Attachment Results of the Survey of Impediments to Cross-border Bond Transaction 1. Modality (1) Objectives The survey was jointly proposed by the Bank of Japan (BoJ) and Bank Negara Malaysia (BNM), and endorsed by the Finance Ministers of the ASEAN+3 countries in Jeju, Korea on May 15, 2004. Rules and regulations always have their own reasons for existence. Be that as it may, such reasons may have to be reviewed regularly after having achieved their original policy purposes. In other cases, policymakers may not be really aware of the negative side effects of such rules and regulations becoming impediments to cross-border bond transactions. Alternatively, market participants may have misunderstood such rules and regulations, because they are not communicated clear enough. Against these backgrounds, the survey was sent to market participants with a view to: (i) understanding the state of bond market development in relation to cross-border investment and issuance; and (ii) identifying and listing specific impediments thereto in respective countries, thereby making it easier for policymakers to draw strategies for market reforms. (2) Coverage The survey was intended to cover the 5 ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) plus China (including Hong Kong SAR), Korea, and Japan. It handled four dimensions of cross-border transactions, namely: (i) inward (local) bond/bond funds investment by non-residents, (ii) outward (overseas) bond/bond funds investment by residents, (iii) issuance of local bonds (in local currencies) by non-residents, and (iv) issuance of foreign bonds (in foreign currencies) by residents. And the survey highlighted following issues for each dimension: (a) capital and foreign exchange control rules, (b) taxation and regulatory transparency, (c) market infrastructures including settlement and payment systems, depository and registration functions, and hedging mechanism and derivatives market. (3) Methodology A survey format was developed by the BoJ and BNM, after having incorporated comments received from other WG 3 members (see attachment 1 to 4). It was then distributed to market participants via WG3 members who volunteered to act as a contact person for the project (cooperation was obtained from Hong Kong SAR, Malaysia, Japan, Korea, the Philippines, Singapore, and Thailand). The contact person was asked to send out the survey to more than seven candidate respondents (note: if it included the industry association that can express collective view, 1
the respondents could be less). The contact person had discretion to either collect the survey results by him/herself or to instruct the survey respondents to reply back directly to the Bank of Japan who served as the coordinator for the survey. (4) Participation Respondents were given an option to choose the countries/economies as well as dimensions to answer. Most respondents chose the countries/economies of their domicile but some provided their answers on the other countries/economies. In total, 152 responses were received from 46 financial institutions (including several industry associations and regulatory organizations) across the region. Most answers were received in June and July 2004, while the last one came in October 2004. The detailed numbers of answers sorted by country/economy and by dimension are shown below. Numbers of responses by country/economy and by dimension Inward (local) bond/bond funds investment by non-residents Outward (foreign) bond/bond funds investment by residents Issuance of bonds by non-residents in the domestic market Issuance of foreign bonds by residents China 2 0 0 0 Hong Kong 6 5 3 3 Indonesia 2 1 1 1 Japan 3 1 0 0 Korea 7 6 6 6 Malaysia 7 6 6 6 Philippine 2 2 2 2 Singapore 15 13 11 9 Thailand 5 4 4 5 2
