Global Market Structure Asia Pacific Newsletter Contact: Deutsche Bank Equities Issue 28, 2013 Welcome to the APAC Market Structure Newsletter containing the news relating to market microstructure,exchange updates and regulatory developments. Email: [email protected]Tel: +852 2203 5710 +44 207 547 5552 +1 212 250 4170 Hong Kong ................................................ Page 2 Hong Kong signs its 29th Tax Treaty Agreement with Qatar HSI family of indices to be disseminated more frequently China .......................................................... Page 3 CSRC may become PE/VC industry’s sole regulator First cross-border ETF listed in SHSE Taiwan ........................................................ Page 5 FSC lifted ban on Chinese QDII TAIFEX signs MOU with HNX India ........................................................... Page 7 Recommendations for Rationalisation of Investment Routes for Foreign Investors submitted by SEBI Exchanges slash Securities Transaction Tax (STT) Japan.......................................................... Page 11 Japanese FSA Releases Comprehensive Guidelines for Supervision of Financial Instruments Chi-X Japan brings in Chi-Net - a new service for cross type orders South Korea ............................................... Page 13 Revision of FSCMA marks the end of the exchange monopoly Korea’s New Exchange, Konex, to be launched on 1st July Australia ..................................................... Page 15 Pre-trade transparency Market Integrity Rules come into play Chi-x highest month on record ASEAN ....................................................... Page 18 Singapore strengthens framework to curb cross-border tax evasion Dynamic limits proposed for SGX Quant Fact Sheet ....................................... Page 21
Transcript
Global Market StructureAsia Pacific Newsletter
Contact:
Deutsche BankEquities
Issue 28, 2013Welcome to the APAC Market Structure Newsletter containing the news relating to market microstructure,exchange updates and regulatory developments.
Hong Kong ................................................Page 2Hong Kong signs its 29th Tax Treaty Agreement with QatarHSI family of indices to be disseminated more frequently
China ..........................................................Page 3CSRC may become PE/VC industry’s sole regulatorFirst cross-border ETF listed in SHSE
Taiwan ........................................................Page 5FSC lifted ban on Chinese QDIITAIFEX signs MOU with HNX
India ...........................................................Page 7Recommendations for Rationalisation of Investment Routes for Foreign Investors submitted by SEBIExchanges slash Securities Transaction Tax (STT)
Japan..........................................................Page 11Japanese FSA Releases Comprehensive Guidelines for Supervision of Financial InstrumentsChi-X Japan brings in Chi-Net - a new service for cross type orders
South Korea ...............................................Page 13Revision of FSCMA marks the end of the exchange monopoly
Korea’s New Exchange, Konex, to be launched on 1st July
Australia .....................................................Page 15Pre-trade transparency Market Integrity Rules come into play
Chi-x highest month on record
ASEAN .......................................................Page 18Singapore strengthens framework to curb cross-border tax evasionDynamic limits proposed for SGX
Global Market Structure Hong Kong Newsletter Issue 28
Hong Kong signs its 29th Tax Treaty Agreement with Qatar
The HK SAR (HK Special Administrative Region) government has signed a double tax avoidance agreement with state of Qatar aimed at prevention of fiscal evasion in the form of taxes. This is the 29th such agreement that HK has signed with its trading partners.
The agreement will apply to profits tax, salaries tax and property tax in Hong Kong and taxes on income in Qatar and will allow consideration of taxes paid by HK based companies in Qatar as a credit against their local tax obligations.
HSI family of indices to be disseminated more frequently
The Hang Seng Indexes Company Limited has announced that effective 6th June 2013, it will be changing the dissemination frequency for 15 indexes and their sub-indexes in the Hang Seng Family of Indexes – including the Hang Seng Index (“HSI”) and the Hang Seng China Enterprises Index (“H-shares Index”) from the current 15 second interval to a 2 second interval. The move is aimed to improve market transparency and accuracy of available information.
However, Hong Kong Futures Automatic Trading System (HKATS), which contains both underlying stock prices and indices, has also clarified that the update interval of prices on its platforms will remain unchanged at 5 underlying price updates per second.
The Hong Kong Exchanges and Clearing Limited (“HKEx”) will be introducing trading of CES China 120 Index (CES 120) Futures from 8th July onwards while Stock Futures on three A-share Exchange Traded Funds (“ETFs”) on the Hong Kong Futures Exchange (“HKFE”) including CSOP FTSE China A50 ETF, iShares FTSE A50 China Index ETF and China AMC CSI 300 index ETF will start trading on the exchange from 10th July subject to approval from SFC.
CES 120 is developed by China Exchanges Services Company Limited (CESC), a JV between HKEx, the SSE and the SZSE, to track performance of the largest and most liquid China stocks listed in Mainland China and Hong Kong. CES 120 futures contract will be the first ETF on an index that includes A shares, H shares, red chips and other Hong Kong-listed shares of Mainland companies.
HKEx announces founding members for its Mainland Market Data Hub (MMDH)
The HKEx has announced the list of founding members which will participate in joint marketing efforts with HKEx to promote its market data infrastructure and services on the Mainland when it launches in Q4 this year. The Founding Members Program was announced earlier in February this year. The companies enrolled as founding members are:
AAstocks.com Limited / Shanghai DZH Co, LtdShanghai E Money Software Technology Co, LtdShanghai Qianlong Advanced Technology Co, LtdShanghai Wind Information Co, LtdSina Hong Kong Limited / Beijing Sina Internet Information Service Company LimitedTencent Holdings Limited
HKEx to allow listing of companies registered in Labaun IBFC
The HKEx now recognises the companies listed under the jurisdiction of Labaun IBFC, and will allow them to list on both the Main Board and Growth Enterprise Market (GEM) board.
Under the QFII rules, if a QFII institution has not utilised its quota, it may be withdrawn. Although the regulator has previously withdrawn quota, the move was reported by Z-Ben Advisors as the first time the action had a material impact on the net change of QFII quota for the period.
China and U.S. sign MOU on audit access
The Ministry of Finance and CSRC have represented China in signing a MOU with the US Public Company Accounting Oversight Board to share audit records.
