Global Market Structure Asia Pacific Newsletter Contact: Deutsche Bank Equities Issue 20, 2012 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 SFC consultation on Electronic Trading launched HKEx to introduce RMB Currency futures China .......................................................... Page 5 China Opens CCP Model for Margin Financing CSRC to cut further trading fees in SSE and SZSE Taiwan ........................................................ Page 8 MOU signed for RMB-TWD currency clearance Stock Transaction Tax cut proposed India ........................................................... Page 10 Dr Shome panel submits draft report on GAAR review SEBI announces reforms for Primary Market and Mutua Japan.......................................................... Page 14 TSE completes the tender offer for OSE shares SBI Japannext reaches new high South Korea ............................................... Page 16 South Korea launches short position reporting regime FSC announce plans to deregulate ETF market Australia ..................................................... Page 18 Market competition update ASX to split trading fees ASEAN ....................................................... Page 21 Regulatory regime for Fund Management companies in Singapore tightened ASEAN trading link to go live on 18th Sep connecting SGX and Bursa Malaysia. Thailand to join in October Quant Fact Sheet ....................................... Page 24
Transcript
Global Market StructureAsia Pacific Newsletter
Contact:
Deutsche BankEquities
Issue 20, 2012Welcome to the APAC Market Structure Newsletter containing the news relating to market microstructure,exchange updates and regulatory developments.
Hong Kong ................................................Page 2SFC consultation on Electronic Trading launched HKEx to introduce RMB Currency futures
China ..........................................................Page 5China Opens CCP Model for Margin Financing CSRC to cut further trading fees in SSE and SZSE
Taiwan ........................................................Page 8MOU signed for RMB-TWD currency clearance Stock Transaction Tax cut proposed
India ...........................................................Page 10Dr Shome panel submits draft report on GAAR review SEBI announces reforms for Primary Market and Mutua
Japan..........................................................Page 14TSE completes the tender offer for OSE shares SBI Japannext reaches new high
South Korea ...............................................Page 16South Korea launches short position reporting regime
FSC announce plans to deregulate ETF market
Australia .....................................................Page 18Market competition update
ASX to split trading fees
ASEAN .......................................................Page 21Regulatory regime for Fund Management companies in Singapore tightened ASEAN trading link to go live on 18th Sep connecting SGX and Bursa Malaysia. Thailand to join in October
Global Market Structure Hong Kong Newsletter Issue 20
SFC publishes aggregated short positions
As of 7th September, the Securities and Futures Commission commenced the weekly publication of aggregated short positions of specified shares under the Securities and Futures (Short Position Reporting) Rules (Rules) (Note 1). Each Friday, the data aggregated from reports submitted by the market by the previous Tuesday will be released showing the snapshot positions of shorts greater or equal to 0.02%.
“In publishing short positions, we aim to increase market transparency and offer the public a better picture of short-selling activities in the Hong Kong market,” said Mr Ashley Alder, the SFC’s Chief Executive Officer.
Reports will remain on the SFC website for 3 months. The first report can be accessed here:
The SFC consultation paper detailed in the last issue it is still open for comments with comments being due by 24th September. The purpose of the proposed new regulations is to create a more comprehensive framework around electronic trading in Hong Kong with the focus on the testing of electonic trading systems, algorithms and client DMA services. The paper will also update the current Internet Trading regulations issued in 1999. No distinction is made between retail and professional investors.
Other new requirements include assesing client competence, making intermediaries responsible for orders and maintaining audit logs of those orders for at least two years. Risk management procedures and intervention procedures must also be in place to stop activities in the event of manipulative activities.
The Hong Kong Legislative Council adjusted the Companies Ordinance of Hong Kong imposing criminal liability on auditors of Hong Kong incorporated companies should the auditors fail to declare in their audit reports the existence of accounting irregularities or if they were unable to obtain all information necessary for the preparation of the audit. This reform aims to protect investors.
Additionally, the chairman of the HKEx stated that listed companies cannot cite “state secrets” as a reason not to disclose business information.
CE of HKMA outlines risks for Hong Kong
Norman Chan, Chief Executive of the HKMA, highlighted the uncertainty in global financial markets which he said mainly resulted from the European sovereign debt crisis. The main priority of the HKMA is thus to maintain financial stability, Chan added. Necessary precautionary measures should be taken before any crisis starts.
Financial liberalisation in mainland China, growth in asset management, the increasing use of the RMB as a trade currency and the increasing number of financial institutions using Hong Kong as a gateway to China will be the biggest drivers of future development.
Fig 1: Equities Hong Kong market monthly ADT (lit, auction & non-displayed order types)
Fig 2: Futures HKFE HSI monthly ADT
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Hong Kong Market Structure Monthly Newsletter 3
HKMA re-appoints Standard Chartered as settlement institution
The HKMA re-appointed the Standard Chartered Bank as the settlement institution for the EURO real time gross settlement system. The system offers real-time settlement of EURO transactions during Asian business hours.
SFC launches new website
To improve communication, SFC has launched an upgraded corporate site. New functionalities include:
— Online library of codes and guidelines
— Upgraded search
— Activity data and charts
— Quick access and wish list
The new website can be found at:
http://www.sfc.hk/web/EN/index.html
Venue News
HKEx publishes 2012 interim results
The average daily turnover on the exchange decreased from HK$73.6bn to HK$56.7bn (down 23%) for the first six months compared to a year before. The average daily number of derivative contracts increased by 6% to 265,609 and the average daily number of stock options contracts decreased by 20% to 231,856.
The profit of the second quarter fell 21% to HK$1.07 billion, missing estimates. Some in the market expect future profit development to be linked closely the integration of the LME and cooperation with exchanges on Mainland China. For the full first half year of 2012, The HKEx reported a profit of HKD2.22bn, down 14% from a year ago.
HKEx will introduce Renminbi (“RMB”) currency futures on 17th September. The US Dollar vs Renminbi (USD/CNH) Futures contract will be the world’s first deliverable RMB currency futures contract. The exchange aims to gain a larger market share in the offshore RMB trading in Hong Kong.
USD/CNH Futures will require the seller to deliver USD and the buyer to pay the Final Settlement Value in RMB at maturity. The futures will be quoted in RMB per USD and margined in RMB, with the trading and settlement fees charged in RMB. The final settlement price will be based on the spot USD/CNY(HK) fixing published by the Treasury Markets Association at 11:15 am on the Last Trading Day.
The CE of HKEx, Mr. Charles Li, stated that the new RMB futures are part of a strategy to “offer a wide range of RMB-related products and expand beyond equities and equity-related derivatives into fixed income, currencies and commodities”.
The Hong Kong Futures Exchange Limited (HKFE) has announced that with effect from Monday, 3rd September, the minimum margins to be collected by an Exchange Participant from its clients for trading in the following futures contracts will be updated.
The HKEx have released a summary of the market share between the different participants. The categories are defined as follows:
— Category A: Position 1 – 14
— Category B: Position 15 - 65
— Category C: Over 65
HKEx publishes guide on consultation conclusions on environmental, social and governance reporting
The Guide is divided into four areas (Workplace Quality, Environmental Protection, Operating Practices and Community Involvement) and is the result of comments and submissions from market participants and stakeholders. The Exchange decided to implement the Guide as an appendix to the Listing Rules. It will be a recommended practice.