2. Survey Results (1) Inward (local) bond/bond funds investment by non-residents (1) 1-1-1 Are non-residents allowed to purchase local bonds/bond funds?, with no, but with certain restrictions requirements China 0 2 0 Hong Kong 3 3 0 Indonesia 2 0 0 Japan 1 2 0 Korea 0 3 0 Malaysia 6 2 0 Philippine 0 2 0 Singapore 13 0 0 Thailand 3 2 0 te: The numbers given are the numbers of the effective answers and are not always consistent with the answers given to the related questions (the same applies to the below). (1) 1-1-2 Are such requirements cumbersome for non-residents investors? /t applicable China 2 0 Hong Kong 1 2 Japan 1 1 Korea 1 4 Malaysia 1 3 Philippine 0 2 Singapore 0 11 Thailand 2 2 (1) 1-1-3 Is the process and procedure of meeting such requirements (and getting approval, if necessary) usually smooth and quick? /t applicable China 0 2 Hong Kong 2 0 Japan 1 1 Korea 4 1 Malaysia 2 0 Philippine 1 1 Singapore 11 0 Thailand 2 0 3
(1)1-1-4 Is there any quantitative position limit for non-resident purchasing and holding local bond/bond funds? China 2 0 Hong Kong 0 6 Japan 0 2 Korea 0 6 Malaysia 0 8 Philippine 0 2 Singapore 0 11 Thailand 0 5 (1) 1-2-1 Are non-residents allowed to sell local bonds/bond funds domestically and freely repatriate the proceeds for use abroad?, with no, but with certain restrictions requirements China 0 2 0 Hong Kong 5 0 1* Indonesia 2 0 0 Japan 1 1 0 Korea 3 1 0 Malaysia 5 2 1* Philippine 0 2 0 Singapore 10 4 0 Thailand 3 1 0 * Very probably a misunderstanding. (1) 1-2-2 Are such requirements cumbersome for non-residents investors? /t applicable China 2 0 Hong Kong 0 3 Japan 1 0 Korea 1 3 Malaysia 1 3 Philippine 0 2 Singapore 0 12 Thailand 0 4 4
(1) 1-3-1 Are there any restrictions on the currency of payment by non-residents when they purchase/sell local bonds/bond funds? China 2 0 Hong Kong 0 6 Indonesia 1 1 Japan 0 1 Korea 2 4 Malaysia 7 1 Philippine 3 0 Singapore 3 12 Thailand 2 3 (1) 1-3-2 Are there any other foreign exchange restrictions that make purchase/sale of local bonds/bond funds by non-residents impossible or practically difficult? China 2 0 Hong Kong 0 6 Indonesia 0 2 Japan 0 1 Korea 1 4 Malaysia 0 8 Philippine 0 3 Singapore 2 13 Thailand 1 4 (1) 1-4-1 Is withholding tax charged against interest income of local bonds/bond funds held by non-residents? China* 0 0 Hong Kong 0 5 Indonesia 2 0 Japan 2 0 Korea 5 0 Malaysia 8 1 Philippine 3 0 Singapore 3 9 Thailand 4 1 * effective answer available. 5
(1) 1-4-2 Do non-resident investors have to pay other taxes, too? China* 0 1 Hong Kong 3 3 Indonesia 1 1 Japan 0 1 Korea 0 4 Malaysia 0 8 Philippine 0 2 Singapore 1 10 Thailand 2 3 * effective answer available. (1) 1-4-3 Is there any bias/distortion in taxation that discriminates non-resident s investment in local bonds/bond funds? China 0 0 Hong Kong 0 5 Japan 1 1 Korea 0 4 Malaysia 1 7 Philippine 1 2 Singapore 0 11 Thailand 0 4 (1)1-5-1 Are the basic rules and regulations relating to the investment in local bond/bond funds by non-resident publicly available?, however, information may not be complete China 1 1 0 Hong Kong 2 0 1 Indonesia 2 0 0 Japan 1 2 0 Korea 3 1 0 Malaysia 5 1 1 Philippine 2 1 0 Singapore 10 3 0 Thailand 3 1 1 6
