Global Market Structure - dbdaily price limits on its equities market to +/-30% from current +/-15%,...

2

Deutsche BankEquities

May 2015

Global Market StructureAsia Pacific Newsletter Issue 37, 2015

3

Global Market Structure

Contents

APAC and ASEAN Summary 4

Hong Kong 8

China 13

Taiwan 18

Japan 21

India 24

South Korea 28

Australia 31

Thailand 34

Singapore 35

Philippines 37

Indonesia 38

Malaysia 39

Chart Definitions 41

Editor

Jessica Morrison, Head of APAC Market Structure [email protected]

Quantitative Content

Winnie Khattar, Head of APAC Analytics [email protected]

Contributors

Andrew Walker, Gargi Purandare, Yogesh Garg

Issue 37, 2015Welcome to the APAC Market Structure News Book containing summaries of regulatory and exchange news accompanied by microstructure analytics.

4


APAC and ASEAN Summary

Source: Thomson Reuters

Fig 1: APAC Volatility (30 day index return volatility)


Fig 2: ASEAN Volatility (30 day index return volatility)


Fig 3: APAC Market Share Distribution


Fig 4: ASEAN Market Share Distribution

USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan

USAEuropeIndonesiaMalaysiaPhilippinesThailandSingapore

AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia


Fig.5 Impact Cost Estimate

Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times


Fig.7 Primary Futures Turnover vs Open Interest

Bill

ion

s

Avg Turnover (US$ Bn)

Open Interest (US$ Bn)


Fig.6 Turnover Velocity

China Japan South Korea

Taiwan ThailandIndonesiaAustralia India PhilippinesMalaysiaHong Kong Singapore

South Korea Japan Hong Kong Taiwan China India Singapore Thailand Malaysia

458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%

Apr-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Mar-15 Apr-15

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14











AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia



Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Bill

ion

s








458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14











AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia



Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Bill

ion

s








458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14

Welcome to Issue 37 of our Market Structure Newsletter where we provide a summary of some key developments across the region with a detailed review for each market. Questions and feedback are always welcome at [email protected].

The Shanghai - Hong Kong Stock Connect platform experienced a boost in trading volumes creating highly volatile environment in the Hong Kong and China markets. Clarifications regarding beneficial ownership were given by both Hong Kong and Shanghai exchanges, CSRC allows mutual funds to trade Stock Connect via Southbound link, Hong Kong announced results of its dark pool consultation and talks about Shenzhen Hong Kong Connect scheme. Through the course of the year we can expect more policy easing in China as it opens up its market to foreign investors with the goal of internationalising the RMB as a global currency.

In Japan, TSE is working towards closing the old JPX Co-location (Open) facility, which used to be OSE’s derivatives co-location facility while keeping only one JPX Co-location facility for both Cash and derivatives. There is also Tick Size Optimisation program and next Arrowhead upgrade for TSE planned for September this year.

India struggles under the confusion caused by the application of the Minimum Alternate Tax, Korea has announced expansion of daily price limits on its equities market to +/-30% from current +/-15%, to be implemented starting 15th June.

1. China market volumes and volatility continuedfrom late last year on expectations of further policy easing and upcoming Shenzhen Hong Kong stock connect scheme

2. CSRC made the announcement in late Marchallowing Mutual funds to participate in Stock Connect scheme to trade Southbound stocks. Pre positioning by both local and Chinese investors ahead of Mutual funds trading led a sharp increase in HK volumes and volatility

1.Thailand trading volumes have been surging since late 2013. Amidst high market volatility the new government in Thailand has aggressive infrastructure and economic growth plans that promise a growth track in 2015

2.Foreign investors continued sell off on Indonesian market on concerns of weakening economy and poor earnings. Negative sentiment prevailed among foreign investors on Indonesia’s execution of convicted drug smugglers. Country’s benchmarked index dropped to lowest level since Aug, 2013

APAC Volatility Apr-15 Apr-14

Australia 12% 10%China 20% 19%Hong Kong 18% 15%India 15% 10%Japan 12% 19%South Korea 10% 10%Taiwan 11% 9%

ASEAN Volatility Apr-15 Apr-14

Thailand 13% 10%Singapore 6% 9%Malaysia 7% 5%Indonesia 13% 24%Philippines 10% 12%

5












AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia



Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Bill

ion

s








458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14


Fig 1: APAC Volatility (30day index return volatility)


Fig 2: ASEAN Volatility (30day index return volatility)





0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45 USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2011 2012 2013Australia 6% 6% 6%

131211

39% 37% 39%China

9% 9% 7%Hong Kong

3% 4% 2%India

24% 28% 36%Japan12% 11% 6%South Korea6% 6% 4%Taiwan

2011 2012 2013

28% 33% 40%Thailand

4% 6% 6%Philippines

15% 15% 15%Malaysia

32% 29% 24%Singapore21% 16% 15%Indonesia


Fig.5 Estimated Cost of Trading

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Indonesia MalaysiaPhilippinesThailand SingaporeTaiwan AustraliaChina Hong KongIndiaJapan South Korea

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

1 2 3 4 5

1 2

131211



$0

$10

$20

$30

$40

$50

$60

Malaysia



ThailandSingaporeTaiwan ChinaHong Kong IndiaJapanSouth Korea

335%

196%

103%

77%65% 64% 62%

45% 31% 30% 21% 8%

0%

50%

100%

150%

200%

250%

Fig.8 APAC Market Microstructure Matrix

Contact

Email: [email protected] Tel: +852 2203 5710

Country % APAC Market Share

Turnover Velocity

Primary/ATS Market Share

Expected Arrival Cost 5% ADV Order Size (BPS)

MTD Index Return

YTD Index Return

Avg Spread (BPS)

Avg Trade size

20D Avg. Volatility

Avg. Daily Equity Volume (Mn USD)

Avg. Daily Futures Volume (Mn USD)

Avg. Daily ETF Volume (Mn USD)

CHINA 71% 527% 100% - 17% 34% 7 8,919 27% 230,099 1,138,544 911

JAPAN 12% 225% 95% 15.9 3% 13% 22 1,548 19% 24,386 14,807 146

HONG KONG 5% 44% 99% 31.5 13% 19% 13 5,494 16% 19,363 10,380 290

SOUTH KOREA 4% 146% 100% 28.8 4% 9% 20 73 11% 9,782 16,469 73

AUSTRALIA 3% 66% 83% 20.6 -2% 7% 12 1,017 14% 6,214 4,254 28

TAIWAN 2% 82% 100% 22.8 2% 6% 34 4,316 12% 3,899 9,206 89

INDIA 2% 45% 100% 23.5 -3% -2% 6 235 11% 3,679 3,304 3

THAILAND 1% 45% 100% - 1% 1% 41 7,371 14% 1,227 1,927 0

SINGAPORE 0% 8% 100% 18.1 1% 4% 15 1,862 10% 778 434 2

MALAYSIA 0% 30% 100% - -1% 3% 19 3,590 13% 521 221 0

INDONESIA 0% 68% 100% - -10% -3% 18 7,561 12% 525 269 0

PHILIPPINES 0% 30% 100% - -3% 7% 16 6,682 12% 255 - 3











AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia



Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Bill

ion

s








458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14

Fig 6. China’s turnover velocity reaches further up to 468%. Hong Kong has also gained four spots with turnover velocity now at 38% versus 21% in January this year.











AustraliaChina

Hong Kong

India

JapanSouth Korea

Taiwan

ASEAN

Thailand

Philippines

Malaysia

SingaporeIndonesia



Trade size (%ADV)

Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times



Bill

ion

s








458%

199%

126%

68% 54% 53% 38% 38% 36% 25% 25% 7%0%

50%

100%

150%200%

250%

300%

350%

400%450%

500%

$0

$10

$20

$30

$40

$50

$60

$70

0.05.0

10.015.020.025.030.035.040.045.050.0

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


1 2

1 2

2013 2014 2015

5% 5% 3%

36% 47% 71%

7% 6% 5%

3% 3% 2%

32% 23% 12%

6% 5% 4%

7% 7% 2%

5% 4% 2%

2013 2014 2015

13% 14% 15%

12% 13% 16%

5% 4% 7%

19% 16% 21%

51% 53% 42%

15

13

14

15

13

14

Fig 7. Futures turnover for China has nearly doubled since January this year and Open Interest on Chinese futures is up 128%

6


2014 - 2015 Timeline Summaries

TSE Tick Size Optimisation Phase I goes live

FSA announced creation of Asia Financial Partnership Center

TSE and Osaka Securities Exchange derivatives platform merger to J-GATE

TSE Tick Size Optimisation Phase II goes live

OSE launch Nikkei 225 weekly options

New corporate governance code becomes effective in June

Arrowhead renewal and Tick Size Optimisation phase3

TSE and OSE open new branch office in Singapore

Chi-X Japan launched Chi-Match VWAP

Bank of Japan announce monetary easing, GPIF to potentially increase equity holdings to 25%

Japan2014 2015

National Pension System may increase investment

flexibility for both individual participants and fund

managers.

Mutual fund commission payouts capped at 1 %, mandatory holding periods reduced

BSE extends cooperation with Deutsche Börse, launches new market data stream

Government appoints committee to review MAT, will not issue any further demands

SEBI releases conclusions for colocation consultation

New FPI regime comes into effect

NSE gets approval to launch VIX futures

Parliamentary elections, New Central government elected

India signs Inter-governmental Agreement with the USA on Tax Evasion under FATCA

SEBI board approves REITs and InVITs Regulations

BSE gets SEBI, CCI approval for USE takeover

India2014 2015

TWSE rules relaxed to allow buy-then-sell Day trading

TWSE rules relaxed to allow sell-then-buy Day trading

TWSE launches Formosa Stock Index

TAIEX and EUREX launched the link to allow trading TAIFEX derivatives after

Taiwan trading hours

TWSE rolls out improved FAST trading system

FSC restricts retail participation on Shanghai-Hong Kong Stock Connect link

FSC considers simplifying fund licensing and oversight

FSC broadens investment scope for ministries to include domestic equity ETFs

Taiwan- Singapore Stock Connect set for official launch on 1st July

FSC announced their plan to tighten the current criteria

for offshore fund launches

Taiwan Taiwan Banks allowed to outsource the management of 25 % of their net worth 2014 2015

FSC approves expanding daily price limits and

improving market stabilisation

facilities

FSC outlines measure for Capital Market Reform

KRX relaxed listing and de-listing criteria for REITS

Exemption of Securities Transaction Tax For Market Makers of Single Stock Futures & Options

Expansion of daily price limits to +/- 30% from +/-15% becomes effective starting June15, 2015

FSC announced ‘10-10 value-up’ plan to promote competition and boost IPOs

KRX launched Online Korea Fund

KRX launched Exture+, its faster trading platform

Relaxed IPO listing rules became effective

RMB 80Bn RQFII made available to Korean domiciled funds

KRX introduced real-time price banding in derivatives.

KRX and S&P collaborate on global marketing and jointly develop new indices.