There have been a series of cases where Chinese companies listed in the US encountered accounting scandals and this MOU will lead to closer cooperation between the two countries’ regulators to close the loopholes.
Chinese Market Structure Update
Total (USD$) %loss/gain
Monthly ADT (May 2013) USD$33,46bn 42.78%
Source: Thomson Reuters, 2013
Source: Thomson Reuters, 2013
Source: Bloomberg, 2013
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Fig 1: Equities Chinese market monthly ADT (lit, auction & non-displayed order types)
Fig 2: Equities Daily Turnover per venue - May 2013
Fig 3: Futures HKFE HHI monthly ADT
Fig 4: Futures Daily Turnover per venue - May 2013
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Source: Thomson Reuters, 2013
Deutsche BankEquities
Global Market Structure Chinese Newsletter Issue 28
4Chinese Market Structure Monthly Newsletter
CSRC may become PE/VC industry’s sole regulator
Li Keqiang, the Head of State Commission Office for Public Sector Reform, is considering making CSRC the sole regulator of Private Equity (“PE”) and Venture Capital (“VC”) industry. Currently the industry is governed by both CSRC and the National Development and Reform Commission.
The PE industry is suffering with fewer transactions (40% down) and less funding (40% down). The move is viewed as positive by the industry given in February, CSRC released rules for PE/VC companies to apply for fund management business, which will take effect on 1st June.
Stock repurchase trial started
CSRC may allow security firms to launch equity repurchase programs officially. The programme would give investors the right to sell their shares to brokers and buy back at a pre-determined price, while during the period the investor can access temporary funding.
Three brokers, including CITIC securities, Haitong securities and Galaxy securities already participated in a CSRC pilot program in early 2012, 3 more brokers were added to the list late 2012. This would greatly benefit the current margin financing and securities lending business
QDII2 expected to launch by end of 2013
Yim Fung, the chairman of Chinese Securities Association of Hong Kong said during a conference that he expected the QDII2 to be launched by end of 2013.
As of December 2012, there are in total 107 domestic QDII institutions with a total quota of US$ 85.6 billion, and Hong Kong is largest target market. The new QDII2 scheme is targeting domestic retail investors and the investment scheme is said to be more skewed to SME and high growth stocks than large capitalisation stocks.
CSRC issued first suspension on sponsorship
CSRC issued its first sponsorship suspension to Ping An Securities, for its misconduct of duties and false disclosure while sponsoring the IPO of Wanfu Biotechnology Agricultural Development Co. This represents the heaviest punishment CSRC has ever issued to a mainland broker.
Ping An securities were suspended for three months and fined RMB 76.65 million. It voluntarily announced on the day CSRC investigation went public that a fund of RMB 300 million will be set up to compensate for investors who suffered loss during the Wanfu IPO.
CSRC said to support companies funding overseas
The Chinese regulator CSRC is reported to be willing to support poorly funded local companies to find alternative funding channel overseas by cancelling the net profit requirements for mainland companies to list overseas.
There are currently more than one thousand Chinese companies listed overseas, mainly in the Hong Kong market with a total market cap US$ 1.8 trillion.
Venue News
Regulatory Changes in Concepts, Efficiency and Transparency
Speaking on 24th May, Vice President Xu Ming of the Shanghai Stock Exchange (“SSE’) spoke of measures that the exchange will be making to further relax restrictions and strengthen regulation to make all market players fully responsible in their places. The regulatory concepts will be transformed from ‘prerequisite examination’ to ‘aftermath regulation’, enhancing the self-restriction mechanism of the market.
It can be expected that future market developments will not only take into account the views of those contributing to public consultations, but the resulting procedures and process of forming regulation will be disclosed.
The new third board getting commitment from regulators
On 6th May 2013, the State Council’s standing committee announced it will prioritise the development of the new third board, which aim to help SMEs that cannot fulfill the IPO requirements for the Shanghai or Shenzhen Stock Exchanges. The current pilot program covers only four regions: Beijing’s Zhongguancun tech zone, Shanghai Zhangjiang High-tech Industrial Zone, Wuhan Donghu Tech zone and Tianjing Binghai tech zone. It is expected the scope will be expanded to cover all the 105 national high tech zones.
First cross-border ETF listed in SHSE
The first cross-border ETF of China “Guotai Nasdaq-100 ETF” (stock code 513100) has debuted on Shanghai Stock Exchange. Given that before this ETF the onshore China domestic investors could only access the U.S. market by the QDII scheme, the Guotai ETF is being viewed as a significant milestone in China’s ETF market development.
Sourceswww.csrc.gov.cn
www.etfstrategy.co.uk
www.english.peopledaily.com.cn
www.globaltimes.cn
www.thestandard.com.hk
www.chinadaily.com.cn
www.business-standard.com
www.marketwatch.com
www.efinancialnews.com
FSC lifted ban on Chinese QDII
The Financial Supervisory Commission (FSC) has lifted the ban on Chinese mainland QDIIs to invest in onshore Taiwan stocks. A Memorandum of Understanding (MOU) was signed by both sides of the Strait on 1st April and will take effect early June.
Fig 2: Cash Equities Daily Turnover per venue - May 2013
Fig 3: Futures FTX TAIEX monthly ADT
Fig 4: Futures Daily Turnover per venue - May 2013
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6Taiwan Market Structure Monthly Newsletter
Domestic Capital Gains Tax to be reviewed
The first capital gains tax (“CGT”) review meeting was held on 15th May 2013.
The new version of the tax will aim to increase taxation efficiency while maintaining social justice. The scope of adjustment is open to discussion, while the major two adjustment directions are removing the 8,500-point market barrier and “taxation based on asset value” for large investors who sell TWD 1 billion or more.
FINIs are exempted from CGT while FIDIs are still subject to CGT under this newly proposed version.
Venue News
TAIFEX / HNX MOU signed
According to the TAIFEX press release on 27th May 2013, the Taiwan Futures Exchange (“TAIFEX”) and the Hanoi Stock Exchange signed a MOU. The agreement will allow them to share information and best practices pertaining to product development, business and marketing initiatives, technology, and also in the areas of mutual interests of markets in Taiwan and Vietnam.