(1) 1-5-2 Are the responsibilities of relevant authorities clear? In other words, can the non-resident investor easily find the right persons to contact for regulatory issues? China 2 0 Hong Kong 4 0 Indonesia 1 1 Japan 1 2 Korea 4 1 Malaysia 5 3 Philippine 3 0 Singapore 12 0 Thailand 3 2 (1) 1-5-3 Are the rules and regulations relating to the investment in local bond/bond funds by non-resident clear and consistent? China 0 2 Hong Kong 3 1 Japan 2 1 Korea 4 1 Malaysia 8 0 Philippine 3 0 Singapore 11 0 Thailand 3 2 (1) 2-1-1 Can currency risk be properly hedged, if non-resident investors want to do so?, but with some difficulties China 0 0 2 Hong Kong 6 0 0 0 Japan 1 0 0 Korea 3 3 0 Malaysia 3 2 3 Philippine 0 3 0 Singapore 13 1 0 Thailand 1 3 1 7
(1) 2-1-2 Can interest rate risk be properly hedged, if non-resident investors want to do so?, but with some difficulties China 0 0 2 Hong Kong 5 0 0 0 Japan 2 0 0 Korea 3 1 0 Malaysia 3 5 1 Philippine 0 3 0 Singapore 12 1 0 Thailand 1 3 1 (1) 2-2-1 Are the systems/institutions to clear, settle, and hold custody the local bonds obtained by non-resident investor efficient and reliable?, but some areas need to be improved China 0 2 0 Hong Kong 6 0 0 0 Japan 2 0 0 Korea 2 2 0 Malaysia 7 1 0 Philippine 0 3 0 Singapore 13 1 0 Thailand 1 2 0 (1) 2-2-2 Are the requirements for making use of such clearing and settlement systems and custodians (e.g. obligation to appoint local custodian, if there is such obligation) reasonable? China 1 1 Hong Kong 6 0 Japan 1 0 Korea 5 0 Malaysia 8 0 Philippine 2 0 Singapore 11 0 Thailand 2 1 8
(1) 2-3-1 Is the price data readily available? China 2 0 Hong Kong 5 1 Indonesia 2 0 Japan 2 0 Korea 5 0 Malaysia* 8 1 Philippine* 2 1 Singapore 11 0 Thailand* 5 1 * Including & type answers saying it depends on the type of bonds or type of the bond market (such answers were double counted both as and.) (1) 2-3-2 Is the price data provided in the market transparent, fair, and reliable (not manipulated)? China 2 0 Hong Kong 5 1 Japan 1 0 Korea 3 1 Malaysia 8 0 Philippine 3 0 Singapore 10 0 Thailand 3 0 (1) 2-4-1 Is the investor right sufficiently protected? China 1 0 Hong Kong 4 1 Indonesia 2 0 Japan 2 0 Korea 3 0 Malaysia 7 1 Philippine 3 0 Singapore 11 0 Thailand 3 1 9
(1) 2-5-1 Is the disclosure of issuers financial information sufficient? (Is there a well-established mechanism to ensure the adequacy of such information?) China 1 1 Hong Kong 5 0 Indonesia 2 0 Japan 2 0 Korea 3 0 Malaysia 6 2 Philippine 0 2 Singapore 11 1 Thailand 4 1 (1) 2-5-2 Is the disclosure of issuers financial information credible? (Is there a well-established mechanism to ensure the credibility of such information?) China 1 1 Hong Kong 5 0 Japan 1 1 Korea 2 0 Malaysia 8 1 Philippine 0 2 Singapore 11 1 Thailand 4 1 10
(2) Outward (foreign) bond/bond funds investment by residents (2) 1-1-1 Are residents allowed to purchase foreign bonds/bond funds?, with no, but with certain restrictions requirements Hong Kong 4 0 0 0 Japan 1 0 0 Korea 0 4 0 Malaysia 0 7 0 Philippine 0 3 0 Singapore 12 0 2 Thailand 0 3 0 (2) 1-1-2 Are such requirements cumbersome for resident investors? /t applicable Hong Kong 0 3 Japan 0 0 Korea 1 3 Malaysia 5 2 Philippine 0 3 Singapore 0 12 Thailand 2 1 (2) 1-1-3 Is the process and procedure of meeting such requirements (and getting approval, if necessary) usually smooth and quick? /t applicable Hong Kong 3 0 Japan 0 0 Korea 4 0 Malaysia 4 2 Philippine 2 1 Singapore 8 1 Thailand 2 0 11
