the ASEAN Trading Link. The originating broker will place its order at its local exchange via the ACE gateway.

19 How the ATL Works Mechanism Orders can then be sent to another ASEAN exchange via the IAN to be executed by a sponsoring broker on that exchange. Same process applies to originating clients from outside of the ASEAN Exchanges that will be connecting via the NAP.

20 How the ATL Works Mechanism All executions can take place under the supervision of the originating broker. Sponsoring brokers can receive real-time execution feeds in a FIX format or in a text file at the end-ofday.

21 How the ATL Works Mechanism Similar aggregated approach used for the distribution of market data for the ASEAN exchanges. Each exchange will send their market data to the ACE gateway of the other exchanges. There is a single point of access for the market data of all exchanges.

22 How the ATL Works Mechanism No third party application used to provide the aggregated market data. It is provided directly at source. Same principle applies for any trading participant outside of the ASEAN network (all exchanges will make their market data available to the NAP).

23 How the ATL Works Simplified Network All ACE gateways provided with a standard interface No need for originating brokers to alter their own existing infrastructure to connect to all of the other exchanges. Any connections the broker has with their own clients, remains exactly the same.

24 Issues and Challenges to the Implementation of the ATL Issue/Challenge Registration of Exchange Registration of Securities ATL is not an exchange but merely a trading link Local regulators (such as Philippines and Malaysia) may require prior approval before foreign securities is offered or made available through the ASEAN linkage. Possible Solution Participating ASEAN exchanges may request its regulator to explore the possibility of entering into a mutual recognition agreement or issuing an exemption which will recognize that laws and regulations on securities exchanges are not applicable to the ASEAN linkage. Explore the possibility of entering into a mutual recognition agreement or issuing an exemption

25 Issues and Challenges to the Implementation of the ATL Issue/Challenge Possible Solution Registration of Clearing Houses Registration of Depositaries Based on the ASEAN linkage model, the originating clearing house (OCH) will be a special clearing member of the home clearing house (HCH). The originating depository (OD) will be a special member of the home depository (HD). The HD will maintain the registry for the OD at the client and proprietary level for each originating broker. The OD will in turn maintain the registry for each HD at client and proprietary level for each sponsored broker. The balance quantity will be reconciled on a daily basis between the OD and HD. Allow a special clearing house membership arrangement for the purpose of the ASEAN linkage. Enter into a mutual recognition agreement or request for exemption for the registration of clearing houses for purposes of the ASEAN linkage. Create a special depository membership arrangement for the ASEAN linkage. It may also be necessary to enter into a mutual recognition agreement or request for exemption for the registration of depositories for purposes of the ASEAN linkage.

26 Issues and Challenges to the Implementation of the ATL Issue/Challenge Possible Solution Reporting and Disclosure Requirements Distribution of Research Materials Differences in disclosure standards ASEAN and Plus Standards Scheme implemented by Malaysia, Thailand, Singapore May be subject to certain limitations, such as licensing by the appropriate regulator as an investment adviser Other ASEAN exchanges should also implement the ASEAN and Plus Standards Scheme Exchanges may request the regulator to explore entering into a mutual recognition agreement or issue an exemption

27 Issues and Challenges to the Implementation of the ATL Issue/Challenge Possible Solution Market Surveillance and Information Sharing Confidentiality restrictions Delay in providing crucial information Exchanges and their regulators may enter into an information sharing agreement Other ASEAN exchanges may join the ISG Enforcement Action/Dispute Resolution Improvement of criminal enforcement Convenience of private sector Limited enforcement of rules Choice of law MOU with the other ASEAN exchanges that essentially adopts the principles, terms and conditions of the ISG agreement. Policy matter which should be taken up by the ACMF

28 Issues and Challenges to the Implementation of the ATL Issue/Challenge Capital/FOREX Controls Thailand, Singapore, Indonesia, and Malaysia have gradually liberalized their capital control policies in the last years. Philippines: existing capital control and foreign exchange restrictions that need to be addressed. Tax Each country has a different taxation scheme applicable to buying and selling of securities. Existing tax treaties already address double taxation issues but it would be ideal to level the playing field further by reducing taxes on securities trading and investment. Philippines: foreign investors required to secure an approval for tax treaty application an additional administrative burden Possible Solution Capital controls should be lifted for purposes of the ASEAN linkage Best addressed through legislation that will ease the tax and administrative burdens on ASEAN Linkage securities transactions.

29 Sources: 1. Asean Capital Markets Integration Issues and Challenges by Datuk Ranjit Ajit Singh, available at www2.lse.ac.uk/ideas/.../sr002_singh.pdf. 2. The ASEAN Exchanges website, available at 3. Asean Stock Exchange Link to be set by second half of 2011 by Akanksha Singh, published on 7 December 2010 at 4. ASEAN Linkage to Boost Complementarity published on 18 July 2011 at html. 5. Simplicity, scale and the single network. The ASEAN Trading Link explained available at