TWSE shorten execution latency to 15 seconds
On 18th June 2013, TWSE announced it will shorten the execution latency from 20 to 15 seconds with effect from 1st July 2013. the shortening of the execution latency will be also tested in the market testing on 30th June for relocation of TWSE/GTSM remote backup centers.
This is the first phase of TWSE’s effort on shortening, the 2nd phase to 10-second and 3rd one to 5-second are scheduled in February 2014 and 2nd half of 2014, respectively. TWSE/TWSA will further announce the exact dates.
SEBI makes recommendations on Rationalisation of Investment Routes for Foreign Investors
The Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments set up by SEBI to study the current Foreign Investment landscape in the country with a view to rationalise the different categories existing currently has submitted its recommendations to the SEBI board. SEBI will be submitting the same to the Government of India (GoI) for consideration and a possible easing up of the regulations. Major recommendations made are:
— Existing FIIs, Sub Accounts and Qualified Foreign Investors (QFI) should be merged into a new investor class termed as “Foreign Portfolio Investor” (FPI). The aggregate investment limit for the class will be 24%
— The Committee has recommended discontinuation of prior direct registration of FIIs and Sub Accounts with SEBI. FPIs should be able to directly register with and transact through Designated Depository Participants (DDPs).
— The qualification of DDPs would be as prescribed by SEBI
— Any investment by FPIs beyond the threshold of 10% shall be considered as Foreign Direct Investment (FDI)
— Non Resident Indians (NRIs) will continue to have individual investment limit of 5% and aggregate investment limit of 10%
— KYC requirements are proposed to follow a risk based approach being the simplest for Low Risk (Category I) investors and most stringent for High Risk (Category III) investors. The following categories have been proposed for the FPIs
— Category I (Low Risk) - to include Government and Government related entities (Foreign Central Banks, Sovereign Wealth Funds, Multilateral Organizations etc)
— Category II (Moderate Risk) - to include regulated entities (Banks, Asset Management Companies, Broad Based Funds including Mutual Funds, Investment Trusts, Insurance and Reinsurance Companies, University Funds, Pension Funds and University related Endowments already registered with SEBI)
— Category III (High Risk) – All other FPIs not eligible to be included in the above two Categories
— FPIs falling under Category III should not be allowed to issue Offshore Derivative Instruments (ODI) / Participatory Notes (PN).
The SEBI press release is available here
http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/25925_t.html SEBI releases revised norms for algorithmic trading; doubles penalty for errant brokers
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Fig 4: Futures Daily Turnover per venue - May 2013
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8Indian Market Structure Monthly Newsletter
SEBI has tightened the Algorithmic Trading norms that it had released in March last year effective 27th May. Major highlights include:
— All brokers / trading members providing the algorithmic trading facility are required to have a systems audit conducted every six months. The audit must be carried out by a competent auditor possessing specified qualifications.
— Any deficiencies / issues thus identified must immediately be reported to the stock exchange and remedial measures must be undertaken. The stock exchange can impose suitable penalties and even restrict the broker / trading member from using the system if the deficiencies are not corrected within stipulated time frame set by the exchanges.
— Stock exchanges are directed to implement and periodically review suitable mechanisms to ensure effective monitoring and surveillance of orders and trades resulting from trading algorithms.
— SEBI has also directed the stock exchanges to double the penalty currently levied on a per algo order basis on the brokers having high order-to-trade ratios for algorithmic trading. The exchanges had separately prescribed penalties in form of ‘charges to be levied per algo orders’ at various levels of daily order-to-trade ratio.
— In case of repeat offenders who have been imposed a penalty for more than ten times in the past thirty days, the stock exchanges can suspend their proprietary trading rights for the first trading hour on the next trading day.
SEBI eases SLB norms, allows greater participation through more eligible stocks
SEBI has eased the regulations governing its stock lending and borrowing programme increasing the number of scrips eligible for trading in the segment. Previously, only those scrips which were available in the derivatives segment were eligible. According to the new criteria the following classes of stocks will also be eligible
— Stocks with an average monthly trading turnover of Rs 100 crores (INR 1bn) or more in the previous six months .
— Stocks with market-wide position limit (which indicates the investors’ interest in a share) of at least Rs 100 crores (INR 1 billion).
— All liquid stocks having trading frequency of at least 80% and impact cost of less than or equal to 1% over the previous 6 months.
The stock exchanges are directed to review the list of eligible stocks every six months. All scrips which fail to meet the above criteria should not be allowed any new SLB transactions from the next trading day however existing contracts will remain valid till expiry. Forms of collateral, presently accepted in the cash segment from market participants, will be permitted in the SLB segment as well. The new rules will be effective 1st July onwards.
SEBI has set up a Technical Advisory Committee to advise it on the technological landscape in the markets after reviewing the current market structure. The panel will advise on policies in various areas, including co-location, algorithmic trading and smart order routing and also help setting up standards for system audits, business recovery and business continuity management.
The committee would be chaired by Ashok Jhunjhunwala, faculty-member, Indian Institute of Technology (IIT)-Madras. The other members are H Krishnamurthy of the Indian Institute of Science (Bangalore), Abhay Karandikar of IIT-Bombay and Vibhakar Bhushan of Trignon Business Consulting and Synchosoft.com.
SEBI might consult on annulment policy for freak trades
SEBI has been looking to frame a concrete trade annulment policy to deal with the freak orders claimed to have been entered erroneously. The policy will try to safeguard the market interests from freak orders executed erroneously (fat-finger trades or punching errors) and also the trade orders entered intentionally by the manipulators to make illicit gains or to sabotage the overall market sentiments.
SEBI wants the brokers and exchanges to put greater checks in place before accepting and executing orders respectively. Strict penal actions are also on the cards if any miscreants or manipulators are found to be behind such incidents. The regulator has already held internal discussions and taken views from market experts on this matter to formulate proposals, a public consultation is expected to be released soon.
Use of options in shareholder pacts approved for corporate restructuring deals
The law ministry has approved a recommendation by SEBI which allows the use of call and put options within shareholders’ agreements. The use of options will be allowed only in cases related to corporate restructuring though and will not be applicable for secondary market transactions.