South Korea

2014 2015

SSE launch first new equity derivatives since 2010

IPO market resumes

Australia, Canada, Germany, Korea, Qatar and Switzerland all join RQFII scheme throughout 2014

Unified accounts for trading Shanghai and Shenzhen

Shanghai – Hong Kong Stock Connect goes live

China

2014 2015

Regulators promote

stock loan

Retail Investors now allowed to open multiple A-share accounts

China opened three new free trade zones

Mutual Recognition Funds regime to launch 1st July

CSRC release FAQ on beneficial ownership

Shanghai Exchange to launch a Board of Strategic Emerging Industries

RMB Currency Futures added to After-hours Trading

Launch of Orion Central Gateway announced

SFC’s consultation on changes to the Professional Investor regime

Reduction in trading levy for securities and futures contracts

Shanghai - Hong Kong Stock Connect goes live

Hong KongLaunch of new pre-trade check SPSA, and Short selling on Stock Connect

Volatility mechanism and closing auction consultations submission

HKEx clarifies their stance on beneficial ownership and other Connect matters

SFC release ALP consultation conclusions

2014 2015

7


2014 - 2015 Timeline Summaries

TFEX launched new trading and clearing systems, and Mini SET50 Futures

Thailand allowed foreign companies to seek IPOs and dual-share offerings on Thailand national exchange

Thai bourse first in ASEAN to join UN Sustainable Stock Exchanges

SEC aims to boost foreign company listings

ThailandSET signs MoU with Cambodia Stock Exchange2014 2015

SGX introduced new circuit breaker rules

MAS and BoJ enter into a cross border collateral arrangement

SGX revised securities market fee

Singapore and Australia sign derivatives data pact

SGX posts FY2014 net profit of S$320 million.

SingaporeSGX introduced new order types2014 2015

MAS moves to complete OTC derivatives reforms, proposes new short selling regime

PSE index at all time high

New PSEtrade XTS system to go live

SGX encourages ETF access for retail investors, temporary waiver of ETF clearing fees from 1st June to 31st December 2015.

Singapore government mulls fund, REIT tax break

PSE shareholders approve acquisition of majority stake in PDS

Singapore-Taiwan stock connect to go live on 1st Jul

Singapore updates AML/

CFT laws

Tick size and lot size changes went live

OJK tightened the share buyback mechanism

Joko Widodo appointed as new president

Indonesia

Indonesia mandated all listed companies to have minimum 7.5% shares as free float

Indonesia working to increase foreign ownership limits to 70 %

IDX target 20% growth in 2015

Exchange still considering joining the ASEAN Trading Link 2014 2015

Bursa Malaysia launched the ‘Marketplace’ to spur young investor participation

ASEAN fund passporting scheme launched

Malaysia Bursa Malaysia and Saudi Arabia collaborate to boost Islamic Finance Markets

OTC derivative reforms begin to take shape in Malaysia

SC accepts applications for equity crowdfunding platforms

6 % GST now in effect since April 2015 2014 2015

ASX Introduction of reduced ex period and effective date for revised ASX Listing Rule changes

ASIC regulatory data requirements go live

Enhancements to ASX Trade went live

ASX implemented reduced clearing fee for interest rate futures Australia gains

RQFII status, Bank of China designated as Australia’s first RMB clearing bank

Australia

Australia, US collaborate to supervise cross-bordere regulated firms

ASX announces Q2 trading platform enhancements, new block trading rule

ASX plans wide scale technology upgrade

ASIC repeals certain Market Integrity Rules, allows more crossing flexibility2014 2015

PSE launched mobile disclosure application

PhilippinesDeutsche Bank to provide Custody and Settlement Services for the ASEAN Trading Link2014 2015

PSE ties up with NASDAQ OMX tech

PSE signs Market Data agreement with Deutsche Borse

8

Global Market Structure Hong Kong


Global Market Structure Hong Kong Newsletter Issue 37, 2015

Market Structure

SFC release ALP consultation conclusions

Back in February 2014, the Securities and Futures Commission (“SFC”) released a consultation paper considering the regulation of alternative liquidity pools (“ALPs”), or dark pools. Currently, operators of ALPs need to apply to the SFC for a license which is then granted - with conditions - via a private letter. As technology and regulation has developed over the years, these conditions have been updated resulting in the potential for operators to be subject to different conditions. The consultation sought to impose a uniform set of requirements by updating the Code of Conduct.

Issue Conclusion

(a) Restricting user access to ALPs to “institutional investors”;

— Individual investors (including those who are professional investors by virtue of meeting portfolio threshold tests under section 3(b) of the PI Rules) should not be allowed to participate in ALPs at this stage.

— Individuals’ investment holding corporations will also be prohibited from using ALPs, unless those corporations are themselves professional.

— ALP operators should be obliged to ensure that all orders placed with them by their group companies originate from institutional investors before they may be transacted in their ALPs.

— SFC held with proposal to restrict to individual investors

— User restriction policy relaxed vs the proposals to allow ALPs to be used by corporations and partnerships with either a portfolio of not less than $8 million or total assets of not less than HK$40 million, and their wholly owned investment holding corporations (i.e. corporations and partnerships falling under sections 3(c), (d)(iii) and (d)(iv) of the PI Rules).

— Whether a corporation meeting portfolio or asset threshold tests is owned by an individual, or multiple shareholders, will be irrelevant.

— SFC takes the view that this obligation can be met with reasonable efforts and that it is imperative for this requirement to be put in place to avoid possible circumvention of the spirit of the user restriction requirement.

— SFC confirms that it did not propose in the Consultation Paper to “look through” to the underlying fund investors. Since fund investors are not the entities which place orders on a fund’s behalf, they would not be regarded as users of ALPs (but fund managers would be).

— The Code of Conduct does not prescribe the approaches that licensed/registered persons should take to ensure that only orders placed or originated by qualified investors are routed to ALPs. In any event, it is important that the measures that such persons choose to implement are reasonable and effective for compliance with this requirement.


Fig 4: Lit versus Dark Market Share

0%

20%

40%

60%

80%

100%

120%HKG Dark

Jan-12 Apr-12 Apr-15 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Oct14 Jan15


Fig 1: Turnover Velocity

Turn

ove

r V

elo

city

(%

)

Tu

rno

ver

(Bill

ion

s U

SD

)

2015 Turnover 2015 Velocity

2013 Turnover 2014 Turnover

2013 Velocity 2014 Velocity

$0

$50

$100

$150

$200

$250

$300

$350

$400

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Fig 1. Equities turnover in Hong Kong has been on the rise since March when CSRC announced that mutual funds would be allowed to trade Stock Connect through Southbound trading link.


Fig 2: Equities(Cash), Futures and ETFs Monthly ADV

EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

50

100

150

200

250

300

350

$0

$5

$10

$15

$20

$25

May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15

Fig 2. Inflows to Hong Kong ETFs have been on the rise as foreign investors continue to use them as a tool to get exposure on Chinese stocks. High volumes in ETFs have been complimented by Hong Kong government’s decision earlier this year to waiver stamp tax on ETF trading starting Feb 13.

Fig 3. Futures trading volumes following the trend in primary equities index have been on the rise in the last month. Futures turnover on Hang Seng index is up 50% since beginning of this year.

Fig 4. Market share of dark trading venues in Hong Kong has dropped to 0.9%. SFC announced the results of its dark pool consultation in April this year. See details of the consultation in the Market Structure section.


Fig 3: YoY futures average daily turnover

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Mill

ion

s

HSI Fut

July-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15May-14 Jun-14

Hong Kong

9


(b) Enhancing the level of disclosure to users of ALPs;

— ALP operators should be obliged to provide prospective users of their ALPs with ALP Guidelines that are comprehensive and accurate.

— ALP operators should bring their ALP Guidelines to the attention of all prospective users.

— ALP operators should be obliged to obtain formal acknowledgement from prospective users of its ALP that its ALP Guidelines have been brought to their attention and that they consent to their orders being transacted in the ALP, before such transactions are permitted to occur.

— A licensed or registered person which, on behalf of its clients, routes agency orders to an ALP operated by a third party ALP operator should be obliged to ensure that its clients have formally acknowledged that the ALP Guidelines have been brought to their attention and that they consent to their orders being transacted in the ALP, before their orders are routed to the ALP.

— Proposal will be implemented although the opt-in requirement will be relaxed to an opt-out system.

— The identity of each member of the staff of the ALP operator (by his/her title and department only, not name) who is permitted access to trading information, regardless of whether the person has a front-office or a back-office role, must be disclosed.

(c) Ensuring user order priority over the proprietary orders of ALP operators and their affiliates.

— Due to concern on the potential conflicts of interest, the SFC has therefore that the original proposal should be maintained, such that agency orders must have priority over proprietary orders.

— Client facilitation orders should also be treated as proprietary orders in determining order priority in ALPs.

(d) Restricting the level of visibility of trading information that is available to the staff of ALP operators.

— The SFC takes a firm view that restrictions to access to trading information must be strictly observed by ALP operators in order to ensure fair and orderly trading in the opaque environment of ALPs.

— The person responsible for originating a proprietary order in an ALP should be restricted from access to trading information or data concerning orders placed, or transactions conducted, in the ALP.

(e) Not restricting the hours of operation of ALPs.

— The SFC has decided to maintain the original proposal that no restrictions on the trading hours of ALPs will be imposed.

(f) Allowing ALPs to transact overseas listed securities as well as Hong Kong listed securities.

— Proposal should be retained provided that ALP operators comply with relevant overseas rules and regulations. For example, under the Shanghai-Hong Kong Stock Connect program, Stock Exchange of Hong Kong (SEHK) Participants are not allowed to trade China Connect Securities outside the SEHK.

— The SFC will continue to monitor the situation and may revisit its policy in future, where necessary.


Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)

Avg Trade Size Average Spread (BPS)

Fig 5: Average Index Spread and Trade Sizes

0

1000

2000

3000

4000

5000

6000

7000

8000

0

2

4

6

8

10

12

14

16

18

Jan-15 Feb-15 Mar-15 Apr-15


Fig 6: MoM Index Price Change

0

2

4

6

8

10

12

14

%


Fig 6. Hang Seng Index is trading at the highest level seen since 2008. Index gained 13% in the month of April.

Fig 5. Average spread and trade sizes in Hong Kong have remained unchanged despite the increased volumes and volatility in the market.

Fig 7: Large and Mid Cap Index movers



0

2

4

6

8

10

12

14

%


Market Movers - Large Cap Market Movers - Mid Cap

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

0883.HK 19% 3,801,715,000 1.67 0388.HK 52% 16,641,500,000 3.76

3328.HK 19% 1,228,088,000 1.55 1109.HK 27% 1,121,508,000 1.57

2318.HK 18% 9,061,389,000 1.26 0688.HK 26% 2,540,099,000 1.62

0386.HK 17% 3,934,147,000 1.72 0762.HK 17% 2,884,487,000 1.89

1398.HK 17% 8,288,745,000 1.70 0012.HK 12% 541,216,000 1.24

2628.HK 9% 6,150,384,000 1.58 0002.HK 3% 596,828,300 1.34

0001.HK 6% 2,142,767,000 1.11 1044.HK 2% 640,133,200 1.39

0013.HK 5% 1,648,094,000 1.07 0019.HK 1% 537,767,900 1.60

1299.HK 5% 4,874,132,000 1.58 0006.HK 0% 656,674,900 1.33

1088.HK 1% 1,794,209,000 1.61 1928.HK -3% 2,014,282,000 1.17

Source: Dealogic

Fig 8: Avg Monthly IPO size and Exchange Market Cap

Average Monthly IPO Volume (US$m) Exchange Market Cap (US$Trillion)

Mar

ket

Cap

(U

S$

tri

llio

n)

IPO

Vo

lum

e (U

S$

m)

72

73

74

75

76

77

78

79

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

FY 14 Jan-15 Feb-15 Mar-15 Apr-15

Fig 8. Several news listings on Hong Kong exchange this year so far, 10 IPOs in January and 12 IPOs in March.