Bombay Stock Exchange considering derivatives on HKEx
The BSE might launch derivatives of its BSE-100 index on the HKEx. The move is seen to increase turnover in the products amidst completion from local rival the National Stock Exchange. Right now Sensex futures can be traded on the EUREX while Nifty derivatives can be traded in Singapore.
Personnel Moves
Re-appointment of Executive Directors
The Financial Secretary re-appointed three Executive Directors for another three-year term. Mr. Brian Ho, Executive Director of Corporate Finance; Mr. Keith Lui, Executive Director of Supervision of Markets; and Mr. Mark Steward, Executive Director of Enforcement . The new term of Mr. Ho and Mr. Lui will commence on 28th. Mr. Steward’s re-appointment will take effect on 25th September.
The HKMA appointed Ms. Huo Yingli as Senior Advisor to offer advice and assistance for the financial cooperation between Hong Kong and the Mainland, further expansion of the RMB business in Hong Kong, and the development of opportunities for Hong Kong’s financial services industry in mainland China. Ms Huo comes from the PBoC where she was Deputy Director-General of the Financial Market Department.
On 27th August 2012, the new CCP came into operation with 11 leading brokers, including Guotai Junan, Haitong, CITIC, SYWG and Huatai, involved in the launch of the pilot securities refinancing programme. The Securities Finance Co., Ltd (“CFSC”) was established as a JV of Shanghai Stock Exchange, Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Limited (CSDCC) to act as a CCP for domestic margin financing and Stock Borrow Loan (“SBL”).
The first step is to enable margin financing, the key points for the new CCP scheme are summarised as below.
— Duration: 3 tranches for margin refinancing (7 days, 14 days and 28 days); 5 tranches for stock refinancing (3 days, 7 days, 14 days, 28 days and 182 days). Rolling allowed but aggregated maturity maximum 6 months.
— Trading volume: Not exceeding RMB300m for every margin refinancing transaction; a minimum of 10,000 shares for each stock refinancing transaction and an upper limit of 1m shares.
— Eligible stocks: the 285 stocks and ETFs that are currently eligible for the margin financing and stock lending.
— Interest rates: To be determined by CSFC based on the demand-supply conditions, benchmarked to the 6-month policy lending rate.
— Total value lent out on a single stock cannot exceed 10% of total floatable market cap and a broker’s total refinancing balance cannot exceed 50% of its net capital.
— The margin ratio will be from 20% to 50%.
There is no regulatory approval needed for participating in the securities refinancing program. To conduct securities refinancing, a securities company must meet certain criteria such as being qualified to provide margin financing and securities lending services and have technology systems ready for securities refinancing. Development continues on the SBL technical system that may launch towards the end 2012.
We have also attached the summary of the current scheme established in March 2011 for your reference. The limitation of current scheme is that securities firms can only lend out their own money/securities thus given the zero-sum nature securities firms are unwilling to lend out their securities.
Participants – Lender Currently there are 25 securities firms approved by CSRC to participate in the pilot scheme. (1st batch are Guotai Junan, CITICS, Haitong, GF, Everbright and Guosen)
Chinese Market Structure Update
Total (USD$) %loss/gain
Monthly ADT (Aug 2012) USD$16.25bn 8.63%
Source: Thomson Reuters, 2012
Source: Thomson Reuters, 2012
Source: Bloomberg, 2012
Source: Bloomberg, 2012
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Fig 1: Equities Chinese market monthly ADT (lit, auction & non-displayed order types)
Fig 2: Equities Daily Turnover per venue - August 2012
Fig 3: Futures HKFE HHI monthly ADT
Fig 4: Futures Daily Turnover per venue - August 2012
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Deutsche BankEquities
Global Market Structure Chinese Newsletter Issue 20
6Chinese Market Structure Monthly Newsletter
Participants – Client Among other requirements, the investors must have opened the securities accounts with their brokers for more than 18 months, with the value of total assets in their securities accounts of above RMB 500,000 (approx US$72,500) and total financial assets above RMB 1 million (approx US$145,000).
Source of Securities Only securities firms’ own prop positions
The way they conduct business is buy basket of stocks and hedge by shorting index futures
Margin/Collateral Eligible collateral includes cash, gov. bonds, ETFs, listed fund/bonds and listed stocks. Different type of collateral with different haircut ratio, subject to securities firms.
Shanghai and Shenzhen Stock Exchange require securities lending deposit to be no less than 50%.
Reporting/Disclosure Ticker basis reporting, published daily on exchange websites
Fees Ard 10%
Eligible Securities 180 stocks in Shanghai and 98 stocks in Shenzhen, plus 7 ETFs
Four new QFIIs licenses approved by CSRC in July
On CSRC’s website it released the following 4 entities get approved for QFII licenses:
— BOC Group Life Assurance Company Limited,
— Hall Capital Partners LLC,
— Board of Regents of The University of Texas System,
— Nan Shan Life Insurance Company,Ltd.
US$1.3 billion quota approved by SAFE for 9 QFIIs
SAFE approved the following 9 entities a combined US$1.34 billion of quota.
1. Principal Global Investors LLC (US$ 150 million)
Currently a total quota of US$29.87 billion has been granted to 152 QFIIs. It has been reported that inflow to the Chinese market reached a net US$1.4billion from QFII from June to July, as a measure of the regulator’s effort to boost the market.
China to boost investment in Hedge Funds
Further to our earlier report on the QDLP program, the Shanghai Municipal Government Financial Services Office (“FSO”) is launching the Qualified Domestic Limited Partner Program (“QDLP”), a pilot program
that will permit select foreign hedge funds to raise RMB capital from local investors in mainland China. Press reports that the QDLP measures are garnering significant attention since, for the first time, it will open the China market to fundraising by foreign hedge fund managers.
Under the proposed conditions of the QDLP pilot program, the RMB raised must be invested in foreign markets. The pilot program is expected to operate for a period of 6 to 18 months with a handful of hedge fund managers being selected initially. Upon expiry of this pilot period, other hedge fund managers will be eligible to submit applications for approval to participate in the new scheme.
Although quota levels are yet to be confirmed by the FSO, initial quota for the pilot program is proposed to be US$5 billion and that this may expand over the next 5 years to US$60 billion by 2017. The QDLP rules are expected to be formally released during the next few months.
China to raise upper limit of foreign ownership in a domestic securities firm to 49%
CSRC published a consultation paper aimed to raise the current foreign ownership limit in a domestic securities house from 33% to 49%. At least one Chinese investor must hold not less than 49% of the total equity interest.
The move is stated to be a further step towards fulfilling the China-US Strategic and Economic Dialogue from May 2012 as a change that the industry has been lobbying for to open up China markets to international firms.