SEBI will be notifying the amendment to section 184 of the Securities Contract (Regulation) Act, 1956 once an approval from the Finance ministry is received.
SEBI framing rules for foreign firms soliciting local investors
SEBI is said to be formulating new rules to regulate foreign entities including brokers, hedge funds and market intermediaries which are soliciting business from local investors including HNIs and set similar high standards for compliance as faced by their local counterparts.
“In order to enhance the confidence of investors, it is necessary that all the intermediaries, including the foreign entities, maintain high levels of compliance with the stipulated norms. The regulations would help protect the interest of investors, while also promoting the development of securities market.” a senior SEBI official said.
The Finance ministry has moved a cabinet note recommending amendments to the Securities Law which would provide SEBI with greater regulatory and enforcement powers. Government is keen to strengthen the regulator with more teeth in the wake of certain untoward events recently. According to the note
— SEBI will be made responsible for regulating all CIS (Collective Investment Schemes) and Ponzi schemes.
— SEBI will have the power to attach and sell assets of the defaulters in order to recover dues.
— SEBI will also have powers to pass disgorgement orders for ill-gotten gains
— SEBI will be able to pass consent orders on its own
— SEBI might also get access to telephone call records of people / entities under investigation for insider/fraudulent trading
SEBI has made amendments to the norms for depositories and depository participants enabling them to issue consolidated account statements to demat account holders. SEBI has also directed the depositories to carry out inspections of the records of issuers of the securities or their agents and ensure the sanctity of details provided.
SEBI can now also initiate action against the issuers or their agents, if they fail to furnish any information relating to their activities, give false or misleading details, do not co-operate in an inspection, investigation or enquiry conducted by the regulator, or fail to comply with any regulatory order issued under the Depositories Act.
After the government announced the postponement of GAAR implementation by three years to FY 2016, the investments in P-notes is steadily on a rise again. The total investments in p-notes (equity and debt ex derivatives) as a percentage of total assets under custody by FIIs reached its highest levels since March 2012.
SEBI looking to curb manipulation through social media; BSE brokers to launch trading apps on facebook
In a bid to strengthen its probe and oversight capabilities on stock market transactions, SEBI is looking at solutions to curb the use of social networking platforms and messaging applications such as BBM and Whatsapp by manipulators to spread price sensitive information about stocks in the marketplace. SEBI’s efforts in the direction so far have not really yielded results given the complexities involved decoding of such cross platform messages.
Bombay Stock Exchange (“BSE”) brokers however are gearing up their plans to launch Facebook trading apps allowing users to execute stock trades on the BSE platform through their facebook accounts. The move is targeted to woo the new category young and “tech savvy” investors. Geojit BNP Paribas launched the first such a stock trading app called ‘Flip
Social’ on 8th May and is expected to be followed by at least 10 more stock brokers.
Both the BSE and the NSE have notified a reduction in the STT on transactions involving buy/sell of mutual fund (“MF”) units and sale of futures on equities. While STT on buying of MF units has been completely abolished (from 0.1% earlier), it has been reduced to 0.001% in case of sale of MF units (from 0.1% earlier). In case of selling a futures contract on equities, the new STT applicable will be 0.01% (0.017% earlier).
The STT applicable on all other transactions will remain unchanged. Below is a summary of the changes applicable which will be effective from 1st June.
NSE has applied to SEBI seeking its approval to launch two new derivative products in the market. It plans to introduce derivatives on the CNX Dividend Opportunities index and CNX Low Volatility index.
While the Dividend Opportunities Index was designed to provide exposure to high-yielding companies along with price stability and volume depth, the CNX Low Volatility index aims to measure performance of the least volatile stocks on NSE.
Both BSE Sensex and NSE Nifty touched their respective 28 month highs on 15th May during a special trading session when they crossed 20,100 and 6,100 levels respectively. Indian stock markets are seeing a sustained interest from global funds even though the local economy is slowing down.
BSE makes changes to mid-cap and small-cap indices; revises circuit filters for 549 scrips
BSE has reconfigured its mid-cap and small-cap indices effective 13th May. For the mid-cap index, there are 10 new additions while 12 existing scrips are taken out. The small-cap index includes 35 new stocks now while 39 older ones are removed.
As part of the surveillance action mandated by SEBI, BSE has revised the circuit filters for 549 stocks listed on its platform and will be effective from 10th May onwards.
Both BSE and NSE through a series of notifications have notified the lists of stocks that have been transferred to the restricted (Trade-to-Trade) category where speculative trading is not allowed and delivery of the shares is mandatory. The action has been taken after these stocks were identified in a surveillance review conducted by the bourses as per directions from SEBI. BSE has moved a total of 97 scrips to the ‘T’ category while NSE has transferred 24.
Japanese FSA Releases Comprehensive Guidelines for Supervision of Financial Instruments
The Japan Financial Services Agency (“JFSA”) has released comprehensive guidelines for Supervision of Financial Instruments Business Operators (including all financial services providers) defining the role of all Supervisory Departments in such institutions.
The role of supervisory departments under this framework of supervision is to continuously collect and analyse information during intervals between inspections and quickly identify problems that may affect the soundness and appropriateness of the business operations. Supervision should also include taking administrative actions as necessary, thereby encouraging the correction of problems before they become serious.
The JFSA has also introduced continuous Capital Adequacy Monitoring by supervisory departments to ensure soundness of each regulated OTC derivatives and trading company’s financial condition as well as protection of client assets from a notable susceptibility of the financial instrument operators to changes in the market environment.
The 7 month surge following the election of the new cabinet under Prime Minister Shinzo Abe has recently seen a reversal which has brought some of the new tactics into question. The steps taken by the Prime Minister to revive the economy include raising public spending and easing monetary policy in order to stimulate demand and investment. The moves have weakened the yen with hopes that exports will become more attractive.