10


(g) Ensuring the system adequacy of ALPs by addressing issues such as system controls, reliability, capacity, security and contingency measures

— SFC considers that a requirement for appropriate contingency measures is necessary and reasonable

(h) Enhancing risk management control, record keeping and reporting requirements.

— An ALP operator should keep proper records concerning the design, development, deployment and operation of its ALP

— Operators should keep proper records concerning all transactions conducted on its ALP, including details of authorized traders

— All records should be kept for 7 years

— With regards to the obligation to report suspicious transactions, regular transaction analyses and reports on the ten largest users of an ALP, the SFC intends to publish templates for reference by ALP operators before the effective date of this regulatory regime.

— The SFC has decided not to introduce a materiality test,

Areas the SFC will NOT implement

After consideration of practices in other regions such as Australia, Canada, the US and Europe, the SFC does not consider it necessary to implement the following:

— price improvement requirements for dark pool trades

— minimum order sizes

— caps on the percentage of total trades across all trading venues that may be executed without pre-trade price transparency

— a suitability test

The new requirements will come in to force no sooner that 6 months after the gazetted date of the new Code.

To review the full paper click here: http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR15

Venue News

HKEx clarifies their stance on beneficial ownership and other Connect matters

On 26th March, the HKEx updated their FAQs to more clearly set out the relevant pieces of law that supply to the more troublesome areas of the Connect project.

— Capacity in which HKSCC holds shares (as nominee)

— Concept of nominee is accepted in China, function of nominee holder

— Who are the beneficial owners

— How beneficial owners can be sure their rights will be recognised in Mainland

— How beneficial owner can exercise rights and take legal action in Mainland

— How the certificate of SSE securities provided by HKSCC will be recognised

— Is the role of nominee inconsistent with role as CSD

— Segregation of positions held

The industry had been looking for clarity on beneficial ownership and when the updated HKEx materials are viewed in combination with the CSRC (see China section for details), it would seem the market now has what it needs to gain comfort in the strength of legal title.

The points on the role of the HKSCC as nominee are also important to those running funds that are subject to the UCITs regulation. UCITs IV (the version most EEA states currently have implemented) considers the risk of products whereas UCITs V (notably in place for Luxembourg and pointed to by Ireland as needing consideration) also looks to the chain of ownership from the perspective of default risk and the safe keeping of assets. That there is still a lack of true Delivery vs Payment (“DVP”) settlement offered by the HKSCC is still proving difficult for those regulators working with UCITs V standards in mind.

Another area still to watch is the short selling of cash equities. On 17th February, the FAQs were updated to show who could lend per the below table:

Although short selling went live on 2nd March, the framework has not as of yet facilitated activity as global firms acting as EPs (Exchange Participants) tend to be a different legal entity to the exchange member - the EP entities do not typically hold inventory but it is held in an affiliate entity - meaning the availability of stock to lend has been marginalised. This in turn has restricted the ability of the market to short sell given short selling must be covered by a borrow.

Exchange Participant FAQ (13th April):http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/EP_CP_FAQ_En.pdf

Source: Dealogic

Fig 9: IPO Sector Distribution

FY 2014 Apr 2015

0% 20% 40% 60% 80% 100%

Construction/Building

Consumer

FIG

Healthcare

M&M

REGAL

TMT

Utility & Energy


Fig 10: IPO Performance

Source: Dealogic


# of IPO 1 day 1 month Current

Jan-15 10 7% 34% 106%

Feb-15 4 475% 277% 585%

Mar-15 12 149% 222% 196%

Apr-15 3 80% 0% 68%

11


Short sell FAQ (23rd January 2015)

http://www.hkex.com.hk/eng/market/partcir/sehk/2015/Documents/CT00415E2.pdf

Launch of SPSA given tepid reception

The new Special Segregated Account (“SPSA”) structure went live on 30th March as an attempt to resolve two fundamental issues:

1. To allow funds to fulfil their responsibility to provide best execution by using multiple execution brokers

2. To allow the shares to remain in the account of the custodian until after the execution has been completed.

The voluntary model requires IDs to be allocated to the underlying funds, when these are supplied to the brokers, they can attach the ID to the order and so allow for the HKEx to check the stock snapshot before letting a sell order go through. A client can share their IDs with up to 20 designated brokers.

The two following excerpts from HKEx materials show the pre trade checking model before and after the introduction of SPSA. The main change is that the client positions held in the new SPSA accounts at the sub custodian will now be included in the morning snapshot - previously it was only the broker accounts that were included.

However, the model is still suffering due to the tight time constraints involved in post trade processing. Global custodians (“GCs”) are reluctant to have a set up that involves one sided instructions - they like to have the opportunity to confirm the trade (give a two way confirmation). However, GCs are not often in the local time zone and being able to accept the trade within the 2 and a half hour window available is not practical.

Concerns are compounded by the Mainland no fail structure that leaves little room for errors. If trading through a QFII or RQFII, triparty agreements are put in place to set out the treatment of settlement errors. Currently this is not part of the process although the HKEx has now released a form that can be submitted to correct errors.

This area is sure to continue developing as the market participants better understand the various moving parts.

SPSA model:http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/Enhanced%20Pre_trade%20Checking%20Model_Final.pdf

SPSA description from HKEx EP FAQ (13th April) , Q 2.7http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/EP_CP_FAQ_En.pdf

HKEx receives delegation from TWSE

A Taiwanese delegation comprising of legislators and government officials along with representatives of Taiwan’s securities and market regulator, stock exchange and brokerage industry was received by executives of the Hong Kong Exchange. The participants of both the countries exchanged their experiences and observations on financial systems and markets.

Chief Executives Charles Li and Calvin Tai, HKEx’s Head of Global Clearing (Asia), HKEx’s Head of Market Operations Roger Lee, along with Mao Zhirong and Li Gang, Co-heads of HKEx’s Mainland Division, participated in the discussion.

https://www.hkex.com.hk/eng/newsconsul/hkexnews/2015/1505134news.htm

Volatility mechanism and closing auction consultations close

The consultation period for the proposed Volatility Control Mechanism (“VCM”) and Closing Auction System (“CAS”) closed on 10th April. The VCM proposes a trigger level of 10% vs the average price over the proceeding 5 minutes for the cash market and 5% for derivatives. It should be noted that not all stocks would be in scope but rather those that make up the HSI and the HSCEI. The VCM can only be triggered twice per trading session meaning there can be a maximum of four triggers per day, after which the price is free to move to its own levels.

Due to the increase in electronic trading and the increased risk of flash crashes that is perceived to accompany such developments in technology, having a mechanism to protect the market against such moves at an exchange level has been promoted by IOSCO as an essential market structure feature.

A CAS was implemented in 2009 but following a large price movement in HSBC, did not last. The previous mechanism of 5 snap prices being arranged into ascending order and the median being used as close was reinstated. Under the current proposals, four new features would be added to try and prevent a repeat.

1. Price limits. During the first stage of the new CAS (also termed the order input period), orders must be entered within 5% of the reference price. During the second stage (or the no cancellation period) orders can only be entered within the bid offer spread.

2. Randomisation. The uncrossing time will be randomised to prevent anyone in the market knowing the precise time at which the closing price will be established.

3. Transparency. Indicative prices will be available throughout the auction.

4. Limit orders. At-auction limit orders may be used by market participants.

The HKEx has researched other markets and found that of the developed markets, Hong Kong is the one exception to the majority by not having an auction. Having certainty that you can achieve the closing

What is Pre-trade checking?

A mechanism to ensure EPs will have sufficient sellable quantity when placing sell orders

How is it done?

Investors who use custodians must transfer shares from their custodians to the selling EPs before market open

CCASS will take snapshot of each DCP & GCP’s SSE Securities holdings each business day and replicate to CSC to facilitate Pre-trade Checking

Sell orders by an EP will be rejected by CSC if the EP’s cumulative sell quantity in that stock for the day is higher than its stockholdings during market open

Who to ensure investors will not oversell?

EPs’ responsibility to ensure they have in place procedures and systems to prevent their clients from day trading and overselling of SSE Securities

Existing Pre-trade Checking Model

5

SSE

EP

Place sell order

Route order to SSE

Reject order

CSC Passed

Pre-trade Checking

?

CCASS Replicate

shareholding information to CSC on each

day begin

No Yes

EP1 DCP1

EP2 DCP2

EP3 EP4 GCP1

Under current model, investors who use custodians need to pre-deliver SSE Securities to the selling EPs

Custodian Institutional Investor 1 Institutional Investor N

Share transfer Shareholding replication Order routing

Snapshot …

How does it work?

As an add-on to existing model:

Custodians* upon investors’ requests to open Special Segregated Accounts (SPSA) and CCASS will generate a unique Investor ID. The SPSAs are for keeping shareholding of investors separately

CCASS will snapshot SSE Securities holdings under custodians’ SPSAs and replicate to CSC to facilitate Pre-trade Checking

Investors should inform its designated EPs the assigned Investor IDs for Pre-trade Checking when placing sell orders

Custodians transfer shares from the SPSA to the relevant Clearing Participants for settlement (based on investors’ instructions)

Enhanced Pre-trade Checking Model - Special Segregated Accounts of Custodians

8

SSE

EP

Place sell order for Institutional Investor

Route order to SSE

Reject order

CSC Passed

Pre-trade Checking

?

CCASS

Replicate shareholding information to CSC on each

day begin No Yes

EP1 DCP1

EP2 DCP2

EP3 EP4 GCP1

Custodian SPSA 1 SPSA 2 SPSA 3

Share transfer Shareholding replication Order routing

Snapshot

…

* Including GCPs who are non-EPs and Custodian Participants of CCASS

Under enhanced model, investors who use custodians only transfer SSE Securities to Clearing Participants after sell order execution (Post-trade Delivery)

12


price without slippage would be of great benefit to passive funds that use the closing price as their benchmark.