The consultation closes on 22nd September, to access the full materials (Chinese only) click here:
IPO approvals have been slow during August following the last review and approval meeting held by CSRC on 31st July. As of 14th August, 129 companies were seeking IPO approval for listing on the SSE and 629 on SZSE. The media reported that CSRC may give priorities to companies from the nation’s western region.
The A share market has been steadily falling since May this year and the market is viewing the slowdown in approvals of IPOs as a sign of the regulators try to boost the market.
Capital outflow for China in H1
Reported by China daily, the Chinese market experienced an outflow of capital in the first half of 2012.
After reaching a Q1 surplus of US$ 51.1billion, the balance of international payments in Q2 showed a deficit of US$ 71.4 billion. A SAFE official said “The recent changes were mainly because foreign exchange assets are shifting from the central bank to domestic institutions and individuals, even though it showed a net outflow of capital, it is still affordable”.
CSRC reported to urge companies to buy back shares
On 2nd August, Reuters reported that CSRC is encouraging domestic blue chip companies to buy back their shares which are below NAV, as a measure to support the securities market which is at 3 years low.
The below NAV companies includes China Communications Construction Co Ltd, China Railway Group and Shanghai Pudong Development Bank etc, with a total number over 50 as of early August.
7Chinese Market Structure Monthly Newsletter
Venue News
CSRC to cut trading fees in SSE and SZSE
Further to our earlier reports on the fee cut initiatives, the Chinese securities regulator, CSRC confirmed in an online statement that the transaction fee for China A-share will be cut a further 20% in both SSE and SZSE. This is the third cut this year after the adjustment in June and July.
Based on last year’s trading volume, the cuts this year could save investors ~RMB 15billion in transaction costs.
Sunshine funds to be listed on SSE
It has been reported by Reuters on 29th August that the Shanghai Stock Exchange may consider allowing “sunshine” funds to be listed on its board, when conditions are suitable. Sunshine funds in China are the local prototype of a hedge fund, distributed by Trust companies. The private trust-fund assets have tripled to RMB 142bio in the last 18 months, according to China Trustee Association/KPMG.
In terms of international footprint, a few major sunshine fund managers have already established a Hong Kong office to trade globally.
SZSE launched SZSE GDP 100 Index
On 8th August, the Shenzhen Stock Exchange and Shenzhen Securities Information Co. Ltd. jointly announced the launch of SZSE GDP 100 Index (Code: 399648). The index based on GDP industry growth quarter data, selects high-growth industries which lead the economy growth and gives weight based on companies’ operating income. Base day is set at 30th June 2005, where the index’s base point is 1,000. As of 5th September, 2012 the index is trading at 4065.
Legislator said to propose transaction tax cutting
On 28th August, Lu Hsiu-yien, the ruling KMT legislator announced that she will aim to cut 0.1-0.15% of the stock transaction tax from current level of 0.3%. Her proposal would be backed by another legislator Luo Min-tsai.
Lu mentioned she has communicated with the industry leaders as well as academia experts. Meanwhile on the other side of the strait, CSRC has cut the transactions fee three times this year.
Foreign Ownership Limits
As of 31st August the foreign ownership limits have been changed as described in the below table:
Securities Name
ISIN Code Total outstanding Shares
Percentage of shares held by foreign investors (incl. QDIIs)
Fig 2: Cash Equities Daily Turnover per venue - August 2012
Fig 3: Futures FTX TAIEX monthly ADT
Fig 4: Futures Daily Turnover per venue - August 2012
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9Taiwan Market Structure Monthly Newsletter
Fund type investors can use tax bureau certificates to apply for FINI
On 30th August, TWSE announced that fund type investors can now use the supporting documents issued by their home domicile tax bureau certificates for FINI application. Previously only non-fund type investors could use this method.
The “Operation Directions for Applications by Overseas Chinese, Foreign Nationals, and Mainland China Area Investors for Registration to Invest in Domestic Securities or Trade Domestic Futures” has been revised accordingly.
MOU signed for RMB-TWD currency clearance
On 31st August, the Central Bank of Taiwan announced that a MOU has been signed between Taiwan and Mainland China for currency clearance. The mechanism is scheduled to take effect 60 days after the signing. Under the MOU, both the Central Bank of Taiwan and the People’s Bank of China will appoint a local bank in Taiwan/Mainland to be responsible for the money clearance service.
The future status would be a direct foreign exchange mechanism for New Taiwan Dollar and Renminbi, the mainland currency. Currently investors have to exchange TWD for USD first then exchange for RMB, which in the future can exchange TWD for RMB directly. This is a measure viewed to reduce the transaction cost for both sides.
Venue News
TWSE announced new default filling mechanism
On 31st August 2012, the TWSE announced that the default investor list will be sent to brokers at 11:30am T+2 in addition to the current send out time of 8:30am T+3, taking effect from 17th December. The execution brokers’ obligation to report default trades to the TWSE by 11:00 am on T+2 will remain unchanged.
Upon receipt of the TWSE’s default list, brokers shall suspend taking trade orders from the default investor and stop any new account opening immediately.
TWSE reiterates FINI’s 30% rule on non-equities investments
On 30th July 2012, TWSE on its website reiterated that FINIs should monitor their non-equities investments on a daily basis to ensure the ratio of FINI’s non-equities investments does not exceed 30% of their net remitted-in capital.
Consultation paper on warrants released
A survey has been released to canvas opinion issuer controls in the warrants market and to apply the same controls to Taiwanese and foreign warrant issuers. Currently, the controls applied to domestic and foreign warrant issuers are different, mainly in the issuing limits and the requirement of onshore funds to hedge the warrant issuance.
To make the controls consistent, the TWSE has come up with 2 alternatives for amending the current regulations. The alternatives and current rules are provided in table opposite.
GreTai Exchange urges to fundraising
Lee Sush-der, the new chairman of GreTai Securities Market, Taiwan’s OTC stock exchange, urges to boost the fundraising capability of the bourse.
According to a Chinapost report, the new chairman’s goal for 2012 is to get 50 companies for over-the-counter listings application and 60 firms for the emerging stock market through listing 25 technology or emerging companies.
Lee aims to boost the ranking of Taiwan’s OTC market which currently sits at No. 22 out of 54 in the World Federation of Exchanges tables.
Issuing Amount Control (issuing limit)
Default Risk Control (onshore fund to hedge)
Current rules Domestic Issuer:
10% - 60% of eligible net regulatory capital adequacy; the ratio is determined by the issuer’s credit rating.
Foreign issuer:
10% - 60% of the net available fund of the issuer’s Taiwan branch office or subsidiary; the ratio is determined by the issuer’s credit rating.
Domestic Issuer:
Nil
Foreign issuer: hedged funds are required to be remitted in Taiwan, i.e. 20% or above of market value of the underlying securities represented by the non-matured warrants.
Alternative 1: the issuer is offshore parent company or head office of the foreign institution
Domestic/Foreign Issuer:
1. BIS>200% (when a foreign institution is the issuer, the BIS of the foreign institution).
2. The issuer may set up its own internal control policy to determine the issuing limit; the policy shall be resolved and passed by its board of directors.
The current limits based on eligible net regulatory capital adequacy or net available fund will be cancelled.