There has been some success with new issuances in the market crossing US$ 17bn (1.7tn Yen), the highest since 2009 and three times the amount raised in 2012. By mid May, Japan’s Topix Index (TPX) had jumped 61% since November with the net buying by foreign investors in Japan in the current year is at its highest level since record-keeping began in 1982. According to the TSE, April was the seventh straight month in which buying outstripped selling with the margin growing to ¥2.68 trillion ($27 billion) from March’s ¥1.66 trillion.
Recent weeks have unfortunately seen a reversal with 23rd May seeing a fall of 21% in one day, officially taking it into a bear market. As of 13th June, the Nikkei 225 has seen a 21% fall since its peak on 22nd May. The fall has been viewed by some as a sign that macro economists are starting to doubt Abenomics although it is unclear how the market falls will affect the underlying economy and inflation expectations.
Abe’s ‘third arrow’ of structural reform through cutting taxes and opening special economic trade zones, is starting to show some signs of discontent in the cabinet.
Fig 2: Equities Daily Turnover per venue - May 2013
Fig 3: Futures OSE NIKKE monthly ADT
Fig 4: Futures Daily Turnover per venue - May 2013
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12Japanese Market Structure Monthly Newsletter
Venue Updates
OSE president penalised for 4th March system glitch
The Osaka Stock Exchange (“OSE”) has announced that its president Motoharu Fujikura will be penalised 30% of one month’s salary for the system glitch that had caused suspension of derivatives trading on 4th of March this year.
The outage occurred due to malfunction in the software that accepts the derivatives orders. Yoshinori Karino (MD, in charge of the Software Division), who will also be taking a 20% cut of one month salary, stated the issue would not reoccur.
Chi-X Japan brings in Chi-Net - a new service for cross type orders
Chi-X Japan has announced its plans to launch a new service, Chi-Net,in Q4 this year. The service is designed specifically for cross type orders and will allow Chi-X Japan PTS participants to submit single stock cross orders through their existing connectivity. Chi-X will be providing pricing and technical details about the service closer to the launch.
“We are extremely pleased with our progress towards launching Chi-Net and offering participants an alternative to TosTNet1. We plan to offer Chi-Net at a fraction of the cost and with significant latency advantages as it will be accessed through Chi-X Japan PTS which has proven roundtrip latency of sub-millisecond.” Tal Cohen, CEO of Chi-X Global, said.
TSE trading overview
OSE trading overview
— Total derivatives trading volume in May 2013 was 43,704,119 units, which hit a record high following the previous month.
— Trading volume of Nikkei 225 mini in May 2013 was 32,789,461 units, which achieved the record high following the previous month.
— Trading volume of Night Session in May 2013 was 14,426,401 units, which achieved the record-high for the fifth consecutive month.
— Trading volume ratio of Night Session to Day Session in May 2013 was 50.2%.
— Total trading value of ETFs market was 1,567.3 billion yen, which achieved the record-high for the fifth consecutive month.
— Trading value of JASDAQ Market in May 2013 was 4,052.8 billion yen.
— This is the record-high since the market integration in October 2010.
Sourceswww.tse.org.jp
www.ft.com
http://www.atmonitor.co.uk/
www.japantimes.co.jp
www.bloomberg.com
www.nasdaq.com
www.telegraph.co.uk
Trading Volumes
Trading Value Change
from lastDaily average
Domestic Stocks 471,868 959,828 +244,760 45,706
TOPIX 297,288 368,295 -18,614 17,538
Nikkei 225 18,408 276,526 +136,926 13,168
Other 156,172 315,007 +126,449 15,000
REIT 28,470 42,296 +14,081 2,014
Foreign Stocks 11,308 9,321 -5,467 444
Foreign Bonds 26 1,080 +18 51
Commodities 11,996 15,259 -22,830 727
Total 523,668 1,027,784 +230,562 48,942
ETF Market (Including ToSTNeT) (Volume: thou. units, Value: mil. yen
Trading Volumes
Open Interest at end of month
Change from last month
Change from month last year
Daily average
Index Futures 2,523,035 +150,326 +1,373,432 120,145 839,209
Revision of FSCMA marks the end of the exchange monopoly, expands scope of Prime Brokerage Services
On 28th May 2013, the Financial Services Commission announced the revisions to the Financial Investment Services and Capital Markets Act (“FSCMA”) that includes vitalizing investment banking (IB) business, improving Capital Market Infrastructure (including introducing alternative trading systems [ATSs]) and updates to the current regulatory framework of asset management businesses. Key announcements are summarised below: -
— Stimulate Investment banking business
— Securities firms will be required to hold equity worth KRW 3 trillion and have a risk proper management mechanism
— The scope of customers able to be provided with Prime Brokerage services will be expanded to include financial companies, pension funds, overseas hedge funds and Korea-based hedge funds
— Improvements to Capital Market Infrastructure
— Introduction of Alternative Trading Systems (ATSs or Dark Pools)
• To qualify to set up an ATS, a firm will be required to hold minimum capital worth KRW 20bn. (KRW 50bn if the firm will engage in its own proprietary trading as well)
• ATSs will be allowed to trade stock or depository receipts
• ATS venues will be subject to the same rules as exchanges with regard to daily price limit, trading halt.
• The venue will have flexibility on trading size, minimum quotation size, trading hours, anonymous block trading
• Securities firms will still be able to execute orders per client instructions
— Regulations for exchanges to be strengthened
• Exchanges will be required to meet strengthened requirements to prevent conflicts of interests that may arise as exchanges will be monitoring and liquidating ATSs such as stricter internal control standards and information barriers (or ‘Chinese walls’ ) between concerned divisions.
— Regulations on credit rating agencies
• The rules on business practices by credit rating agencies will be revised and strengthened to ensure fairness and independence of credit rating business and protect investors.
There are also a number of requirements relating to asset managers, capital and reporting of shareholdings.
The revision procedure will be completed by August 29th, when the revised FSCMA is scheduled to be enforced. Revisions to subordinate regulations will be made swiftly after preliminary announcement through a legislative notice of the revised Enforcement Decree on June 14th.
The current Art 68 of FSCMA, Duty to Trade in Market, will be replaced with a best execution duty with investment brokers and investment traders being required to establish a best execution policy that will need to be made public. Policies will need to allow for an order to be executed at the most favourable condition available. Art 37 of FSCMA currently prescribes a ‘Duty of Good Faith’ which already means that firms have a fiduciary duty to engage in business in a fair manner for the best interests of the customer.