(2) 1-1-4 Is there any quantitative position limit for resident purchasing and holding foreign bond/bond funds? Hong Kong 0 4 Japan 0 1 Korea 0 4 Malaysia 6 1 Philippine 3 0 Singapore 1 11 Thailand 3 0 (2) 1-2-1 Are residents allowed to sell foreign bonds/bond funds abroad and utilize their proceeds abroad?, with no, but with certain restrictions requirements Hong Kong 5 0 0 0 Japan 0 0 0 Korea 3 2 0 Malaysia 2 2 1 Philippine 0 3 0 Singapore 11 1 1 Thailand 0 2 0 (2) 1-2-1A Are residents allowed to sell foreign bonds/bond funds in the domestic market?, with no, but with certain restrictions requirements Hong Kong 3 1 0 0 Japan 0 1 0 Korea 4 0 0 Malaysia 0 4 3 Philippine 1 1 0 Singapore 13 1 0 Thailand 0 1 1 12
(2) 1-2-2 Are such requirements cumbersome for resident investors? /t applicable Hong Kong 0 3 Japan 0 0 Korea 0 5 Malaysia 1 2 Philippine 1 1 Singapore 0 10 Thailand 0 1 (2) 1-3-1 Are there any restrictions on the currency of payment by residents when they purchase/sell foreign bonds/bond funds? /t applicable Hong Kong 1 4 Japan 0 1 Korea 0 5 Malaysia 6 0 Philippine 2 1 Singapore 2 12 Thailand 0 2 (2) 1-3-2 Are there any other foreign exchange restrictions that make purchase/sale of foreign bonds/bond funds by residents impossible or practically difficult? Hong Kong 0 5 Japan 0 1 Korea 0 5 Malaysia 1 3 Philippine 1 2 Singapore 0 12 Thailand 1 1 13
(2) 1-4-1 Is withholding tax charged against interest payments of foreign bonds/bond funds held by residents? Hong Kong 0 4 Japan 0 0 Korea 3 0 Malaysia 0 4 Philippine 1 1 Singapore 2 8 Thailand 1 1 (2) 1-4-2 Do resident investors have to pay any other taxes on interest receipts of foreign bonds/bond funds held by them? Hong Kong 3 2 Japan 1 0 Korea 2 1 Malaysia 1 3 Philippine 0 3 Singapore 4 5 Thailand 2 0 (2) 1-4-3 Is there any bias/distortion in taxation that discriminates resident s investment in foreign bonds/bond funds? China * - - Hong Kong 0 4 Japan 0 0 Korea 0 3 Malaysia 0 4 Philippine 0 2 Singapore 0 8 Thailand 0 2 14
(2) 1-5-1 Are the basic rules and regulations relating to the investment in foreign bond/bond funds by resident publicly available?, however, information may not be complete Hong Kong 2 0 1 0 Japan 1 1 0 Korea 5 0 0 Malaysia 5 0 2 Philippine 2 1 0 Singapore 8 2 1 Thailand 1 1 0 (2) 1-5-2 Are the responsibilities of relevant authorities clear? In other words, can the resident investor easily find the right persons to contact for regulatory issues? /t applicable Hong Kong 4 0 Japan 1 0 Korea 5 0 Malaysia 5 0 Philippine 2 2 Singapore 9 0 Thailand 1 1 (2) 1-5-3 Are the rules and regulations relating to the investment in foreign bond/bond funds by resident clear and consistent? /t applicable Hong Kong 2 1 Japan 1 0 Korea 3 0 Malaysia 5 0 Philippine 2 2 Singapore 10 0 Thailand 1 1 15
(2) 2-1-1 Can currency risk be properly hedged, if resident investors want to do so?, but with some difficulties Hong Kong 5 0 0 Indonesia 0 0 0 Japan 1 0 0 Korea 6 0 0 Malaysia 3 2 1 Philippine 0 2 0 Singapore 9 3 0 Thailand 2 1 0 16