Domestic/Foreign issuer:
Guarantee fund: 10% of the total issuing amounts; certificate of deposit, government bond and bank guarantee are eligible guarantee fund.
Current hedged funds to be remitted into Taiwan will be cancelled.
Alternative 2: the issuer is the Taiwan subsidiary of the foreign institution
Domestic/Foreign Issuer:
1. BIS>200% (when a foreign institution is the issuer, the BIS of the foreign institution).
2. The issuer may set up its own internal control policy to determine the issuing limit; the policy shall be resolved and passed by its board of directors.
The current limits based on eligible net regulatory capital adequacy or net available fund will be cancelled.
Domestic/Foreign issuer:
None
Current hedged funds to be remitted into Taiwan will be cancelled.
Shome panel submits its report on GAAR proposals to MoF, invites public comments
The expert committee set up under Dr. Shome to reevaluate the GAAR proposals has submitted its second draft report to the Ministry of Finance. The committee has made a number of recommendations which aim to bring the Indian tax regime in line with other international jurisdictions. The major recommendations are highlighted as follows:
— Defer the implementation of GAAR by three years in order to provide adequate time to all stakeholders to adapt to the new regime and bring the tax authorities up the curve to intelligently handle GAAR cases
— GAAR should not be invoked where the tax benefit is less than Rs 3 crore in a year
— Abolition of tax on gains arising from transfer of listed securities (either in the nature of capital gains or business income for both residents as well as non-residents)
— Clear guidelines should be issued to minimise subjectivity while evaluating cases to distinguish between Tax mitigation (which should be considered legal) and tax avoidance which will attract GAAR provisions
— GAAR should be applicable only in cases of abusive, contrived and artificial arrangements
— GAAR should not be invoked in intra-group transactions
— The income-tax law should be amended to provide that only arrangements which have the main purpose (and not one of the purposes) of obtaining tax benefit should be covered under GAAR
— The concept of a ‘negative list’ should be used for the purpose of invoking GAAR. The list could include events like payment of dividend or buy-back of shares by a company; setting up of a branch or subsidiary; setting up of a unit in SEZ or any other place; funding through debt or equity; purchase or lease of a capital asset and amalgamations and de-mergers approved by the High Court
— To minimize the deficiency of trust between the tax administration and taxpayers, the scope of the terms of reference of the committee has been expanded to include all non-resident tax payers instead of only FIIs
— GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius.
The committee is still studying the provisions regarding retrospective taxation and taxation of indirect transfer of assets with Indian underlyings. A detailed report with recommendations is expected by the end of this month. The Ministry of Finance has invited public comments on the draft report and the consultation is open till 15th Sep 2012.
Two-way fungibility for IDRs announced; issuance capped at US$ 5bn
SEBI and the RBI have announced two-way fungibility for IDRs whereby investors will be allowed partial flexibility in converting their IDR holding into underlying stock and vice versa. The conversion of up to 25% of the IDR holding into the underlying equity shares would be allowed in a financial year. The overall issuance of IDRs by a foreign entity would be capped at US$ 5bn. The move is expected to encourage greater foreign participation in the local capital markets.
“Suitable instructions for modifying the existing legal framework governing IDRs, in order to implement the decision to allow redemption of IDRs into underlying equity shares and re-conversion of equity shares of a foreign issuer (which has already listed their IDRs) into IDRs, will be issued separately” – SEBI said
Trading association in India seeks ban on Algorithmic Trading, High Court asks SEBI to respond
As reported by leading newspapers and journals including the Financial Times, a group of local retail investors ‘Intermediaries and Investor Welfare Association’ has lodged a plea with the Delhi High Court seeking a ban on algorithmic trading in the country by alleging that the algorithm trading system “discriminates between rich and influential brokers and common investors/retail investors and creates inequality and finally casts a deceptive data to common investors and retail investors while trading in shares and securities on online trading platforms of BSE and NSE”.
The Delhi High Court has asked the Securities and Exchange Board of India to respond to the plea within six weeks time and has set the date for hearing on the case on 29th January 2013. Besides SEBI, Justice Rajiv Shakdher has also issued notices to Finance Ministry, Reserve Bank of India, BSE and NSE.
SEBI announces Primary Market reforms in a bid to revive public issuances
SEBI board reviewed the regulatory framework in the Primary Market and has approved the following reforms aimed at facilitating raising of capital by issuers, improving market integrity and increasing retail participation in IPOs. Here are the major reforms announced.
— Only those issuers with a minimum average pre-tax operating profit of Rs. 15 Crore will be able to list on the main exchange boards through the “profitability route”. Other issuers will have to either list on the SME boards or take the compulsory book building route which requires 75% QIB participation
— ‘General Corporate Purposes’ cannot exceed 25% of the issue size and a mechanism to monitor the actual use of funds raised from public will be created
— Non-retail investors will not be allowed to withdraw or modify bids at any stage of the IPO
— The IPO price band to be published at least 5 working days before the issue opens and the listing time reduced to 7 days after the closure of the public offer
— Professionals and technically qualified entrepreneurs unable to meet the requisite 20% contribution by themselves as promoters will be allowed a max contribution of 10% from SEBI registered AIFs (SME Funds, Infrastructure Funds, PE funds, VCFs, etc.)
— Changes up to 20% in the amount proposed to be raised will not require re-filing with SEBI
— Average free float market capitalisation requirement for further public offerings (FPOs) and rights issues through fast-track route reduced from Rs. 5,000 to Rs. 3,000 Crore
— The minimum application size for all investors is being increased to Rs. 10,000 - Rs.15,000
— Welfare schemes and trusts of listed entities will not be allowed to purchase their own shares. Listed companies will have to disclose all their existing employee benefit schemes involving stock purchase and align them in accordance with its ESOS and ESPS guidelines within a given time frame
Companies whose IPO documents are rejected will not be able to access the capital market for at least one year, and managers of such public issues would also face penal action. SEBI is also considering whether to make it mandatory for merchant bankers to provide the detailed analysis used for price discovery to investors, or to ask the promoters and merchant bankers to provide a capital protection guarantee for a certain period to part of the shares allotted to retail investors in IPOs through a mandatory ‘safety net’ provision.
SEBI already has applications from around 40 companies looking to raise money through IPOs and rights issues of which rights issue plans of 4 companies worth Rs 5,500 crore have been approved.
SEBI announces new measures in a bid to revive the Mutual Fund industry
SEBI, after its board meeting on 16th August, announced a number of measures to help the Mutual Fund industry penetrate deeper into the economy and bring in more investments and aid its recovery. Below are the major initiatives:
— In a bid to incentivize deeper penetration of MF schemes, the AMCs will be allowed to charge an additional expense of up to 30bps as a part of the Total Expense Ratio (“TER”) provided they are able to attract at least 30% of their inflows from smaller cities beyond the top 15 cities. In case these inflows are less than 30%, the charge allowed will be proportionate to the inflows
— In case the above inflows are redeemed within a year, the additional TER collected on the relevant inflows will need to be ploughed back into the MF scheme
— MF houses will be allowed to charge another 20 bps over and above the TER to compensate for the revenue loss of exit load collections
— In order to increase the longevity of the MF investments and curb churning, it is proposed that the exit load will need to be credited back into the scheme
— MF houses have been asked to come up with separate plans with lower TER for direct investors as there will be no distribution costs involved
— SEBI also exempted the requirement of Permanent Account Number for investments (both lump sum and SIPs) up to Rs 50,000 per mutual fund, per year
SEBI has also approved the Mutual Fund trading platform being set up by the Association of Mutual Funds in India (“AMFI”). This central platform will allow investors to centrally manage investments into any mutual fund scheme of any fund house across the country. The platform is expected to be launched in Q1 2013.