The Korea Exchange (“KRX”) has existed as a monopoly for nearly 60 years with 30 of the current 87 members hold an 86% stake in the exchange. It is envisaged that the introduction of competition will enhance market efficiency with alternate venues operating with cheaper trading costs, diverse execution services and faster execution. Critics will
Global Market Structure South Korea Newsletter Issue 28
Source: Thomson Reuters, 2013
Source: Thomson Reuters, 2013
Source: Bloomberg, 2013
Source: Thomson Reuters, 2012
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14South Korean Market Structure Monthly Newsletter
voice concerns that there will be potentially adverse effects such as a decrease in transparency and negative impact on price formation.
South Korea to launch a new fund to boost its small and venture companies growth.
South Korea plans to launch its 2 trillion won (US$1.8mn) worth “growth ladder fund” in August this year with an aim to provide it’s small, venture companies better access to capital market. This fund that will be composed of 0.6 trillion won in public funds and 1.4 trillion won from the private sector will help small companies with innovative technology to raise funds through equity capital market instead of depending on bank loans.
Decline in foreign stock ownership
According to data provided by the KRX, ownership from overseas investors on KRX stocks was down 0.67% since end – 2012, amidst prolonged slump in local stock market. Individual local luxury goods operators experience a drop of nearly 10% from foreign holdings.
Increased responsibility for FSC’s chief
FSC plans will extend the scope of responsibilities of its head in order to streamline the system amidst slower economic growth. The head of FSC starting this month will have a role in supervising and giving approval on business activities of the country’s banks, insurance firms and credit card companies. He will have more rights in the restructuring processes of cash-strapped financial companies.
Personnel Changes New President and CFO appointed
The KRX appointed Mr. Ki Won Kang as President and CFO of the Management Strategy Division. Mr. Kang has been with the KRX since 1987 and was previously Executive Director and CIO of the Strategic Planning and Information Division.
Venue News
Korea’s New Exchange, Konex, to be launched on 1st July
The Korea exchange unveiled its plans to launch a new third bourse for small firms and startups on 1st July. The new exchange will be called Konex and aims to promote startups, reducing country’s dependency on its traditional manufacturing conglomerates. It will open funding opportunities for the start ups, most of which currently rely on bank loans instead of public stock offerings at the moment.
The bourse will have 20 to 30 listed companies to start and expects the number to grow to 50 by end of 2013.
New Listing requirements come into effect
As of 20th May, new listings are now subject to a number of new requirements including:
— Minimum shareholders’ equity requirement has been raised from KRW 10 billion to KRW 30 billion
— Minimum revenue requirement has been raised from KRW 30 billion to KRW 100 billion
— International companies have a number of exemptions: the lead manager’s investment obligation is set at 5% rather than 10% and for issuers listed on designated foreign exchanges for 3 years or more are exempt from the lead managers investment obligation of 5%
— Share distribution requirements have been lowered. Previously, the number of Minority Shareholders should be 1,000 or more and hold 25% or more of the total number of shares. Now the number of General Shareholders should be 1,000 or more and should hold 25% or more of the total number of shares, or 5 million shares or more. General Shareholders are those that hold less than 10% of the total shares and are not the largest shareholder.
As announced on 4th June, the KRX is to provide the Central Bank of Myanmar with education on stock market operations that run in line with international standards. The aim is for the exchange to open in 2015.
Regulator decided against minimum resting time proposal
On 30th May, ASIC announced they will not force brokers to hold small trades for a “minimum resting time,” as proposed in the corporate regulator’s recent consultation paper (CP202 Dark liquidity and high-frequency trading: Proposals).
Small trades now comprise 1.6% of all untraded orders, down from 3.6% in March. Mr. Funke-Kupper, the head of the ASX, has said “there is an issue with the number of small trades but the issue is not [with] speed, and therefore a speed limit will simply not make a difference in practice – and it will be expensive to implement.”
Pre-trade transparency Market Integrity Rules come into play
New market integrity rules relating to pre-trade transparency exceptions came into effect on 27th May 2013. Rule 4.2.1 of ASIC Market Integrity Rules (Competition in Exchange Markets) was revised to introduce tiered thresholds for block trading. The rules allow for a transaction to be executed without pre-trade transparency where:
-Tier 1: the transaction is greater than $1 million
Additionally, the ‘trade with price improvement’ exception to pre-trade transparency replaced the ‘at or within the spread’ exception under Rule 4.2.3. To meet the meaningful price improvement rule, the trade must be at a price that is: higher than the Best Available Bid and lower than the Best Available Offer for the Relevant Product by at least half a price step (i.e. half a tick).
A comparison of venue execution the week before and following the amended rules showed:
The Australian government released a discussion paper on 3rd June, suggesting tax law changes to close a loophole that currently enables sophisticated investors to engage in ‘dividend washing.’ The paper identifies this emerging practice as a way that some circumvent current integrity rules to trade franking credits, claiming two sets of credits for what is in effect one parcel of shares.
Overseas investors that may not value franking credits have been selling credits to on shore superannuation funds, income tax exempt not for profit entities and other shareholders with low marginal tax rates after shares go ex-dividend. The buyer would retain one set through the ex-dividend period while the second set is obtained during the purchase of the cum-dividend shares. When the cum-dividend shares are sold on, the buyer realizes a profit through the higher share price. The franking credits are therefore passed on from those who should not be able to use them to those that can.
It is estimated by the Treasury that the practice has been costing the Commonwealth around AU$20 million per year that was set to grow if the practice continued.
The tax law changes are intended to be implemented on 1st July. The full report can be accessed here:
The ASX announced a $533 million capital raising on Tuesday 11th June. The initial fall of 6% after it started trading on Friday 14th June, was greater than the dilution effect of the number of shares from the 2-for-19 renounceable rights issue. The rights issue cost participating shareholders $33.70 per new share and entitlement (below the last traded price of $35.84 a share).
ASX CEO, Elmer Funke-Kupper, has said the raising is to help the ASX better compete with overseas market operators with businesses that are increasingly global in nature.
