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Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian CSD Alliance
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Page 1: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

Esmond Lee

Hong Kong Monetary Authority

7 April 2011

The Asian Banker Summit 2011The future of post-trade infrastructure in

Asian bond markets

The Pan-Asian CSD Alliance

Page 2: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Less than efficient cross-border activities

Less than efficient asset servicing

Fragmented markets

Multiple access points

Varied market practices

Asian CSDs share similar disadvantages…Asian CSDs share similar disadvantages…

Page 3: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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The Pan-Asian CSD Alliance A Task Force formed by a group of central banks and CSDs in the region

Vision: to gradually improve the post-trade infrastructure for bond clearing and settlement in the region

Issued a White Paper in June 2010, outlining:

Concept of a Common Platform Model (CPM)

Launch of the Pilot Platform

CPM offers Pilot Platform

• Better cross-border access to local Asian bonds

• Greater issuance of local bonds

• Improved automated process to manage operational risk

• Access to a larger pool of collateral

• Reduced costs for post-trade execution

• A tactical solution to deliver early benefits of the CPM

• Delivers main functionalities of the CPM

• Uses existing systems and links and requires minimal efforts to start

Page 4: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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White Paper proposal: CPM implementation strategy

• Starting with improvements to interoperability and cross-border access through investor CSD1, leveraging existing (I)CSD links (Pilot Platform)

• Gradually improving local market practices, local CSD processes and cross-border links

• Working together to allow some convergence of developments across markets, leading to harmonisation of processes and a gradual introduction of common systems

Note 1: An investor CSD is the local CSD, or any other local entity other than CSDs, that has the right and the capacity to offer settlement and asset servicing on foreign securities to local financial institutions.

Page 5: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Common Platform Model

New functions provided by the Common Platform

Page 6: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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• Addresses the need for access, harmonisation, and standardisation

• Provides a common infrastructure platform for cross-border access, asset servicing processing, and clearing and settlement

• Individual participating CSDs are able to retain autonomy in terms of legal entity, finance, business development and customer relations

However, a common infrastructure platform will take time to develop……

Common Platform ModelCommon Platform Model

Page 7: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Pilot Platform

New functions provided by the Pilot Platform

Page 8: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Pilot Platform functionalities and benefitsCPM objective Pilot Platform functionalities Benefits for

participating economies

Increase choice for cross-border access

Access to Asian and non-Asian debt securities through the investor’s local CSD acting as investor CSD

More choice for local investors to access foreign markets

Increase issuance of local bonds

Increase issuance of local bonds in the Asian time zone, in local as well as foreign currencies, leveraging foreign currency RTGS systems in the region

Increased flexibility for local issuers (governments and corporates) to raise funds

Improve securities information

Extend the coverage of existing databases to include more local securities

Promote local securities to foreign investors

Improve interoperability

Use and improve existing ICSD-CSD and CSD-CSD links

Increase activity in local bonds

Page 9: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Evolution towards the Common Platform Model

Pilot Platform can leverage local developments ahead of common systems

Improvements to the Pilot Platform should lead to common developments

Local developments

Harmonisation

Common Developments

PILOT

PLATFORM

Gradual removal of barriers

IMPROVEMENTS TO THE PILOT PLATFORM

9

Page 10: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Progress

The 5th Task Force Meeting was held in Hong Kong in November 2010

Two experience-sharing workshops were held to discuss the necessary preparation and proposed setup of the Pilot Platform:

between the three early movers (i.e. the HKMA, Bank Negara Malaysia (BNM) and Euroclear) in Hong Kong in October 2010

between the three early movers and interested parties from Indonesia (e.g. Ministry of Finance, Central Bank, CSD and Central Counterparty (CCP)) in Hong Kong in March 2011

Page 11: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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• Prepare for the launch of the Pilot Platform in mid 2011

• Deliberate on add-on services to be provided after the launch of the Pilot Platform.

– focus on areas with noticeable deficiencies under current market practices. Potential areas to consider include: corporate action servicing cross-border collateral management

– further research and feasibility studies will be conducted.

Way forward

Page 12: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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Example: Existing corporate action servicing in Asia

Major deficiencies:

• Paying agents do not have a/c positions of bond holders and thus require Asian CSD to provide such information

• Lack of standardized distribution channels for bond issuers to disseminate corporate information to bond holders

• Lack of standardized format used in the communication between individual paying agents and bond holders, e.g. some may be done by fax and some by email

Asian CSD

A/c positions

Paying Agents

(acting on behalf of bond issuers)

Notice of corporate actions (proprietary channels and

formats)

Instructions (e.g. for voting or exercising option etc)

(proprietary channels and formats)

Asian CSD members

(acting on behalf of bond holders)Request for

a/c positions

Settlement instructions arising from corporate actions

Page 13: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

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• Corporate action servicing– to enhance market efficiency in processing corporate actions

– to develop standards of communication amongst paying agents, Asian CSDs and their members and to set up a platform linked with Asian CSD’s systems so as to streamline / automate some of the processes

• Cross-border collateral management– to help banks manage their liquidity more effectively by better utilising

foreign securities lodged with ICSDs or overseas CSDs

– to establish message link between ICSD and domestic RTGS systems and to agree on a message exchange protocol so that securities transfer and fund transfer can be settled in a coordinated manner

Potential add-on services to the Pilot Platform

The Pilot Platform will be launched in mid 2011 as scheduled. Work has started to deliberate on the possible add-on services to be provided by the Pilot Platform.

Page 14: Esmond Lee Hong Kong Monetary Authority 7 April 2011 The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian.

Thank you


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