Although not able to give any comments on the outcome, HKEx Cash Trading Sally Kwok presented the below slides at a recent conference recapping the proposals and the background to the changes. HKEx presentation materials: https://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp201501l.pdf

For the full proposals see here: https://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp201501.pdf

Sources:

https://www.hkex.com.hkhttps://www.sfc.hk https://www.reuters.comhttps://www.ft.com

Contact


13

Global Market Structure China


Global Market Structure China Newsletter Issue 37, 2015

Market Structure

QFII and RQFII updates

The following new QFII licenses received quota in March and April:

March:1. GF Asset Management (Hong Kong) Limited, US$ 200 million

2. Munsun Asset Management (Asia) Limited, US$ 200 million

April:1. Shenyin Wanguo Asset Management (Asia) Limited, US$ 200 million

In addition, the following quota was granted to existing QFIIs:

March:1. Fidelity Investments Management (Hong Kong) Limited, US$ 800 million

2. Fubon Securities Investment Trust Co. Ltd, US$ 550 million

3. Khazanah Nasional Berhad, US$ 250 million

4. Macquarie Bank Limited, US$ 400 million

5. First Securities Investment Trust Co., Ltd., US$ 50 million

April:1. Samsung Investment Trust Management Co., Ltd., US$ 100 million

2. Pacific Alliance Investment Management (HK) Limited, US$ 300 million

3. Franklin Templeton SinoAM SIM Inc., US$ 100 million

4. Monetary Authority of Macao, US$ 1 billion

Separately, SAFE granted new RQFIIs the following quota:

March:1. JPMorgan Asset Management (Singapore) Limited, RMB 2billion

2. Neuberger Berman Singapore Pte. Limited, RMB 0.8 billion

3. KKR Singapore Pte. Ltd., RMB 3.5 billion

4. UBS Hana Asset Management Co., Ltd., RMB 1.5 billion

5. TRUSTON Asset Management Co., Ltd. RMB 1 billion

6. Daishin Asset Management Co., Ltd. RMB 2 billion

7. MY Asset Investment Management Co., Ltd., RMB 1.5 billion

8. Deutsche Asset & Wealth Management Investment GmbH, RMB 6 billion

April:1. GIC Private Limited, RMB 5billion

2. Aviva Investors Asia Pte. Limited, RMB 1billion

3. Target Asset Management Pte Ltd, RMB 0.2billion

4. UOB Asset Management Ltd, RMB 1.2 billion

5. Genesis Investment Management, LLP, RMB 3 billion

6. Hana Daetoo Securities Co., Ltd, RMB 1 billion

7. Samsung Asset Management Co., Ltd., RMB 2.5 billion

8. Shinhan Investment Corporation, RMB 2 billion

9. Heungkuk Asset Management, RMB 3 billion

10. Vanguard Investment Australia Ltd, RMB 10 billion

The following was granted to existing RQFIIs:

March: 1. None

April: 1. Shinhan BNP Paribas Asset Management Co., Ltd., RMB 5 billion



Tu

rno

ver

(Bill

ion

s U

SD

)

Turn

over

Vel

ocity

(%)

0%

100%

200%

300%

400%

500%

600%





$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Fig 1. YOY China’s equities turnover is up 678%, China’s continuous regulatory easing and opening up of the market to foreign investors has been very positive for the market.



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

200

400

600

800

1000

$0

$200

$400

$600

$800

$1,000

$1,200


Fig 2. Since the success of the Stock Connect program and increased market volatility, investors are now looking for more products to access China markets performance and to hedge their risk with ETFs and futures as beneficiaries. This in turn is fueling momentum to the rally which sees stocks at 7-year highs.

Fig 3. CSI300 stock index futures have surpassed S&P 500 futures in turnover to become the world’s most traded equity futures as global investors expanded their exposure to one of Asia’s top-performing markets.



Mill

ion

s

HSCEI Futures SGX FTSE China A50 CSI 300 Fut

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000


Fig 4. Average equity trade size in China are up 22% and average spread has narrowed by 18% in the last month versus January this year.


Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)



0

2000

4000

6000

8000

10000

12000

0

2

4

6

8

10

12

14


China

14


Source: Deutsche Bank, CSRC, SAFE

Fig 7: Cumulative QFII and RQFII Licenses and Quota Granted

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0

10

20

30

40

50

60

70

80

0

50

100

150

200

250

300

US

$ b

n

Cumulative QFII licenses with quota

QFII Quota approved

RQFII Quota approved

12 27 33

51 51 75 94

107 136

181

228

261268

Source: Dealogic


FY 2014 Jan 2015

0% 5% 10% 15% 20% 25% 30% 35% 40%

Auto/Truck


Consumer

FIG

Healthcare

Industrials

M&M

Oil & Gas

REGAL

TMT

Utility & Energy

Source: Dealogic



Mar

ket

Cap

(U

S$

tri

llio

n)

IPO

Vo

lum

e (U

S$

m)

0

5

10

15

20

25

30

35

40

45

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


“As long as certification issued by HKSCC is treated as lawful proof of a beneficial owner’s holding of SSE Securities under HKSAR law, it would be fully respected by CSRC.”

For the full FAQ click here: http://www.csrc.gov.cn/pub/csrc_en/newsfacts/PressConference/201505/t20150515_277108.html

Mutual Recognition Funds regime to launch 1st July

In a landmark development for the fund industry, the CSRC and SFC signed a memorandum of regulatory cooperation on 22nd May that sets the ground for Mainland-Hong Kong Mutual Recognition of Funds (“MRF”). In essence the new rules mean those who meet the eligibility criteria and gain approvals from the regulators will be able to offer products to retail investors in each others’ markets. The initial investment quota for the MRF will be RMB300 billion for in and out fund flows each way.

The“Provisional Rules for Recognised Hong Kong Funds” and “Circular on Mutual Recognition of Funds between the Mainland and Hong Kong” set out the eligibility requirements, applications procedures, operational requirements and regulatory arrangements of the MRF. The documents will form the basis of regulation and enforcement, and market participants’ business operations.The CSRC and SFC have established cooperation mechanism for cross-border regulation and enforcement, to ensure that Mainland and Hong Kong investors will receive equal protection.

CSRC release FAQ on beneficial ownership

On 15th May, the CSRC released a FAQ summarising the position of investors trading through the Stock Connect programme specifically with regard to the interpretation of terms such as ‘beneficial owner’ and ‘nominee’. This is a most welcome development for those who to date have been holding back from trading through Connect due to concerns that their legal title would not be considered as strong by a Mainland court when compared to positions built under QFII/RQFII licences where their name would appear on the share register (rather than the HKSCC as nominee holder).

Although in the format of a FAQ, the document makes reference to a number of other legal sources which are considered law. Here are a few quotes:

Beneficial ownership

“In Northbound trading, overseas investors shall hold SSE Securities through HKSCC and are entitled to proprietary interests in such securities as shareholders.”

Status of a nominee

“Article 18 of the [Settlement Measures] states that “securities shall be recorded in the accounts of the securities holders, unless laws, administrative regulations or CSRC rules prescribe that the securities shall be recorded in accounts opened in the name of nominee holders”. Hence, the Settlement Measures expressly provides for the concept of nominee shareholding.”

Ability to take action on shore

“Article 119 of the Civil Procedure Law of the People’s Republic of China states that “the claimant in a legal action shall be an individual, legal person or any other organization that has a direct interest in the relevant case”. As long as an overseas investor can provide evidential proof of direct interest as a beneficial owner, the investor may take legal actions in its own name in Mainland courts.”



-5

0

5

10

15

20

%Jan-15 Feb-15 Mar-15 Apr-15

Fig 5. CSI 300 Index is trading at its 7-year high, up over 15% so far this year.Fig 7. CSRC is planning to merge QFII and RQFII into one legal regime and draft rules for the merger of the QFII and RQFII schemes expected to be published soon by China’s financial regulator. See market structure section for more details.

Fig 8. China’s IPO market has seen significant growth this year, primarily in the tech sector. The tech-heavy ChiNext index has more than doubled this year and new listings there have posted average gains of about 500%.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

601866.SS 108% 11,417,360,000 3.18 601333.SS 48% 6,093,067,000 2.22

601618.SS 97% 18,658,940,000 2.49 600157.SS 42% 4,411,164,000 2.32

601669.SS 82% 10,148,570,000 1.53 000060.SZ 39% 5,569,902,000 2.10

600688.SS 77% 4,814,810,000 2.04 600118.SS 38% 6,127,313,000 1.43

601766.SS 70% 34,032,920,000 1.93 601958.SS 35% 3,527,242,000 2.38

000024.SZ -2% 999,269,400 1.67 000156.SZ -8% 800,685,100 1.23

000776.SZ -2% 13,958,010,000 1.09 600588.SS -11% 6,098,156,000 1.18

601688.SS -4% 20,045,670,000 1.06 002230.SZ -12% 4,240,264,000 2.13

600485.SS -7% 1,223,583,000 1.55 002081.SZ -15% 2,685,882,000 1.50

603288.SS -37% 1,410,684,000 2.10 002129.SZ -37% 2,038,922,000 2.22

Source: Dealogic



15


Host market rules will apply to the distribution of funds. Hong Kong domiciled unit trusts that are authorised by the SFC and seeking authorisation in China would need to comply with the Code on Unit Trusts and Mutual Funds (UT Code) (which forms part of the SFC’s Handbook). Funds from China seeking to be authorised by the SFC for sale to the public in Hong Kong will need to comply with the relevant laws and regulations in China and they are deemed to have substantially complied with the relevant SFC requirements.

Below are some highlights from the SFC Circular:

Eligibility criteria for funds

— Must be established, managed and operated in accordance with their constitutive documents and the laws and regulations in China;

— Need to be registered with the CSRC under the Securities Investment Fund Law and publicly offered in China;

— Must have a minimum track record of one year;

— A minimum fund size of RMB200 million;

— Are not allowed to invest primarily in the Hong Kong market; and

— Cannot have the value of its shares / units sold to Hong Kong investors exceeding 50% of its total net assets.

Eligibility criteria for fund managers

— Be registered and operate in mainland China in accordance with local laws and regulations and licensed by the CSRC to manage public funds;

— Have a clean regulatory history in the past three years or since its establishment (if established for less than three years).

— Delegation would not be allowed at least at the initial launch.

Products

— Plain vanilla equity funds

— Bond funds

— Mixed funds

— Unlisted index funds

— Physical ETFs

Further details are also given in the Circular including custody disclosures, language requirements and offer documents.

Lieven Debruyne, CEO, Schroders Hong Kong said: “Schroders welcomes the announcement of the Mainland-Hong Kong Mutual Recognition of Funds (MRF) initiative. This is a space that we have been watching closely for some time, and the RMB 300 billion macro quota announced is a pleasant surprise that we are very supportive of. We will and are ready to apply for the scheme, which we believe will bring further value to our clients in the long run.”

Full joint announcement: http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR52

SFC Circular:

http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=15EC29

SFC application forms:http://www.sfc.hk/web/EN/forms/products/forms.html

China to move to registration system for IPO listing

The National People’s Congress (“NPC”) has started to review draft changes to China’s Securities Law, which currently mandates that initial public offerings (“IPOs”) are to be approved by the China Securities Regulatory Commission’s (“CSRC”). Changes to the law include a proposal to change the IPO listing process to a registration system, which is frequently used in mature markets, and allows the market to play a decisive role in asset allocation

“The promulgation of the share issue registration system will focus on information disclosure and thus enable market participants themselves to judge the issuers’ quality of assets and investment value” commented Wu Xiaoling, a lawmaker at the NPC.