SEBI mulling to allow trading members in currency segment to trade in equities
SEBI is considering the proposal to allow currency trading members of a stock exchange to participate in the respective exchange’s equities segment as well. The registration process for the same could be made easier with lesser application formalities. This move could provide a boost for newer stock exchanges like MCX-SX and USE which have to start their equities segments yet.
Mr. Lakshman Gugulothu, CEO, BSE SME Exchange as offered his resignation from the post and is reported to be returning to the Indian Police Services . No replacement for him has been announced by the bourse yet.
SEBI appoints Mr Prashant Saran and Arvind Mayaram
SEBI has announced the re-appointment of Mr Prashant Saran as a whole time member for a tenure of five years. He had earlier completed his 3 year tenure as a member in May.
SEBI has also announced that Mr. Arvind Mayaram (Secretary, Department of Economic Affairs, Finance Ministry) will join the SEBI Board. The move is seen to expedite the decision making process for the promised capital market reforms being worked out by the Finance ministry and SEBI.
The BSE ltd, India’s oldest stock exchange, said it’s looking to list on one of the local exchanges in the Q1 or 2 next year. The bourse is planning to offload a 25% stake through the public offer.
“We are working on the process to get listed in the Indian stock exchanges. We have set up an IPO committee and we are in the process and we hope to get listed in the first or second quarter of calender year 2013.” - Ashishkumar Chauhan, interim Chief Executive Officer, BSE Limited, said.
NSE world’s top bourse in number of stocks traded; BSE and NSE both in top-five emerging market bourses
According to the World Federation of Exchanges data, NSE is the number one exchange globally in terms of number of stocks traded on its platform in H1 2012. NSE is followed by NYSE Euronext and Nasdaq OMX at the second and the third positions. NSE is also the second largest bourse in terms of turnover in trading of index as well as stock futures.
Citing data from the World Federation of Exchanges, SEBI has pointed out in its report that the BSE and the NSE are among the top 5 bourses across the 14 emerging market countries considered in terms of cumulative market capitalisation of all their listed companies. BSE is placed at 4th position followed by NSE at the 5th spot after SSE (Shanghai Stock Exchange, China), SZSE (Shenzen Stock Exchange, China) and BOVESPA (Brazil).
NSE looking to have closer ties with Qatar Exchange, BSE in talks with KSE for cross listing
NSE is reported to be in talks with the Qatar exchange to discuss cooperation between the two to put in place appropriate mechanisms to provide local and foreign investors with better services in both markets. The move is seen as a step to strengthen its hold in the OTC derivatives market through this alliance. The non-deliverable forward market for rupee-dollar contracts is estimated to be more than $60-70 billion in Singapore, Europe and the US.
BSE meanwhile is in talks with the Karachi Stock Exchange to get the index futures of both bourses cross listed on each other’s platforms.
In a bid to ensure market safety and safeguard investor’s interest, the BSE has shifted a total of 19 stocks to its trade-to-trade segment where the delivery of each trade entered is made mandatory and speculation is not allowed.
SME board on NSE ‘Emerge’ to get its first IPO; BSE’s SME to list 5 more companies
Emerge, NSE’s new listing and trading platform for SME’s is all set to witness the listing of its first company. Chennai based Thejo Engineering will launch its Rs 21 crore IPO on the board next week. As per a circular issued by NSE, all members eligible for its main capital market segment would be eligible to trade on SME platform and no separate membership would be required. The SME platform would have a hybrid trading system, which comprises of continuous order mechanism (Normal Market) as well as a Call Auction mechanism.
On the other hand, the SME board on BSE has also got 5 companies which will list in the coming weeks. The applications for 3 of the companies have already been approved by BSE while another 2 are being processed.
Although the listing activity in the SME boards has been increasing with a number of companies looking to tap the capital market, the interest from institutional investors has been subdued.
After receiving the SEBI and RBI approvals for starting trading in the Currency Options, MCX-SX launched options on dollar-rupee pair as its first product in the category. MCX-SX has differentiated the product against a similar offering from NSE by keeping the tick size at 10 bps (against 25bps at NSE). Trades worth Rs. 184 crore were executed on the exchange on its first day of trading for the product.
“The smaller tick size offers opportunities for ease of entry and exit to market participants and reduced financial impact in situations where the market moves against expectations” the exchange said.
Following the opening of their office in Japan in July this year, DTCC is planning to offer a new service from November 2012 to enable firms to comply with the upcoming regulations that are being globally implemented in the area of OTC derivatives. G20 members have committed to consider the trading mechanisms, the central clearing of OTC derivatives, the reporting of such trades and the standardisation of the data conventions being used to refer to such products. The service offered by DTCC would be aimed at the last two of those considerations.
DTCC is looking to offer a trade repository with data storage and reporting service on behalf of firms, although it will first need to be designated as an entity qualified to provide such a service by the JFSA. The service aims to reduce the cost involved and will leverage experience from the services already in operation in the US, UK and Netherlands to build a service that satisfies the regulatory requirements.
Regulator may ban marketing of complex products to retail customers
A review has been conducted by the Japanese regulator to consider the risks associated with products referred to as Unregulated Collective Investment Schemes (“UCIS”) and found that there are ‘high levels of unsuitable advice’ with the ‘potential for customer detriment’.
Bloomberg estimates around 85,000 investors have direct holdings in such products.
Venue Updates
Tender offer for merger completed
On 23rd August, the TSE released an announcement confirming that the Tender Offer for purchase of shares in the Osaka Stock Exchange was completed. 179,999 shares were purchased reaching the maximum limit at a price of 480,000 yen per 1 common share or US$1.1 billion.
The new company has a tentative name of Japan Exchange Group, Inc that is planned to go live in January 2013. The TSE CEO, Mr. Atsushi Saito, expressed his thanks to the OSE shareholders and said they would continue to seek opinions form markets users to take the project forward.
80% of the OSE’s outstanding shares were tendered, exceeding the upper limit of two thirds that was set by the TSE. According to Reuters, the combined value of the stocks listed on the two venues was around US$3.5 trillion in July 2012 putting the new merged venue in line to take the third spot globally after NYSE Euronext (US$13.2 trillion) and NASDAQ OMX (US$4.5 trillion).
In the second technical issue this year, the TSE had to halt trading on 7th August due to a recurring problem with the failover mechanism. The exchange were not formally sanctioned for the first incident, however, the Japanese regulator felt that the second occurrence needed a more formal response.