Chi-x highest month on record
May has seen Chi-x have its strongest month to date with the following records being released:
— NEW RECORD - Daily Market Share of CT 11.50%, 21st May
— NEW RECORD - Total Monthly Turnover AU$32.6 billion
— NEW RECORD - Monthly Continuous traded (CT) Total Turnover AU$14.8 billion
— NEW RECORD - Daily CT Turnover – $497.3 million 23rd May
— NEW RECORD - Daily CT Value traded at the Midpoint AU$49 million
— NEW RECORD - Price Improvement Monthly - $1.357 million.
Total Price Improvement so far for 2013 has reached AU$4.58m, up from AU$3.3 million in 2012.
ASIC investigates ASX outage
The Australian Securities & Investments Commission has investigated a technical breakdown that occurred at the ASX in October last year. The ASX’s markets announcement platform shut down between 12.11pm and 3.55pm.
During this time, the outage prevented the processing and releasing of new announcements to the market from exchange listed companies. 23 of the 112 announcements during this time were market sensitive, buy and sell orders were frozen for these stocks.
The report details that the ASX took more than two hours to inform some market participants, additionally some traders who had paid for a subscriber service with the ASX knew of the outage one hour before others.
“While we are satisfied about ASX Group’s operational response to this issue, we question the approach it took to keeping all market users adequately informed,” the ASIC report said.
Intraday auctions trial restart in stocks outside the S&P/ASX300
On 11th June, the ASX restarted the trial of intraday auctions for selected stocks outside the S&P/ASX300. The intraday stock auction was previously suspended due to a system error which caused it to fail on the first day of the trial back in January.
Intraday auctions will be conducted in the selected stocks between 12.00pm and 2.00pm for 5 minutes (+/- 15 seconds random timer) under the trial. The trial will continue until 6th September 2013.
The ASX Clear will be introducing Cash Market Margining, for ASX Market Participants who use a third party clearer for the clearing and settlement of cash market transactions.
This entails the calling of margins from Clearing Participants on a daily basis on Friday 7 June 2013 subject to regulatory clearance of the associated Operating Rules.
Cash Market margining is a “principal to principal” margin between the Clearing House and the Clearing Participant to ensure that in the event of a default of a Clearing Participant the Clearing House can close out the Clearing Participant’s net novated obligations with minimal impact on the rest of the market.
From 1st May, John Fildes replaced Peter Fowler as CEO of CHI-X Australia. John Fildes’ previously had senior capital markets roles at MSCI, Morgan Stanley, Instinet and Getco. He oversaw the entry into the Australian market of both Instinet and Getco.
Tal Cohen, CEO of Chi-X Global, has said, “John Fildes has worked in or with the Australian market for two decades and is a well-regarded member of the Australian trading community.”
Singapore strengthens framework to curb cross-border tax evasion
Singapore has reaffirmed its commitment to combat cross border tax offences and is taking concrete steps to strengthen its international tax cooperation framework. Included in the plans are allowing the Inland Revenue Authority of Singapore to obtain bank and trust information from financial institutions without having to seek a court order thus expediting the whole process and signing the Organisation for Economic Cooperation and Development’s (OECD) multilateral treaty on sharing tax details
Singapore will also conclude an agreement with the United States to help financial institutions in Singapore comply with the Foreign Account Tax Compliance Act, known as FATCA. In a joint statement, the Finance Ministry, Monetary Authority of Singapore (“MAS”) and the Inland Revenue Authority of Singapore reiterated the government’s commitment to working with international partners to combat cross-border tax offences.
SEC releases final foreign ownership cap rules for Philippine companies
The Securities and Exchange Commission (“SEC”) has announced the final foreign ownership cap rules for Filipino companies through a memorandum issued on 20th May. According to the rules, the 40% foreign ownership will be calculated based on the total outstanding shares (not for each class of shares separately). The firms not in compliance will be given one year’s time to adjust the shareholding structure.
“The required percentage of Filipino ownership shall be applied to both the total number of outstanding shares of stock entitled to vote in the election of directors, and the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. All covered corporations, shall at all times, observe the constitutional or statutory ownership requirement.” SEC said.
Singapore hosts WIBC Asia 2013 with MAS support
Singapore has hosted the 4th edition of the World Islamic Banking Conference: Asia Summit (WIBC Asia 2013) with official support from the Monetary Authority of Singapore (MAS) from 3rd to 5th June. The conference was attended by approximately 480 scholars from the field of Islamic Finance who have flagged the urgent need for harmonious international industry standards and cross-border co-ordination and collaboration.
“Though Islamic finance has come a long way, achieving significant growth over the last decade, the overall size of Islamic assets is still less than 1% of the global financial system and the industry has still to build significant economies of scale. Being comparatively young,
Islamic finance currently offers fewer product choices for consumers, while isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across international jurisdictions.” David McLean, Chief Executive of the World Islamic Banking Conference: Asia Summit, said.
Tharman re-appointed as MAS chairman; board members’ terms extended
Mr Tharman Shanmugaratnam has been re-appointed as the chairman of the board of directors of MAS for a term of 2 years ending 31st May 2015.
Mr Ravi Menon, Managing Director of MAS, has also been re-appointed both as Managing Director of MAS and a member of the MAS Board of Directors for a further term of two years, with effect from 1st June.
Minister for Education, Mr Heng Swee Keat and Acting Minister for Culture, Community and Youth and Senior Minister of State (Communications and Information), Mr Lawrence Wong Shyun Tsai will also be re-appointed as members of the MAS Board of Directors for a further term of two years, with effect from 1st June.
Venue News
Dynamic limits proposed for SGX
SGX have released a consultation containing the following key points
— Currently the exchange has a 10% static price band based on the opening price. This could change to a 10% move based on the ‘reference price’. This reference price will generally be the last traded price of an instrument 5 minutes prior.
— If an incoming order is entered outside that range, a ‘cooling off’ period will be activated and the incoming order rejected. Orders inside the range will be still be accepted and executed, orders can also be partially filled if some of the volume can be done within the price range.