The approval process was most recently called into question in October 2012 when the CSRC froze IPO listings following concerns regarding the listing process, namely that companies were consistently experiencing drops in shares following their IPO listings, suggesting that regulator-pricing was resulting in overpriced IPOs.

SSE Chairman Gui said that the registration system does not mean no examination and that “judging from the current situation, the mainstream scheme is that the exchange will take charge of the examination and approval. There are still some conditions for issuance and listing in the registration system, and the examination and approval work will focus on the effects of information disclosure, which means that enterprises are required to make themselves understood by investors judging their advantages and disadvantages.”

http://english.sse.com.cn/aboutsse/news/c/c_20150310_3886332.shtml

Regulators promote stock loan

Amid the backdrop of a number of high profile cases of Mainland brokers being penalised and the opening of margin trading accounts suspended. The CSRC, SSE and SZSE are working to promote the use of stock lending. The framework for margin trading, stock lending and short selling was initiated in 2010 and although margin trading financing levels reached RMB 1.9 trillion in May, stock lending has lagged.

However, according to the SSE “Notice on Matters for Promoting Securities Lending Business” released on 17th April, professional institutional investors shall be “supported to engage in securities lending and securities lending of refinancing to propel supply and demand of securities sources in the market, on the basis of making risks controllable and protecting holders’ rights and interests.”

Other points made in the Notice:

— Professional institutional investors are encouraged to establish products including publicly offered funds and asset management plans of securities companies that can be involved in securities lending.

— Securities lenders and borrowers shall be permitted to negotiate for determining such items as the rate and time limit for securities lending of refinancing, in a bid to raise the trading efficiency and meet the market demand for securities lending.

— The order price at which exchange traded fund, or ETF, is sold by investors through securities lending shall be kept within the range of valid bidding price stipulated by the exchange, and allowed to be lower than the latest trading price.

— The money from selling through securities lending can be used for purchasing or subscribing for cash management products of securities companies, money market funds and other high-liquidity securities recognised by stock exchanges.

CSRC said “This sort of trade is a mature mechanism used in overseas markets, it helps moderate volatility and help with price discovery and hedging against risk ... It is certainly not encouraging shorting as has been said, even less an attempt to suppress the market.”

16


The stock lending rules currently only apply to domestic investors, QFII and RQFII license holders are not able to participate.

The SSE notice can be accessed here:http://english.sse.com.cn/aboutsse/news/c/c_20150421_3910668.shtml

Shanghai Exchange to launch a Board of Strategic Emerging Industries

On 19th May, SSE Vice President Liu Shi’an spoke at the 2015 SSE Forum on Equity Investment in China on the significance and urgency in launching the Board of Strategic Emerging Industries. Liu stated statistics show that from 2006 to 2014, there were over nineteen thousand projects involving the investment of Private Equity (“PE”) or Venture Capital (“VC”) but only 3,624 saw such investment exited. Liu believes the establishment of the new board will guarantee VC engaged in emerging enterprises an effective channel of exit, thereby absorbing more capitals into emerging industries to drive transformation and upgrading of China’s economy.

Chairman Gui had previously said that diversified listing indicators would be adopted for the board, with such financial standards as “market capitalisation + business income + profit” or “market capitalisation + business income + liquidity”. Diversification of some non-financial standards will also be considered, in a bid to support the listing of A-shares of internet enterprises.

“There’re still a lot of strategic emerging enterprises that can hardly win financing support due to inconformity with current conditions for issuance and listing in the domestic capital market, as they haven’t profited so far. Establishment of the board can provide such enterprises with a platform in domestic capital market to support their business development.” said Gui.

For the full SSE speeches see here:http://english.sse.com.cn/aboutsse/news/c/c_20150521_3929068.shtml

http://english.sse.com.cn/aboutsse/news/c/c_20150310_3886332.shtml

Retail Investors now allowed to open multiple A-share accounts

As of 12th April, retail investors in the country’s A-share stock markets are now able to open multiple accounts. Each investor can open up to 20 accounts at 20 brokerage firms including one general account and several sub-accounts.

China Securities Depository and Clearing Co Ltd (“CSDC”) Chairman Zhou Ming said the decision to lift restrictions on stock accounts was made based on the marketisation, legalisation and internationalisation needs of capital market reform. He pointed out that small investors stand to benefit.

The changes do not apply to institutional investors such as QFII and RQFII holders.

More free trade zones

On 21st April, China opened three new free trade zones (“FTZ”) based on the foundational plan from the Shanghai FTZ plan, but altered to take advantage of each zone’s geographic location in order to promote economic coordination across China:

— Tianjin—will integrate the northern municipality with Beijing and the Hebei Province, as well as focus on modern service industries, such as shipping, culture, and equipment manufacturing.

— Guangdong—will integrate mainland China with Hong Kong and Macao, with bases in Guangzhou, Shenzhen, and Zhuhai.

— Fujian—will integrate mainland China with Taiwan, covering areas in Xiamen, Fuzhou, and Pingtan.

Officials hope that the new FTZs will facilitate similar economic activity as seen in the Shanghai pilot, which had almost 12,000 registered enterprises a year after its establishment in September 2013.

The government also announced that the Shanghai FTZ will experience a few new changes as well, including a quadrupling of its current size, and the inclusion of the financial centre of Lujiazui, in addition to manufacturing and high-tech areas.

All of the FTZs will be required to adhere to the “negative list”, which includes 122 industries and business areas that are restricted or banned from receiving foreign investment.

China to expand FTZ forex conversion regime nationwide from 1st June

In an effort to further ease capital movements by foreign firms, the State Administration of Foreign Exchange (“SAFE”) has announced that it will soon be lifting all limits on the conversion of registered foreign-currency capital into renminbi.

A similar policy was implemented in the Shanghai free trade zone (“FTZ”) last year, but included limits on foreign exchange conversion. As a result of the positive results from the trial run, the policy will be expanded nationwide beginning 1st June and will allow foreign firms to convert 100 % of capital as a means to meet business needs, giving firms “autonomy in settling their foreign exchange capital and help firms hedge currency risks and reduce costs” SAFE noted.

Important points of the regulation include:

— Access—converted renminbi funds can only be transferred through a special renminbi account, which must be opened in connection with the rule.

— Supporting documents—will be required when renminbi is paid out, but will not be required when conversion takes place on a willingness basis.

— Restrictions—converted renminbi cannot be invested in stocks, entrusted loans, or used to repay loans to other firms.

China lowers RRR rate

On 19th April, the People’s Bank of China (“PBOC”) announced a 100 bps cut in its reserve requirement ratio (“RRR”), the minimum level of deposits that banks are required to hold, to 18.5 %, effective from 20th April. The move marks the second RRR cut of 2015, the first of which was a 50 bps cut on 5th February, and follows the release of China’s Q1 GDP data on 14th April. While Q1 GDP met China’s official target of 7 %, the slowest rate in six years, slowdowns in key areas such as industrial output, retail sales, and average new home prices encouraged further stimulus measures.

The most recent cut in RRR is expected to free up RMB 1.2 trillion in additional funds, with the following additional cuts to be applied:

—100 bps: rural financial institutions.

— 200 bps: Agricultural Development Bank of China, the sole policy lender for agriculture.

— 50 bps: banks with certain level of loans to agriculture and small enterprises.

17


Venue News

Stock Connect update: record southbound volumes, Shenzhen may Connect Q4

Song Liping, General Manager of Shenzhen Stock Exchange (“SZSE”), said that SZSE is actively preparing for Shenzhen-Hong Kong Stock Connect and has set up a working group with HKEx. Charles Li, Chief Executive of Stock Exchange of Hong Kong Ltd. (“HKEx”), said that the Shenzhen-Hong Kong Stock Connect may be opened in the second half of the year - a more “realistic” arrangement of time.

The details of the venue link, including which securities will be included for both North and Soutbound flow, and whether the quota will be managed separately or in addition to the Shanghai Hong Kong Connect, are yet to be released. What is not likely to change is Chinese market structure so the features put in place by the HKEx to manage T0, no fail settlement can be expected including the tight settlement time frames.

Record volumes were seen for the Southbound flow of Shanghai-Hong Kong Stock Connect in April following a move by CSRC to allow mainland funds to trade through Connect. Hitherto, the Chinese mutual funds have been allowed to invest in international markets via the Qualified Domestic Institutional Investor (“QDII”) programme. It is unlikely that the record volumes were the result of such mutual funds given the speed with which the executions took place following the CSRC announcement so continued growth in volumes is probable once the mutual funds come on line.

Deng Ge, the spokesperson of CSRC said that, “Giving mainland funds access to Hong Kong shares via the Shanghai-Hong Kong Stock Connect will promote product and business innovation, and be good for steady development of the connect scheme.”

“The general operation of Shanghai-Hong Kong Stock Connect ha[s] met expectations, and the mechanism of Shanghai-Hong Kong Stock Connect [will] be further optimised to bring consistent solutions to factors that limit investors to trade through Shanghai-Hong Kong Stock Connect. Besides, the SSE will further promote trading mechanism innovation, research and promote the establishment of margin trading and securities lending as well as line expansion under the Hong Kong Stock Connect.”

Gui, Chairman of the SSE, said.

Shenzhen expands Component index

In order to better reflect the multi-layered market, the SZSE expanded the list of securities included in the SZSE Component Index from 40 to over 500 stocks. From 20th May, the weights of sample stocks on the Main Board, the SME Board and the ChiNext Board are 48%, 35%, 17% respectively. As for the number of sample stocks in different boards, 211 are on the SME Board, and 90 on the ChiNext Board, totalling 301 stocks, which occupy 60% of the index sample stocks. Thus the Index substantially represents the small-and-medium size growth enterprises.

After the expansion, the weights of financial industry and real estate industry drop from 31% to 14%; meanwhile, the weight of information technology industry, which has become the biggest weighted industry, increases from 14% to 20%.

The new SZSE Component Index is different from Shanghai Composite Index and CSI 300 Index in terms of industry structure, thus reflects the structure feature of Shenzhen Market.

Launch of two new index futures

The CSRC has announced that two new stock index futures are ready to start trading on the China Financial Futures Exchange (“CFFEX”). The top regulator of China has said in its statement that it has approved the trading of SSE50 index futures and CSI500 index futures. Currently, only one stock index futures - Hushen300 trades on the Chinese markets.

In this regard, Deng Ge, CSRC spokesperson commented that “The addition of the new index futures will help diversify financial products to better meet investors’ needs”.

Link between Shanghai and Frankfurt Markets

Deutsche Boerse and Shanghai Stock Exchange are in talks to establish a JV exchange that will allow companies to simultaneously list in both Shanghai and Frankfurt according to industry sources and media. Although the specifics of the cooperation will not be released for another month or two, Deutsche Boerse’s Beijing representative has confirmed that it is making arrangements with SSE. Operations may begin operation as early as September 2015.

Personnel News

Zhang Xiaohui promoted to Assistant Governor

Zhang Xiaohui, who has been serving as the director general of the monetary policy department at the China’s Central Bank has been promoted as the assistant governor. She has been in control of the bank’s most powerful unit responsible for drafting proposals about interest rate changes and reserve ratios approved by the governor and state council members.