A business improvement order was given directing the TSE to put in place effective remedies and submit regular progress updates. The JFSA felt that the TSE had not performed enough system checking after the February disruption when 241 securities stopped trading. Outside experts will need to review measures taken to provide an independent view on the review.
The CEO, Atsushi Saiko, is again taking a hit on his personal pay with a 30% reduction for 2 months. The COO, Hiroyuki Iwakuma and the CIO, Yoshinori Suzuki, will both lose 30% of their pay for one month.
Announced the day after winning control of the OSE, the timing of the sanction caused much comment in the press with some voicing concerns that the corrective measures would prove costly.
TSE trading overview
The monthly statistics for the TSE are as detailed in the following tables.
Osaka may change pricing
Rebates may be offered to participants who are willing to make a market in futures offering a hedge against the Nikkei 225 Stock Average. Plans to offer maker-taker pricing would give incentives to those providing liquidity while charging those who do not.
A consultation has been released to the market to consider whether this would be of interest.
SBI reaches new high
In an announcement released by the PTS venue SBI Japannext, a number of new records were set.
— Monthly record market share of 4.5% of TSE (excluding ToSTNeT).— Monthly record turnover of JPY 925.2 billion thanks to 23 trading days.— A new daily record of JPY 71.2 billion (5.8% of TSE, excluding
ToSTNeT) on August 8th.— SBI Japannext and Chi-X combined PTS market share hit 7.9% on
August 27th. This was the second highest record following 8.3% on May 18th. Month average PTS market share was 6.5%.
The below graph has been taken from the SBI announcement.
August 2012 Turnover (Billion JPY) Monthly Growth % of TSE
ETF Market (Including ToSTNeT) (Volume: thou. units, Value: mil. yen
Sourceswww.tse.or.jp
www.bloomberg.com
www.businessweek.com
www.finextra.com
www.derivative-news.fincad.com
SBI Japannext monthly market share and turnover for August 2012.
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South Korea launches short position reporting regime
Beginning 30th August, investors who hold open short positions in South Korean equities in excess of 0.01% a company’s outstanding shares must submit details of their short position to the Financial Supervisory Service (FSS) via their reporting portal. Investors are required to submit the report to FSS only, and then it will further forwarded by FSS to the KRX. Prime brokers in Asia were well prepared for this new rule as the South Korean regime largely mirrors the short reporting requirements implemented by Hong Kong in June earlier this year.
The differences between the two regimes are fairly minor and include the threshold (0.01% of shares outstanding for South Korea versus 0.02% for Hong Kong) and the position monitoring methodology (reportable South Korean short positions must be continuously disclosed on a T+3 basis while reportable Hong Kong positions are reported weekly based on the investors position the final business day of the previous week). Neither regime requires the disclosure of short positions via derivative instruments.
South Korea has not yet announced plans to make the data that it gathers public, while the SFC in Hong Kong plans to publicise short position data on its website on 7th September.
FSC announce plans to deregulate ETF market
The ETF market in Korea is receiving attention from the South Korean regulator to encourage further development of the product. Pension funds will be able to invest up to 40% of the total contributions into ETFs which the regulator will balance with increased investor protections. Synthetic ETFs (that mirror an underlying index or basket of stocks) will be introduced in the second half of 2012 after the regulatory framework has been finalised.
The ETF market has grown around 36 times to 12.4 trillion won (US$10.96 billion) since the commencement of trading in July 2002. There are now 122 ETFs available that make up around 3.6% of the total fund market, which when you consider that ETFs make up around 9.1% of the funds in the US, demonstrates there is potential for further growth.
The FSC are continuing to monitor activity in this product, particularly the small sized ETFs given the active role played by retail investors.
http://www.globaltimes.cn/content/730772.shtml
Venue Updates
Eurex /KRX Link results in a new high for average daily contracts traded
Year to date 2012, the notional value of trading in the Eurex KOSPI Product has increased 431% to KRW 31 billion. The peak in average daily contracts was reached on 2nd August with 225,062 contracts being traded.
Global Market Structure South Korea Newsletter Issue 20
Source: Thomson Reuters, 2012
Source: Thomson Reuters, 2012
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Fig 1: Equities Chinese market monthly ADT (lit, auction & non-displayed order types)
Fig 2: Equities Daily Turnover per venue - August 2012
Fig 3: Futures KFE KOSPI monthly ADT
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17South Korean Market Structure Monthly Newsletter
The successful increase has been attributed to a number of factors including the increase in contract size from KRW 100,000 to 500,000 on 14th June and the tightening of spreads due to the active market making from liquidity providers.
It is hoped that volumes will increase further as the after-hours market is developed and the number of members that are able to trade the products continues to increase with trading hours crossing the European and North American time zones. When first launched, there were nine members able to trade the Eurex KOSPI Product that has now risen to 34 with another two members currently preparing to commence trading.
“Our Eurex KOSPI Product has successfully established itself in the market […], our volume now exceeds the ratio of three percent of the daytime volume of the KOSPI 200 options traded at KRX; and I hope that we can further strengthen our joint approach,” said Michael Peters, Eurex Executive Board member.
The Council of Financial Regulators are considering if the clearing and settlement structure is appropriate for the Australian market. LCH Clearnet submitted an application to establish a clearing house on shore in Australia following prolonged conversations with relevant authorities.
ASX Chief Executive Elmer Funke Kupper warned regulators should be concerned about the level of fragmentation in the Australian market, with liquidity moving from a single “lit” market to dark pools. He said he shared some concern about high frequency trading, but feels fragmentation is of greater concern. Clearing makes up around 8% of the groups revenue as of 31st March 2012.
Chi-X pays ASX fees of AU$275,000 a year to use the ASX’s monopoly clearing services. In their submission to the Treasury, it was put forward that the correct focus for the debate is around the most efficient infrastructure while preserving market integrity and mitigating systemic risk. Any increased costs to participants must be outweighed by benefits in these areas. Mr. Fowler said:
“If it’s accepted that there should only be one settlement facility then that shouldn’t be run for a for-profit entity without having appropriate controls around pricing, (and) fair and equitable access.”
The below diagram depicts the future state of ASX clearing infrastructure, as described in the Chi-X response (page 6).
Chi-X Australia response: http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/2012/Competition%20in%20the%20clearing%20and%20settlement%20of%20the%20Australian%20cash%20equity%20market/Submissions/PDF/Chi-X_Australia.ashx
ASIC proposes rules for Algorithmic trading
The Australian Securities and Investments Commission (“ASIC”) has extended existing rules to regulate algorithmic and formalised a number of current market practices requiring traders to put in place stringent pre-trade checks and controls on their platforms. ASIC’s proposals are the result of a two-year study into the impact of high frequency trading systems in Australia and build on the ASX requirements around the testing and registration of strategies, extending the requirements to the second Australian venue, Chi-X. The proposals would require brokers to
— Ensure that the algos comply with market integrity rules as notified by ASIC, put in place direct controls over pre-trade filters and also should be able to limit, suspend or kill an order, series of orders, algo or the whole system in case of breaches.