(3) Issuance of bonds by non-residents in the domestic market (3) 1-1-1 Are non-residents allowed to issue local currency bonds domestically?, but with certain limitations Hong Kong 1 3 0 0 - Korea 0 3 0 Malaysia 2 3 3 Philippine 0 1 2 Singapore 7 4 0 Thailand 0 2 1 (3) 1-1-2 Are non-residents allowed to issue local currency bonds abroad?, but with certain limitations Hong Kong 2 0 2 0 - Korea 0 3 0 Malaysia 0 0 7 Philippine 0 1 1 Singapore 3 4 0 Thailand 0 1 2 (3) 1-1-3 How long does it usually take to issue local bonds by non-residents (from the issuer s decision through official approval to the actual issuance)? China - Hong Kong 1 to 3 months Indonesia 1 month Japan - Korea 3 months Malaysia 3 to 6 months Philippine 6 months to 1 year Singapore 2weeks to 3 months Thailand 1 month 17
(3) 1-1-4 Is the procedure for approval cumbersome? Hong Kong 1 3 Korea 0 2 Malaysia 1 3 Philippine 1 0 Singapore 0 10 Thailand 2 0 (3) 1-1-5 Can the local bonds issued by non-residents be freely sold to the resident investors? Hong Kong 4 0 Korea 4 0 Malaysia 5 1 Philippine 1 0 Singapore 11 0 Thailand 2 0 (3) 1-2-1 Are non-residents allowed to invest funds raised by issuing local bonds in local financial instruments?, to some extent Hong Kong 3 0 1 0 - Korea 3 1 0 Malaysia 2 3 0 Philippine 0 0 1 Singapore 9 2 0 Thailand 1 0 0 18
(3) 1-2-2 Are non-residents allowed to remit abroad funds raised by issuing local bonds domestically?, with some limitations Hong Kong 4 0 0 0 - Korea 3 1 0 Malaysia 1 4 0 Philippine 0 2 0 Singapore 1 10 0 Thailand 0 1 0 (3) 1-3-1 Is withholding tax charged against interest payments of local bonds issued by non-residents? Hong Kong 0 4 Korea 2 0 Malaysia 3 0 Philippine 1 0 Singapore 2 8 Thailand 0 1 (3) 1-3-2 Are there any bias/distortion in taxation that discriminate non-resident s issuance of local bonds? Hong Kong 0 4 Korea 0 2 Malaysia 2 2 Philippine 0 1 Singapore 1 10 Thailand 0 1 19
(3) 1-3-3 Are there any other tax issues? Hong Kong 0 4 Korea 0 2 Malaysia 2 3 Philippine 1 0 Singapore 1 8 Thailand 0 1 (3) 1-4-1 Are the basic rules and regulations relating to the issuance of local bonds by non-residents easily available in public?, but information may not be complete Hong Kong 2 0 1 0 - Korea 3 0 0 Malaysia 3 1 1 Philippine 1 0 1 Singapore 9 2 0 Thailand 1 1 1 (3) 1-4-2 Are the responsibilities of relevant authorities clear? In other words, can non-resident issuer easily find the right persons to contact for regulatory issues or to seek regulatory approval? Hong Kong 3 1 Korea 4 0 Malaysia 5 1 Philippine 1 1 Singapore 11 0 Thailand 0 1 20
(3) 1-4-3 Are the rules and regulations relating to issuance of local bonds by non-residents clear and consistent? Hong Kong 4 0 Korea 3 1 Malaysia 4 2 Philippine 0 1 Singapore 11 0 Thailand 1 1 (3) 1-5-1 Is documentation procedure for issuance of local bonds by non-residents standardized? Hong Kong 4 0 Korea 2 0 Malaysia 3 2 Philippine 0 2 Singapore 10 0 Thailand 1 1 (3) 1-5-2 Is foreign law accepted as governing law? Hong Kong 3 1 Korea 0 1 Malaysia 2 3 Philippine 0 0 Singapore 8 2 Thailand 0 2 (3) 1-5-3 In what language does bond prospectus have to be written? Answers incorporated to Table 11 of the paper. 21
(3) 1-6-1 Is non-resident issuer required to be rated by local rating agencies? Hong Kong 0 3 Korea 2 0 Malaysia 4 1 Philippine 2 0 Singapore 0 10 Thailand 3 1 (3) 1-6-2 Are local disclosure requirements imposing undue burden on non-resident issuer? (e.g. local accounting rules) Hong Kong 0 4 Korea 0 1 Malaysia 0 5 Philippine 1 0 Singapore 0 11 Thailand 1 0 (3) 1-6-3 Is non-resident issuer required to be listed at local stock exchange? Hong Kong 0 4 Korea 0 2 Malaysia 0 5 Philippine 0 2 Singapore 1 10 Thailand 1 0 22