She has been a part of every major monetary policy change since 1987, from liberalisation of interest rates to creation of new liquidity management tools. Yang Ziqiang will assume the office of the director general.

Sources:

http://english.sse.com.cn/

http://www.szse.cn

http://www.csrc.gov.cn/

http://www.reuters.com/

http://www.theguardian.com/

http://www.bloomberg.com/

http://www.ft.com/

http://www.marketwatch.com/

http://www.businessspectator.com.au/

http://www.legalbusinessonline.com/

http://www.asia-first.com/

http://news.xinhuanet.com/

http://www.wsj.com/

http://www.afr.com/

http://www.scmp.com/

http://www.wantchinatimes.com/

http://www.asianinvestor.net/

http://www.asiaasset.com/

Contact


18

Global Market Structure Taiwan


Global Market Structure Taiwan Newsletter Issue 37, 2015



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New offshore fund launches to face stricter conditions

In April the Taiwanese Financial Supervisory Commission (“FSC”) announced their plan to tighten the current criteria for offshore fund launches in order to ensure better protection for Taiwanese investors and balance the development of domestic and international fund companies. Currently the Regulations Governing Offshore Funds require international fund companies to meet the following conditions before they can launch an offshore fund in Taiwan:

— Have at least US$ 2 billion in assets under management,

— Free of sanctions in the last two years, and

— Have operated for at least two years.

The FSC’s proposal is to add a further requirement whereby international fund companies must meet at least one of the following three conditions:

1. Set up a Taiwan-based securities investment trust enterprise (“SITE”) managing more than TW$ 5 billion (US$ 160.8 million) in assets or,

2. Establish a securities investment consulting enterprise (“SICE”)managing more than TW$ 3.5 billion (US$ 112.6 million) in assets or,

3. Award an offshore fund mandate worth at least TW$ 3.5 billion (US$112.6 million) to a Taiwanese fund company.

Industry feedback on the proposal has already been gathered by the FSC who intend to make a follow up announcement on their website. According to Su Shih-Ya, Chief of Investment and Trust at the FSC, at the end of March, 17 out of 58 international fund houses in Taiwan already qualified to launch new offshore funds under the new rules. Those who do not meet the criteria will be granted a one year grace period in which they will still be able to launch their funds and gather assets from Taiwanese investors while existing offshore funds would not be subject to the new requirement.

FSC considers simplifying fund licensing and oversight

The FSC is considering the simplification of existing procedures for fund licensing and oversight to facilitate ease of compliance with the rules for asset management companies. The existing framework allows different types of funds to have different licensing requirements and their own set of regulations resulting in multiple compliance procedures for asset management companies. For example:

— Securities funds are covered by the Regulations Governing Securities Investment Trust Funds.

— Futures funds are covered by the Regulations Governing Futures Trust Funds.

— Real estate funds are covered by The Clauses of the Real Estate Securitization Act.

Tsai Lilin, Taipei based Section Chief of Investment and Trust said that the FSC has engaged the services of an external agency to assess the feasibility of reducing complexity by introducing an overarching regulation that would cover investment products of fund companies,

Fig 3. Taiwan’s futures volumes have been on the rise along with the primary index amid speculation about Taiwan-China Exchange link.

securities companies, trust companies and banks. She also said that there is likely to be a public consultation on the issue later this year so that market participants can provide their views.

Henry Lin, the Taipei based chairperson of the Securities Investment Trust and Consulting Association commented that the association supports this regulatory move and is already in the process of gathering feedback from domestic asset management companies in this regard.

Fig 1. Turnover velocity April 2015: 82% April 2014: 92% April2013: 69%



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Fig 2. China linked ETFs listed in Taiwan saw high inflows in the beginning of the year. Although this has slowed in recent months, volumes are still more than double compared to last year.

Taiwan

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Source: Dealogic


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1307.TW 41% 68,680,640 2.76 4426.TW 55% 183,287,400 3.15

2923.TW 40% 7,390,565 2.10 1464.TW 41% 71,195,320 2.65

4137.TW 30% 114,732,300 2.18 9943.TW 34% 67,189,670 4.34

1536.TW 24% 220,277,900 1.93 1452.TW 28% 167,550,200 4.26

6409.TW 23% 73,136,730 1.41 2108.TW 28% 33,595,360 4.38

3545.TW -12% 84,530,500 0.75 2402.TW -14% 70,777,420 0.56

3006.TW -12% 78,594,930 0.57 3605.TW -15% 12,881,420 0.69

3474.TW -12% 1,020,127,000 0.89 4108.TW -15% 19,230,970 1.34

2408.TW -12% 140,818,700 0.60 2368.TW -16% 82,150,130 0.43

2439.TW -29% 260,837,000 1.07 3406.TW -18% 148,809,300 0.57



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Fig 5. TWSE index is up 7% YTD, gaining over 4% in month of April alone amidst speculations of a Taiwan Shanghai Stock connect link.

Fig 4. Both average trade size and average spread on Taiwan stocks has gone down by 7% and 8% respectively versus beginning of this year.

Fig 7. Average monthly IPO size in Taiwan this year is higher than last year’s average at US $47Mn, compared to US $47Mn per month average for last year. IPOs so far have been tech and healthcare sector focused.



Source: Dealogic



Sep-14 2 31% 4% 10%

Oct-14 1 -3% -19% -21%

Nov-14 1 -11% -17% -24%

Dec-14 4 9% 16% 11%

Jan-15 2 39% 0% 35%

FSC broadens investment scope for ministries to include domestic equity ETFs

The FSC is planning to extend domestic Taiwanese equity ETF investment opportunities to 57 related financial entities and institutions of 15 ministries in Taiwan. This move is aimed at helping the financial entities generate better returns and enhance their assets whilst also helping to reduce the concentration of China-A share related ETF investment that is currently observed in the Taiwan market. It is also hoped that this relaxation of investment scope will increase the scale of Taiwan’s capital market and market liquidity.

This move is likely to include ministries such as Ministry of Economic Affairs and Ministry of Transportation and Communication which currently hold approximately US$ 6.32 billion in assets with an annual return of under 1 %. By comparison the annualised ROI for 17 domestic Taiwanese equity ETFs over the last 10 years was 4.36 %.

Chang Yi-Hsin, Section Chief at Taiwan’s’ Securities and Futures Bureau (“SFB”) commented that such ETFs are less risky compared to equities and have the potential to generate better returns. He further noted that some of the financial entities have already modified their investment scope rules and regulations and have commenced investing in the domestic equity ETFs.

Taiwan Banks allowed to outsource the management of 25 % of their net worth

Under the new rules effective 23rd April 2015, commercial Taiwanese banks are now allowed to outsource the investment management of up to 25 % of their net worth (potentially up to US$ 23.4 billion across the industry) to external managers. Such external managers can be securities investment trust enterprises (“SITEs”), securities investment consulting enterprises (“SICEs”) or trust enterprises but they all must be FSC approved to perform investment management business and they must also have at least TW$ 1 billion of assets under management. The FSC guidelines permit outsourced assets to be allocated to domestic stocks, international stocks short-term notes and government bonds.

Lui Huei-Rung, Deputy Director General at the FSC’s Banking Bureau commented that prior to this forward looking move, commercial banks were permitted to invest only using their own in-house capabilities. So it is hoped that allowing commercial banks to leverage the expertise of external managers could help boost the investment returns for the banks whilst also supporting the growth of the local asset management industry.

20


It is expected that the banks may initially require some time to update their own regulations and secure the necessary internal approvals before they can start engaging external managers.

Venue News

Taiwan- Singapore Stock Connect set for official launch on 1st July, further connections planned

The trading link between the Taiwan Stock Exchange (“TWSE”) and the Singapore Exchange will be officially launched on 1st July. This new mechanism is intended to infuse momentum into the two security markets and is the culmination of the two bourses collaboration since they signed the original letter of intent in September last year. TWSE Vice President Yang Chao-Jung commented that the two stock exchanges have already set up a special purpose vehicle in their respective domestic markets to handle the inbound and outbound orders, while the discussions regarding trading, settlement and risk management are all underway.

Mr Yang also added that the TWSE is continuing to consider a stock connect between Taiwan and Japan that would likely be based on a similar model as the forthcoming Taiwan and Singapore connection. In advance of the Taiwan and Japan link-up the two bourses are preparing to allow the cross-listing of ETFs (likely similar to the cross-listing scheme that was set up between Taiwan and Hong Kong in 2009). The ETF cross-listing and planned link-up with Tokyo are both examples of Taiwan’s efforts to attract more Japanese investment into the country.

Furthermore, at the 5th Economic and Financial Forum in Taipei, Jiang Yang (Vice Chairman at the China Securities Regulatory Commission) said that the regulator is currently investigating the possibility of another stock connect platform between Shanghai and Taiwan.

TWSE to introduce dual currency trading

President of the TWSE, Michael Lin confirmed that the exchange is intending to introduce a dual currency trading regime that would enable securities to be traded in the Taiwanese dollar and another freely convertible currency. This move is aimed at facilitating convenient and diversified trading opportunities for investors at a low foreign currency conversion cost.

To begin with, TWSE is contemplating the introduction of renminbi currency ETFs in order to cater to the growing market demand for renminbi investment products in Taiwan. The current renminbi product range is limited to bank deposits, insurance policies and RMB funds. Mr Lin confirmed that renminbi currency ETFs are being prioritised but acknowledged that there are still a number of challenges including:

— Although Taiwan has been approved for the renminbi qualified foreign institutional investor (“RQFII”) platform it has not yet been granted a quota.

— Taiwanese retail investors are subject to a RMB 20,000 daily conversion limit.

Despite these points the TWSE has already appointed Bank of China to act as the settlement bank for renminbi currency ETFs and they also intend to sign a MoU with the bank to continue developing renminbi products in Taiwan.

First Corporate Governance review completed

The TWSE released the Corporate Governance Evaluation results on 30th April following the introduction of the framework in 2014. A total of 1,393 companies, 798 TWSE-listed and 595 TPEx-listed companies, were evaluated, with the top 20% of scores being published per the tables below (160 TWSE-listed and 119 TPEx-listed companies). The average score of the companies when assessed against 92 indicators from five different categories was 73.45, and the average score for TWSE-listed companies was 74.23 and TPEx-listed companies was 72.41.

The electronics industry ranked top with 150 companies and nearly 70% of the companies in the financial industry were included in the top 20%. In terms of company scale, TWSE-listed companies with capital of more than NT$5 billion placed in the top 20% at 67%. TPEx-listed companies mainly consist of small and medium sized companies with capital of less than NT$1 billion; companies with more than NT$5 billion in paid-in capital have a higher percentage in the top 20%.

The full list of evaluation results can be found here: http://www.twse.com.tw/en/about/press_room/tsec_news_detail.php?id=16419

Sources:

http://www.twse.com.tw/

http://ignitesasia.com/

Contact


21

Global Market Structure Japan


Global Market Structure Japan Newsletter Issue 37, 2015



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GPIF select managers to assist with portfolio transition

The Government Pension Investment Fund (“GPIF”) is the world’s largest public pension fund with ¥ 137 trillion of assets. Historically the GPIF has invested conservatively with 60 % allocated to domestic bonds but last year they announced a radical change to their investment strategy. The domestic bond allocation target will reduce to 35 % with offsetting increases in Japanese and foreign equities (up from 12 % each to 25 % each) and foreign bonds (up from 11 % to 15 %) while alternative investments can account for up to 5 %.