— Ensure that stringent annual tests are conducted on all algos to make sure they do not cause any market disruption.
— Have the capability to trace the origin of all market orders and trading messages. Non-compliance to this could result in a penalty of AUD 1mn.
The consultation paper for the proposed rules is available at the below link and submissions are open until 14th Sep 2012.
On 21st August, the second trading venue in Australia recorded new peaks for both market share and total volume. Market Share reached 4.50%, beating the previous high of 4.28% that was seen on 22nd June. Total Market Value was $229, 878,136 up from AU$219 million traded on the 20th July.
ASX to split trading fees
ASX is readying to separate its fees for the clearing of settlements and trades as regulators contemplate removing its monopoly within the share market trading system. The change in policy is expected within weeks and will take place simultaneously with a review by regulators to investigate opening up the clearing and settlement process to market to competition as detailed above.
ASX Chief Executive Elmer Funke Kupper said:
“Splitting the charges would be more transparent for traders […] while overall at the exchange level it does not change our revenue line in any material way, it is important because that level of transparency about our fees and the choice that customers have and the flexibility is important.”
ASX is mulling charge for High Frequency Trading
ASX is contemplating to start levying a charge on trades executed through the HFT route in an effort to manage disruptive behavior. According to ASX estimates, about 15% – 25% of the total trading in the market is done through HFT transactions.
“When it comes to high frequency trading, our view is that we need to continue to work on the economic incentives of the trading mould to make sure that we manage the behaviours that can be problematic. You can do that by charging for the right types of transactions that high-frequency traders use and I think that’s where we will go in Australia.” Mr. Funke Kupper said.
Chi-X deploys Latency Management System from Corvil
Chi-X Australia announced the successful deployment of its new Latency Management System developed by Corvil. The management system allows users to analyse network latency and microbursts, market data health, participant order flow and trade performance, as well as produce reports using Corvil’s Latency Dashboards and Navigator, which gives access to critical performance data. The system is also deployed for Chi-X’s Canada and Japan platforms.
“As we continue to look for new ways to enhance our customer’s experience and optimize execution quality, CorvilNet will allow us to better measure participants’ performance, leading to a deeper dialogue on how they can best utilize our trading infrastructure. As trading participants’ needs evolve and they look to adapt to the changing landscape, having greater visibility into system performance has never been more critical.” - Tal Cohen, CEO, Chi-X Global said.
Australian Market Structure Monthly Newsletter
Source: Thomson Reuters, 2012
Source: Bloomberg, 2012
Source: Thomson Reuters, 2012
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Fig 6: Futures SFE-ASX SPI 200 monthly ADT
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20Australian Market Structure Monthly Newsletter
Personnel Changes
ASX new appointment
ASX have appointed Heather Ridout as Non Executive Director to take over from Jillian Broadbent when she retires from the board after the next general meeting in October.
Ms Ridout is a director of pension fund Australian Super and Sims Metal Management, as well as board member of the Reserve Bank of Australia.
ASX chairman Rick Holliday-Smith said:
“Her expertise in public policy debates will be beneficial for the company as it navigates through a period of major change in financial market structure and regulation.”
Regulatory regime for Fund Management companies in Singapore tightened
The Monetary Authority of Singapore has implemented a new stricter regulatory regime for fund management companies (“FMCs”) effective from 7th August 2012. The Securities and Futures (Licensing and Conduct of Business) Regulations, Securities and Futures (Financial and Margin Requirements) Regulations and Financial Advisers Regulations have been amended for this purpose.
The new regime requires all FMCs to meet enhanced business conduct and capital requirements including:
— Requiring independent custody and valuation of investor assets
— Undergo independent annual audits by external auditors
— Have an adequate risk management framework commensurate with the type and size of investments managed
The existing Exempt Fund Manager (“EFM”) regime will be replaced by new category of Registered Fund Management Companies (“RFMC”), which will be allowed to manage upto S$250mn in AUM and serve up to 30 qualified investors. All other FMCs will need to apply for a license. The following measures have been announced to help smoother transition to the announced regime
— Current EFMs will have six months to apply for a license or register with MAS as an RFMC
— License or registration applications can be made online through the Corporate e-Lodgment system which also allows FMCs to submit their regulatory returns
MAS announcement, guidelines and FAQ can be accessed through the below links:
MAS publishes its second response to the OTC Derivatives regulation consultation
The Monetary Authority of Singapore has released its second response to the public consultation on the proposed regulations for the OTC derivatives segment in order to address the concerns of the market.
— Most respondents were supportive of MAS’ proposals to require OTC derivatives transactions to be centrally cleared by eligible central counterparties and reported to trade repositories
— Issues arising out of overlapping or conflicting requirements across multiple jurisdictions in case of cross-border trades will be dealt with using the “equivalency approach”. A counterparty in Singapore
entering into a contract with a foreign counterparty in a jurisdiction offering equivalent safeguards, in MAS’ assessment, the Singapore counterparty will satisfy MAS’ clearing and reporting obligation if it fulfills the requirements in the foreign jurisdiction
— MAS will conduct regular reviews on the clearing and reporting obligations and relevant thresholds to keep abreast with the changing market conditions
MAS has also rolled out a further consultation paper to finalise on the operational details of the clearing and reporting obligations through draft legislative amendments to the Securities and Futures Act. The consultation closed on 31st August.
MAS allows Eurex to start admitting local clearing members
Monetary Authority of Singapore has provided its approval to Deutsche Boerse’s Eurex to admit Singapore based clearing members. The first batch of such members is under processing and will be on board with Eurex by Q1 2013. The Singapore based members will help in clearing of the global OTC derivatives trades involving regional clients.
Eurex sees strong growth potential in Asia for its central clearing services, which involve a central counterparty sitting between buyers and sellers.
Philippines SEC to issue ETF rules by end of month
The Philippines Securities and Exchange Commission (“SEC”) is looking to finalise and release the rules governing the setup and trading of Exchange Traded Funds (“ETFs”) in the local market. The SEC has directed its Market Regulation Department and Corporate Finance Department (“CFD”) to evaluate and consolidate the comments collected during public consultations during July and August and then submit the final rules to SEC.
ETFs will be subject to standards on regular public disclosure of financial information, investment policies and objectives, and fund portfolios as well as pricing and fees according to the initial draft. ETF requirements also included a minimum paid-up capital of P250 million and an all-Filipino ETF board of directors. Also ETF managers must have at least five years’ experience in fund management.
Vietnam set to allow 100% foreign owned securities companies
The State Securities Commission and the government is all set to implement the Securities Law which will allow foreign investors to buy stake in local securities companies in the following two ways:
— They can acquire upto 49% stake in a listed securities company or
— They can acquire / set up an unlisted company with 100% stake
Under the World Trade Organisation commitments, foreign investors have the right to establish new 100% foreign owned companies in Vietnam from the beginning of 2012. The government will release official guidelines to this effect on 15th September.
Venue News
ASEAN Trading Link to go live on 18th Sep; SGX announces DMA rules to facilitate the linkage
The first phase of the long awaited ASEAN Trading Link enabling cross border trading between SGX and Bursa Malaysia will finally go live on 18th September 2012 according to the two exchanges. Thailand plans to join the link in mid October according to SET.