(3) 2-1-1 Are non-residents allowed to invest funds raised by issuing local bonds in local financial instruments?, but with some difficulties Hong Kong 4 0 0 Indonesia 0 0 0 - Korea 3 2 0 Malaysia 3 1 1 Philippine 1 1 0 Singapore 9 2 0 Thailand 0 2 0 (3) 2-1-2 Can interest rate risk be properly hedged, if non-resident issuers want to do so?, but with some difficulties Hong Kong 4 0 0 Indonesia 0 0 0 - Korea 4 1 0 Malaysia 1 3 1 Philippine 0 2 0 Singapore 8 1 0 Thailand 0 2 0 (3) 2-2-1 Are the systems/institutions to clear, settle, and hold custody the local bonds issued by non-resident issuer efficient and reliable?, but some areas need to be improved Hong Kong 4 0 0 0 - Korea 4 0 0 Malaysia 5 0 0 Philippine 0 1 0 Singapore 8 3 0 Thailand 0 1 0 23
(3) 2-2-2 Are the requirements for making use of such clearing and settlement systems and custodianship reasonable? Hong Kong 4 0 Korea 2 0 Malaysia 5 0 Philippine 1 01 Singapore 10 1 Thailand 0 1 24
(4) Issuance of foreign bonds by residents (4) 1-1-1 Are residents allowed to issue foreign bonds?, with no, but with certain restrictions limitations Hong Kong 4 0 0 0 - Korea 0 4 0 Malaysia 2 4 1 Philippine 0 3 0 Singapore 8 0 0 Thailand 2 2 0 (4)1-1-2 Can the foreign bonds issued by residents be freely sold to any investors? Hong Kong 3 1 Korea 6 0 Malaysia 3 4 Philippine 1 2 Singapore 8 1 Thailand 4 1 (4) 1-1-3 Can residents purchase foreign bonds issued by residents?, but there are limitations Hong Kong 3 1 0 0 - Korea 4 0 0 Malaysia 1 5 1 Philippine 2 0 0 Singapore 8 0 0 Thailand 1 3 0 25
(4) 1-2-1 Is withholding tax charged against interest payments of foreign bonds issued by residents? /t applicable Hong Kong 0 4 Japan 0 0 Korea 2 1 Malaysia 3 3 Philippine 1 1 Singapore 3 3 Thailand 3 0 (4) 1-2-1A Is the above withholding tax imposed on: Residents n-residents Hong Kong 0 0 Japan 0 0 Korea 1 0 Malaysia 0 3 Philippine 1 0 Singapore 2 2 Thailand 2 2 (4) 1-2-2 Are there any bias/distortion in taxation that discriminate resident s issuance of foreign bonds? /t applicable Hong Kong 0 4 Japan 0 0 Korea 0 2 Malaysia 1 5 Philippine 0 1 Singapore 1 6 Thailand 0 3 26
(4) 1-2-3 Are there any other tax issues? /t applicable Hong Kong 1 3 Japan 0 0 Korea 0 2 Malaysia 0 6 Philippine 0 1 Singapore 2 5 Thailand 2 1 (4) 1-3-1 Are the basic rules and regulations relating to the issuance of foreign bonds by residents easily available in public?, however, information may not be complete Hong Kong 2 0 1 0 - Korea 4 0 0 Malaysia 6 0 1 Philippine 1 0 2 Singapore 6 1 1 Thailand 1 0 2 (4) 1-3-2 Are the responsibilities of relevant authorities clear? In other words, can the resident issuer easily find the right persons to contact for regulatory issues? Hong Kong 4 0 Korea 4 0 Malaysia 7 0 Philippine 3 0 Singapore 8 0 Thailand 1 2 27
(4) 1-3-3 Are the rules and regulations relating to issuance of foreign bonds by non-residents clear and consistent? Hong Kong 3 1 Korea 3 1 Malaysia 6 1 Philippine 1 1 Singapore 2 8 Thailand 3 0 (4) 2-1-1 Can currency risk be properly hedged, if resident issuers want to do so?, but with some difficulties. Hong Kong 4 0 0 Indonesia 0 0 0 Japan 1 0 0 Korea 5 0 0 Malaysia 1 5 2 Philippine 1 2 0 Singapore 7 1 0 Thailand 2 2 0 (4) 2-1-2 Can interest rate risk be properly hedged, if resident issuers want to do so?, but with some difficulties. Hong Kong 4 0 0 Indonesia 0 0 0 Japan 1 0 0 Korea 5 0 0 Malaysia 3 3 1 Philippine 1 2 0 Singapore 7 1 0 Thailand 2 2 0 28