— Direct Business trades will not lead to the circuit breaker tripping and the rules do not affect the price at which a Directed Business trade can be executed.
The dynamic breaker would apply to a broader range of instruments per below:
a) all Straits Times Index (“STI”) and MSCI Singapore Index (“SiMSCI”) component stocks/units;
b) all other stocks/units, exchange-traded funds (“ETFs”) and exchange-traded notes (“ETNs”) with a first reference price (refer to section 9 below) at or exceeding 0.50 in the underlying currency; and
c) all Extended Settlement Contracts (“ESCs”) whose underlying falls within one of the first two categories.
The full paper can be accessed here, responses need to be returned to the exchange by 3rd July:
SET working on 5-year strategic plan, eyes long term cash and greater stability
The Stock Exchange of Thailand (“SET”) is working on finalizing its 5-year strategic plan with a view to maximise long term investments from both foreign and institutional investors, retain retail investors and provide greater stability on the trading platforms. SET wants to retain the retail participation (currently 65% of all investors) while encouraging more foreign programme traders to trade in smaller-cap stocks outside the MSCI ex-Japan group. Currently, 22 Thai stocks are included in the MSCI.
“The 2013-17 plan would be a collaboration with other organisations including the Association of Thai Securities Companies and the Association of Investment Management Companies to ensure the long-
term sustainability of the market structure.” Pakorn Peetathawatchai, Executive VP and Head of Corporate Strategy and Finance at the SET, said.
In the medium term though, SET has its eyes set on increasing its market capitalisation to US$ 700 billion from the current levels of US$ 500 billion in the next three years. This could make it the largest market in South East Asia (SGX’s market cap is currently around the US$ 700bn mark). SET has already overtaken SGX for highest average trading volume in ASEAN (50-60bn baht, about 35% higher than SGX).
Bursa Malaysia expects to raise up to US$ 2.6bn through IPOs
Bursa Malaysia is expecting a revival of IPO activity in the local markets as many corporates who had shelved their fund raising ambitions amid pre-election uncertainty have revived the plans after the incumbent coalition returned to power. Most of these companies are eying the next 3-6 months to come out with their issues and can collectively end up raising a healthy US$ 2.6bn.
Westports ($500m), Air Asia X ($250m), Ranhill Energy and Resources ($450m), MMC Corp ($1bn) and Iskandar Waterfront Holdings ($300m) are the major IPOs in pipeline currently.
20 Thai stocks added to MSCI Small Cap Indices
The Stock Exchange of Thailand (SET) has announced that the index provider MSCI Inc. will be adding 20 Thai stocks to its MSCI Global Small Cap Indices from 1st June. The stocks being added are ANAN, BMCL, EA, EASTW, GRAMMY, GUNKUL, JMART, KTC, MALEE, N-PARK, OFM, OISHI, SAMTEL, SPCG, TFD, THRE, UMI, UV, VGI and WHA.
“Nineteen SET stocks and one from mai are being added to the MSCI Global Small Cap Indices, with a combined market capitalization of THB 403 billion (approx. US$ 13.89 billion as of May 15, 2013). Meanwhile, three Thai stocks were removed from this set of indices, as they had grown too big for these indices.” Chanitr Charnchainarong, SET EVP and Market for Alternative Investment (mai) president, said
PSE Q1 net profit rises 27.8%, PSEi hits all-time high
The Philippine Stock Exchange (“PSE”) announced its Q1 results with a 27.8% YoY surge in net profits (P184.8 million) on the back of robust stock markets. Operating revenues were up by 18.1% to P263.4m from a year ago. The total expenses for the quarter also went up by 15.4% to P108.3m on higher compensation and staff-related costs and administrative expenses.
The earnings season boosted by a number of blue chip companies announcing double digit growth also fueled the rally on PSEi with the index breaching a record intra-day high of 7400 points on May 15th and settling at 7392.2 at the close of the trading session marking its 31st all-time high closing during the current year.
PSE board gets re-elected, promises more products and eyes controlling stake in PDS
The board of directors at the PSE have had their mandate extended for a further year as the 15 member team lead by PSE chairman Jose Pardo and President Hans Sicat was re-elected at the bourse’s annual stockholders meeting. The PSE is one of the best performing exchanges globally with the index growing by 25% so far this year.
PSE President Hans Sicat has emphasised adding more products to the suite of tradable securities to take the growth story forward. PSE has plans to start trading ETFs and Futures (in partnership with SGX) later this year and is looking to set up a full securities borrowing and lending program to boost its product portfolio.
The PSE has also signed initial agreements with the Bankers Association of the Philippines and SGX, the largest shareholders of Philippine Dealing
20ASEAN Market Structure Monthly Newsletter
Systems Holdings Corp (“PDS”) as it looks to acquire a controlling stake in country’s fixed-income trading platform. The move is aimed to merge the securities and FI platforms under one roof to improve liquidity and efficiency of the local marketplace.
Foreign inflows to Vietnam at 5 year high levels
Foreign investors have so far bought a net US$ 253mn of Vietnamese stocks this year, the largest YTD purchases since 2008. Foreign investor participation has been steadily growing this year as 16,238 foreign investors were granted Vietnam stock trading accounts as of 30th April compared with 16,001 in the whole of 2012.
This, combined with the fact that inflation is easing and borrowing costs are declining owing to rate cuts (8 rate cuts have been announced since 2012 beginning), has steered the VN Index higher which has gained 25% so far making it one of the best performers in the region.
Sourceswww.channelnewsasia.com
www.sgx.com
www.mas.org
www.reuters.com
www.4-traders.com
www.bangkokpost.com
www.todayonline.com
www.online.wsj.com
www.thejakartagloble.com
www.en.acnnewswire.com
www.ft.com
www.biz.thestar.com.my
www.bworldonline.com
www.nationmultimedia.com
www.philstar.com
www.waterstechnology.com
www.btimes.com
www.finextra.com
www.gowealthy.com
Deutsche BankEquities
Global Market Structure APAC Quant Analysis Factsheet - May 2013
Below is a selection of quantitative metrics, which provides additional analysis of the markets and liquidity during February 2013. For further information, please contact:
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