In April the GPIF took the next steps towards actioning this new investment strategy by selecting a number of fund managers to assist with the portfolio transition. They also indicated they may consider environmental, social and corporate governance factors in their investment decisions.

New corporate governanc e code becomes effective in June

On 1st June a new corporate governance code will be introduced to help align Japan with internationally accepted best principles and therefore addressing a perceived gap between Japan and their peers. The new code is titled “Japan’s Corporate Governance Code (Final Proposal) – seeking sustainable corporate growth and increase corporate value over the Mid- to Long-term” and is split into the following five sections:

1. Shareholder rights and equal treatment of shareholders;

2. Proper cooperation with stakeholders;

3. Proper disclosure and transparency;

4. Responsibilities of the boards; and

5. Shareholder engagement.

The new code is intended to be applicable to all companies listed in Japan though the code is deliberately drafted under a principle-based approach. Companies are therefore encouraged to comply with the spirit of the principles but are not forced to so long as their reasons for not doing so are explained.

The full code details can be accessed here:http://www.jpx.co.jp/english/equities/listing/cg/index.html

Investment trusts set new net assets record

At the end of March Japanese investment trust net assets reached ¥ 97 trillion setting a new record for the third consecutive year. The significant 21 % year-on-year increase was boosted by higher share prices, weaker yen and local retail investor demand. Funds investing in foreign stocks and real estate were particularly popular over the last year but more recently several new Japanese equity focused funds have been launched to capitalise on demand for domestic equities.

Impact of Tick Size Pilot Program on Trading Costs at Tokyo Stock Exchange

TSE released a paper earlier this year assessing the impact of the two phases on tick size pilot program on Topix 100 names. The study compares market microstructure features of impacted securities over a period of one month before and one month after the tick size change.




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Fig 2. Japanese stock market is picking up momentum after lack luster performance last year. Market participants are expecting another round of quantitative easing in later Q3 or Q4 this year. iShares MSCI Japan which is Japan’s largest ETF has rallied 18% YTD after having underperformed the S&P 500 and Europe ETFs for the past 5 and 10 years.

Fig 4. Japannext and Chi-X now together contribute only 5% of overall trading volume on Japan equities market.

Fig 3. – Futures turnover for all of listed Japanese index futures is on average up 67% compared to same time last year.


%

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Key highlights of the paper:

— Both quoted spread and effective spread decreased. Total spread cost reduction since Phase 1 was JPY 556 million, and total value-based effective half spread decreased by 3.76bps, which is equal to JPY 397 million on a daily basis (JPY 99.2 billion on an annual basis) based on ADV of TOPIX100 constituents.

— There was an observed reduction in intraday volatility at one-minute intervals due to BBO price moving at smaller tick sizes.

— Execution size, decreased with larger executed order size.

— Increased market impact cost did not negatively impact effective spread even for extremely large-sized orders.

For the full TSE paper click here: http://www.jpx.co.jp/english/corporate/research-study/working-paper/b5b4pj000000i468-att/Summary_JPX_wp_No7.pdf

Venue News

OSE launch Nikkei 225 weekly options

On 25th May the OSE launched weekly option contracts on the Nikkei 225 index. The new weekly contracts are largely based on the existing monthly contracts (which would continue to be traded as before) and are intended to allow better risk management from more precise hedging. Similar weekly contract products have been available on other global exchanges since 2005 but thisis the first Japanese stock index weekly option in the world.

The OSE will support the launch of the new weekly contracts with a related fee discount promotion as shown in the below table:

Item Column

Primary Market Maker(PMM)

Fee discount JPY 40 per contract

Criteria for Receiving Incentives

Average monthly performance is 60% or above.

Applicable period until August 31, 2015(*)

All Participants(Except PMM)

Fee discount JPY 25 per contract

Applicable period until August 31, 2015(*)

*Trading Date basis. Regular fee will be applied once the campaign period ends.

Further details on the new contracts can be found here:http://www.jpx.co.jp/english/derivatives/products/domestic/225options/tvdivq0000002bpw-att/WeeklyOP_E.pdf


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Fig 6. Topix index broke its 7-year high in April reflecting investor’s confidence in the joint efforts by the government and central bank to spark growth through monetary easing despite poor manufacturing growth data.

Fig 5. Average spread on Japanese stocks is seen to have narrowed by 17% since beginning of this year.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

3387.T 44% 104,173,900 2.12 7607.T 38% 13,774,930 2.78

7259.T 30% 756,198,000 1.15 4745.T 36% 91,196,920 3.87

3880.T 25% 62,032,030 1.25 7243.T 27% 14,484,890 0.77

1959.T 22% 57,156,300 1.03 2918.T 23% 55,416,270 1.82

3116.T 21% 127,701,600 0.82 6924.T 23% 127,377,000 3.82

9948.T -11% 96,860,120 1.48 4989.T -13% 26,434,220 1.46

3349.T -12% 366,256,500 1.62 6640.T -13% 94,361,790 1.13

6588.T -13% 159,160,400 1.31 3333.T -15% 52,625,160 1.80

4751.T -14% 1,347,170,000 1.52 6814.T -16% 36,598,940 1.31

8035.T -20% 2,312,340,000 1.71 3673.T -20% 72,515,770 1.28




0

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Source: Dealogic

Average Monthly IPO Exchange Market

IPO

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Mar

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285

290

295

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Fig 8. Japan market has seen a total of 35 IPOs this year so far with average monthly IPO size of US$ 403Mn. All of these new listings are trading at a 45 – 70% premium to their list price.


Jan-15 - - - -

Feb-15 7 50% 34% 46%

Mar-15 17 47% 83% 75%

Apr-15 11 49% 0% 77%

23


JPX and SGX launch co-location direct service

JPX and Singapore Exchange Group (“SGX”) signed a letter of intent last December with a view to building a strategic relationship of cooperation. Now the two partners have announced the April launch of the ‘JPX-SGX Co-Location Direct Service’ which provides direct connectivity between their respective co-location data centres.

Atsushi Saito, JPX CEO commented: “We are particularly pleased with the creation of this new infrastructure service, which will provide the foundation for a bridge between the two exchanges going forward. We hope it will serve to boost both markets by enhancing the convenience of trading participants and expanding trading opportunities”.

TSE and OSE open new branch office in Singapore

On 1st May the Tokyo Stock Exchange (“TSE”) and Osaka Stock Exchange (“OSE”) (subsidiaries of the Japan Exchange Group) opened a branch office in Singapore. The new branch will replace the existing representative office and is intended to help boost the profile and appeal of Japanese investments within the Singaporean market.

Arrowhead renewal and Tick Size Optimisation scheduled Sept 2015

In Japan the TSE is working on the Arrowhead renewal to improve their trading platform’s reliability, convenience and capability. The co-location facility now called “JPX co-location (open)” used to be owned by the Osaka Stock Exchange (“OSE”) before the merger of OSE and TSE. Since the merger, there are now two co-location facilities JPX co-location (open) which supports derivatives trading only and JPX co-location (All) which supports both cash and derivative trading via Arrowhead and J-GATE engines respectively. JPX is planning to shut down the old JPX co-location (open) facility previously owned of OSE.

Next round TSE Optimisation is schedule to go live in September 2015 where by TSE plans to widen the tick sizes of a subset of Topix100 stocks.

Personnel News

Senior management changes at JPX

In April the Japan Exchange Group (“JPX”) announced a number of senior management changes including the following:

— Hiroki Tsuda appointed Chairperson of the Board of Directors at JPX, effective 16th June 2015.

— Koichiro Miyahara appointed President and CEO at TSE.

Hiromi Yamaji and Takafumi Sato were also reappointed as President & CEO of OSE and President of Japan Exchange Regulation respectively.

Contact


Sources:

http://www.jpx.co.jp/

http://www.complinet.com/

http://www.bloomberg.com/

http://ignitesasia.com/

http://asia.nikkei.com/

SBI Japannext

24

Global Market Structure India


Global Market Structure India Newsletter Issue 37, 2015



SGX Nifty NSE Nifty Banks NSE Nifty

$0

$500

$1,000

$1,500

$2,000

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s




EQUITY FUTURES ETFS

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Market Structure

Government appoints committee to review MAT, will not issue any further demands

On 7th May, Mr Jaitley announced the creation of a committee designed to review the issue of applying Minimum Alternate Tax (“MAT”) to Foreign Institutional Investors (“FIIs”). The committee will be headed by A P Shah (Chairman of the Law Commission) and has been tasked with providing MAT recommendations as quickly as possible. Further, on 11th May the Central Board of Direct Taxation stated it would take no coercive action to pursue claims that have already been filed and that no new claim letters would be issued.

In the budget announced late February, Mr. Jaitley said that MAT would not be applicable to foreign companies from April 1, 2015 which was interpreted to mean that foreign investors should have paid MAT for previous years. Subsequently, tax demands with a total value over INR 6 billion (US$95 milion) were sent to around 68 of the approximately 6,000 overseas funds registered in India. Aberdeen Asset Management filed against their MAT claim at the High Court of Bombay.

Foreign institutional investors have reacted by diverting funds to other Asian markets. According to a 7th May article in the Economic Times, FIIs have invested funds worth over $30 billion in Canadian, Brazilian, Japanese, South Korean, and Taiwanese equities since the beginning of April. In contrast, Indian markets have experienced a massive drain of foreign funds during the same period.

Minimum Alternate Tax requires that if a company’s income tax in India is less than 18.5%, then it has to pay the MAT, which comes to around 20%, including additional duties.

Sources:http://business.asiaone.com/news/india-offers-more-clarity-and-certainty-foreign-investors

http://www.financialexpress.com/article/economy/clarificatory-order-on-mat-soon-jayant-sinha/66384/

http://www.ft.com/cms/s/0/df701f7a-ea68-11e4-96ec-00144feab7de.html?siteedition=intl#axzz3ZE6P3sRI

http://timesofindia.indiatimes.com/business/india-business/Finance-Minister-sets-up-panel-to-study-MAT-on-FIIs/articleshow/47194719.cms

http://blogs.wsj.com/briefly/2015/04/17/indias-minimum-alternate-tax-the-short-answer/

http://marketrealist.com/2015/05/indias-foreign-investors-upset-minimum-alternate-tax-rules/

http://www.ft.com/intl/cms/s/0/e81fad0e-f53d-11e4-8c83-00144feab7de.html#axzz3b4SPObO0

http://in.reuters.com/article/2015/05/11/india-tax-dispute-idINKBN0NW18P20150511

http://blogs.wsj.com/indiarealtime/2015/05/12/india-to-ease-up-on-demands-foreign-investors-pay-minimum-alternate-tax/



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Fig 2. Indian equities may seem like it is losing steam as controversy over retrospective MAT application spooks foreign investors; however positive fund flows into Indian ETFs can still be found.