The Singapore Exchange (“SGX”) also announced the rule changes which will be effective 18th September 2012 onwards to allow market participants to access SGX-ST’s trading system directly using systems of their own or of SGX-ST Members. DMA will allow market participants to transmit orders to SGX-ST’s trading engine in real time and will require the trading members to establish measures to safeguard against potential system malfunction, and excessive customer trades by volume or value. The major rule amendments are as follows:
— Introducing Member requirements for customers who use their own order management systems.
— Requiring Members to put in place minimum credit standards for customers with direct market access.
— Requiring Members to have comprehensive programmes for maintaining the integrity of their order management systems
SGX has also introduced new rules on the participation criteria and compliance requirements for SGX-ST members in relation to the ASEAN Trading Link which will come into effect on 18th September as well.
For a full copy of the rules see here, the Practice Note for DMA begins on page 17
SET CONNECT goes live; Thailand ready to join ASEAN Trading Link
The Stock Exchange of Thailand announced the successful implementation of its new securities trading infrastructure SET CONNECT on 3rd September which has been developed in partnership with Cinnober using their TRADExpress technology. In addition to the trading system, SET also commenced operations of its new integrated Market Data system to help efficiently disseminate trading information to systems of members and ISPs with fairness and transparency.
“This milestone boosts the Thai capital market’s competitiveness, which is a crucial step for us in providing trading services with cutting-edge technology, and makes it one of the world’s most efficient trading platforms” said Charamporn Jotikasthira, SET President.
This also marks the preparedness of the Thai markets to join the ASEAN Trading Link in the middle of October.
“Joining the ASEAN Trading Link in October is a great opportunity for SET to attract investors in ASEAN to tap the opportunities and potential of the Thai stock market “ said SET Chief Strategy Officer Veerathai Santiprabhob.
Singapore to Tokyo in 65 milliseconds
The Asia Submarine-cable Express consortium has completed the 7,800 Km long undersea data cable project connecting Japan, Philippines, Malaysia and Singapore. The cable is based on the optical fibre system and boasts data transfer rates of 40Gbps. The link can deliver data from one end to the other in just 65 milliseconds (at least 3 milliseconds faster than any other link available).
The data linkage aims to provide the much sought advantage to algorithmic traders using high frequency trading strategies by shaving off milliseconds in execution time.
SGX buys 49% stake in Energy Market Company; plans to develop electricity derivatives market
SGX has acquired a 49% stake in Energy Market Company (“EMC”), an operator of the local wholesale electricity trading market marking its entry into the electricity sector. The bourse plans to develop and launch electricity based derivatives to take advantage of the opportunities this sector will present in future due to rising energy demand across Asia.
“The stake in EMC affirms our commitment towards building a leading presence in the energy and commodities market. The demand for electricity and energy products will increase in line with Asia’s growth and this acquisition will position SGX to take advantage of these opportunities.” said Mr. Magnus Böcker, CEO of SGX.
SET appoints KRX to develop its clearing and settlement infrastructure; amends listing rules
The Stock Exchange of Thailand has chosen the Korea Exchange to help it develop infrastructure for clearing and settlement for derivatives, securities and bonds in a bid to boost investment in those products and increase volumes. The new system is scheduled to be complete for derivatives trading by next year’s fourth quarter and for securities and bonds by the end of 2014. It will link the local clearing house with clearing houses in ASEAN and other world markets, boosting the Thai capital market’s clearing to the top of the region.
23ASEAN Market Structure Monthly Newsletter
The Stock Exchange of Thailand also amended its listing rules effective 1st September to allow Thai holding companies with main businesses overseas to get listed on the bourse. The amendment involves the reduction of the minimum stake that a holding company must invest in its main business in order to facilitate joint ventures with foreign firms.
PSE seeks public comments on DMA facility; to roll out in-house online trading platform soon
The PSE is seeking public comments on its proposed Direct Market Access (“DMA”) rules that will allow investors to directly trade on the stock market without coursing their deals through brokerages and investment banks and also give them more control over how the trade is executed. The consultation ends on 7th Sep 2012.
“We hope the introduction of DMA in the Philippine stock market through our trading participants will significantly boost volumes through faster execution of trades” PSE president Hans Sicat said.
The Philippine Stock Exchange said that the development of its own online trading platform called Online Service Bureau is now complete and it will start the pilot-test with some trading participants very soon. The PSE has developed the platform in partnership with N2N Global Solutions.
Bursa eying more mega IPOs in H2
Bursa Malaysia, which is already the number one bourse in the region in terms of funds raised so far this year (US$ 3.5bn), is eying even more mega issues in the second half of the year. The state investment company 1Malaysia Development has plans to list its power assets, while Malakoff, Malaysia’s largest independent power producer, could be seeking an IPO as well. The owner of Kuala Lumpur’s iconic Petronas Twin towers KLCC Property Holdings is also in talks to list their some of its assets via REIT.
The market has been well insulated from the global slowdown due to a strong support by local investors and a large domestic pension fund along with keen interest from foreign investors attracted by good economic growth and robust local corporate earnings.
Technical snag at IDX halts trading
The Indonesia Stock Exchange (“IDX”) had to delay the commencement of trading on its platform when a third of its 114 broking members were unable to connect to the exchange on 27th August. The stock exchange tried to switch operation to its Disaster Recovery Center but was unsuccessful in reviving trading as not all data vendors were connected to the DRC.
Trading was eventually resumed at 1:30 PM local time and ended early at 3:30 PM. The outage is reported to be caused by a technical glitch in the main remote trading system.
IDX maintains strong IPO pipeline for H2 2012; plans to cut minimum lot size for trading
The IDX is set to meet its annual target of 25 public listings as it maintains a strong pipeline of 12 companies slated to come up with IPOs during the second half of the year including palm oil producer Citra Borneo Indah, state-controlled cement maker Semen Baturaja and state-controlled construction company Waskita Karya. Strong domestic economy and investor appetite is driving the capital market success. Already 13 companies have raised a cumulative Rp 5.79 trillion in the markets during 1H 2012.
The IDX is also considering reducing the minimum lot size (currently 500 shares) required for trading on its platform to 100 shares. The bourse may also allow investors to buy a single share. The move is aimed at increasing retail and local investor participation in the markets by reducing the minimum commitment required to trade shares.
Vietnam to offer ETFs
The Ha Noi Stock Exchange in Vietnam is expected to launch its first ETF in the next month providing the investors with a flexible and transparent tool to manage their investments. The first fund certificate to list is likely to be based on the HNX30 Index.
“Picking the HNX30 as the basis for the initial fund is aimed at establishing a legal framework. After this framework is complete, other qualified indices can be considered as a basis for an ETF.” said the exchange’s general director, Tran Van Dung.
Global Market Structure APAC Quant Analysis Factsheet - Aug 2012
Below is a selection of quantitative metrics, which provides additional analysis of the markets and liquidity during August 2012. For further information, please contact:
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