Fig 3. NSE recorded the highest ever turnover in futures and option trading on 30th April futures expiry date, trading Rs. 6.27 lakh crore worth of derivative contracts.

Fig 4. BSE’s market share dropped 1.3% last month, now averaging at 15%.


%

NSI 1.27% BSE 1.27%


0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

0% Jan-12 Apr-12 Apr-15 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Oct14 Jan15

India

25


Further GAAR deferral confirmed

The delay of the General Anti-Avoidance Rules (“GAAR”) that were due to be effective from 1st April have now been deferred until 1st April 2017 following an announcement by Finance Minister Arun Jaitley while presenting the 2015-16 Budget. Investments made prior to that date will not be challenged by the Indian tax authorities under GAAR.

National Pension System may increase investment flexibility

The National Pension System (“NPS”) in India is considering a number of ways to increase investment flexibility for both individual participants and fund managers. The Pension Fund Regulatory and Development Authority (“PFRDA”) confirmed that one potential option is to raise the 50 % cap on equity exposure for private sector employees. Another proposal is to allow 10 – 15 % investment in private equity funds, venture capital funds and alternate investment funds though this option is likely to be restricted to high networth individuals due to the higher risk profile.

Discussions are also ongoing between PFRDA and the Finance Ministry with respect to the tax status of the NPS. Currently the NPS retirement lumpsum and annuities will be taxed but there is a desire to secure tax parity with the employee provident fund by making the lumpsum and annuities tax exempt.

Source:http://www.business-standard.com/article/pf/pension-regulator-might-raise-nps-equity-investment-cap-for-pvt-sector-115041600034_1.html

SEBI issue discussion paper on changes to the OFS mechanism

Earlier this year SEBI released a “Discussion paper on issues pertaining to offer for sale of shares (“OFS”) through stock exchange mechanism”. The OFS through stock exchange mechanism was originally introduced in January 2012 as an additional means for promoters to sell shares. Other mechanisms already in existence at the time included:

— Sale of shares in the secondary market;

— Offer for sale of shares to the public through prospectus;

— Sale through block deal window; and

— Spot delivery under Securities Contracts (Regulation) Act, 1956.

Since 2012 the OFS mechanism has been used by 117 companies (and also by the Government of India to assist with the divestment of public sector undertakings). Over time a number of suggestions for amendments to the OFS mechanism have been proposed and now SEBI have requested market participant feedback on the following five such points:

1. Appropriate notice period for OFS keeping in mind interest of investors as well as sellers.

2. Need for imposing price band on stock on the day prior to OFS day.

3. Need for halt / suspension of trading in concerned stocks on the date of OFS.

4. Whether OFS should be held on Saturday.

5. Need for providing option to retail investors to bid at cut-off price in all OFS.

The paper closed for comment on 18th April, the full text can be found here:http://www.sebi.gov.in/cms/sebi_data/attachdocs/1428321495668.pdf


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Fig 6. Nifty Index dropped for two consecutive months March and April as market experienced selling on the last day of April derivative contracts, MAT worries, disappointing Q4 results so far and sluggish global cues.

Source: Dealogic


Average Monthly IPO Volume (US$m)

Exchange Market Cap (US$Trillion)

IPO

Vo

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e (U

S$

m)

Mar

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Cap

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Fig 8. Sluggishness can be seen in the IPO market as well, only 10 new IPOs in the year so far some of which are trading below the listing price.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

RELI.NS 3% 1,239,160,000 1.29 SESA.NS 10% 283,610,400 1.01

ICBK.NS 2% 1,231,974,000 0.92 BHEL.NS 3% 228,665,600 0.78

COAL.NS 0% 334,484,900 0.70 MRTI.NS 2% 499,536,400 1.40

AXBK.NS 0% 1,184,247,000 1.23 NTPC.NS 2% 151,061,800 0.59

ONGC.NS -1% 376,650,500 0.89 NMDC.NS 0% 70,406,120 0.80

TAMO.NS -10% 695,551,400 0.92 REDY.NS -6% 352,573,800 1.03

INFY.NS -11% 1,814,297,000 1.03 ASPN.NS -7% 285,137,900 0.81

HDFC.NS -12% 1,151,516,000 1.07 ULTC.NS -7% 285,605,100 1.24

SUN.NS -13% 5,667,680,000 3.88 IDEA.NS -8% 460,004,300 1.47

WIPR.NS -15% 398,548,000 1.21 LUPN.NS -13% 900,962,700 1.94



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26


Stress testing required for liquid and money market mutual funds

India has responded to concerns that they are vulnerable to US interest rate hikes with the Securities and Exchange Board of India (“SEBI”) formalising stress testing guidelines for liquid and money market mutual funds (totalling Rs 1.6 trillion at the end of Q1). In the summer of 2013 the Central Bank had to introduce a special borrowing window after a sudden increase in short-term interest rates triggered high redemption demand. As a result many fund managers were already running such stress tests but it is hoped that by formalising the testing requirement (including the need to have policies to address any identified weaknesses) it will help to strengthen the risk management across the industry.

Source:http://www.reuters.com/article/2015/04/30/india-regulator-funds-idUSL4N0XR5IM20150430

Mutual fund commission payouts capped at 1 %, mandatory holding periods reduced

From 1st April, guidelines issued by the Association of Mutual Funds of India (“AMFI”) have required mutual funds to follow a uniform upfront commission payout cap of 1 %. Historically there have been significant variations in such upfront commission payouts which were often mirrored with significant variations in early redemption penalty thresholds.

Following some initial reluctance most industry participants are following the guideline’s standardised 1 % cap and as such some mutual fund houses in India are now following this change by also amending and standardising the terms of their early redemption penalties.

The penalties generally remain at 1 % but the minimum period investors must hold their position to avoid this early redemption penalty is typically being shortened to one year from an average of 18 months. It is hoped that this additional change will benefit investors by increasing flexibility and also making it easier to directly compare fund products.

Sources:http://articles.economictimes.indiatimes.com/2015-04-13/news/61103088_1_exit-load-mutual-funds-many-funds

http://www.financialexpress.com/article/markets/indian-markets/wont-intervene-in-amfi-decsion-to-cap-upfront-commission-at-1-sebi-chief-uk-sinha/58832/

http://timesofindia.indiatimes.com/business/mf-simplified/mf-news/MF-upfront-commissions-capped-at-1-from-April-1/articleshowhsbc/46696276.cms

Stock market growth not currently reflected in the IPO market

India’s stock market was the second best performer in Asia last year, partially attributable to strong flows of foreign investment, and the stock market strength has continued into 2015. Yet growth in the Indian IPO market has not followed with money raised from public offerings only just surpassing US$ 250 million so far this year compared to a peak of almost US$ 8.5 billion in full year 2010.

Listing prospectuses are subject to thorough regulatory review and approval processes as SEBI look to protect the retail investor base and ensure accurate disclosures.

Some larger firms have chosen to raise funding overseas instead of domestically but it is more difficult for smaller firms who may also struggle to obtain bank loan funding.

Source:http://www.complinet.com/global/news/news/article.html?ref=178255&high=indian+regulator+under+fire+over+IPO&ephigh=

KYC processes standardised for equities and commodities

The Forward Markets Commission (“FMC”) has announced that the commodity derivatives KYC process will be aligned with that prescribed by SEBI for the securities market. Standardising the KYC procedures and documentation requirements across products will facilitate a more efficient trading registration process for market participants.

Source:http://www.livemint.com/Money/eIqUi2xDeJIXeZse81LvTN/FMC-modifies-KYC-registration-process-in-line-with-Sebi.html

Venue News

SEBI releases conclusions for colocation consultation

On 15th May, SEBI released guidelines for the exchanges to implement with regard to their colocation or proximity hosting services. The NSE and BSE have 3 months to update their rules accordingly.

The main recommendations include requirements to:

— provide services in a fair, transparent and equitable manner

— ensure fair access to services and data feeds

— ensure all stock brokers and data vendors have similar latencies

— ensure the size of the premises is sufficient

— provide the flexibility to make rack space available

— provide either an approval or rejection for an application for space within 15 days

— identify orders

Exchanges will need to make public:

— requirements to be fulfilled by stock exchange members and data vendors

— information on the facility including fees

— latency statistics on at least a quarterly basis

— suitable statistics on orders and trades

SEBI has decided not to implement the suggestion to split the order queue into colocated and non colocated orders, and rotate sending orders to the matching engine from the two queues.

The SEBI Circular can be accessed here: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1431512252858.pdf

Source: Dealogic


FY 2014 Apr 2015

0% 10% 20% 30% 40% 50%

FIG

Industrials

M&M

REGAL

TMT



Source: Dealogic



Jan-15 1 1% 2% 3%

Feb-15 4 -5% -8% -13%

Mar-15 5 2% 2% 4%

Apr-15 - - - -

27


BSE extends cooperation with Deutsche Börse, launches new market data stream

In March the latest strategic connectivity development between the Bombay Stock Exchange (“BSE”) and Deutsche Börse was announced. Starting in Q2 this year, BSE participants will be able to connect their trade execution systems to the BSE through Deutsche Börse’s low latency N7 network via data centres in Hong Kong and Singapore. Equities, derivatives and currencies will all be available through this direct connection service.

Ashishkumar Chauhan, (MD and CEO of BSE) commented: “We are pleased that Deutsche Börse is offering its N7 low latency network to our members and investors. This service will enhance infrastructure services available to BSE members and investors. The use of N7 will bring Indian markets closer to larger customers abroad and attract more capital for Indian capital markets”.

At the end of March, the BSE also started rolling out their new market data stream for equity derivatives (with currency derivatives to follow). The new stream is called BSE Enhanced Order Book Interface and it provides order-by-order market data so that all members accessing through API-based applications can receive the full order book including information on individual orders and executions.

Sources:http://asiaetrading.com/deutsche-borse-and-bse-extend-cooperation/

http://www.bseindia.com/markets/marketinfo/DispMediaRels.aspx?page=2aa23603-9615-4d5d-ad3b-1a339c4e94e7

http://www.bseindia.com/markets/marketinfo/DispMediaRels.aspx?page=71a1cf56-4c9e-4988-9f0a-3ac8f6824ef8

Jaipur Stock Exchange exits bourse business

In March, SEBI approved the Jaipur Stock Exchange’s (“JSE”) voluntary surrender of stock exchange status. The JSE was originally recognised as a stock exchange in January 1989 but the JSE shareholders passed a resolution last year to voluntarily exit the bourse business subject to the terms of the SEBI guidelines issued in 2008.

The SEBI norms allow exchanges who fail to reach Rs 1,000 crore in annual trading turnover to voluntarily exit the bourse business (SEBI can also enforce a compulsory exit process).

Source:http://ibnlive.in.com/news/sebi-permits-jaipur-stock-exchange-to-exit-bourse-business/535753-7.html

Contact


28

Global Market Structure South Korea


Global Market Structure South Korea Newsletter Issue 37, 2015

Market Structure

FSC approves expanding daily price limits and improving market stabilisation facilities

The Financial Services Commission (“FSC”) approved the revised business regulations aimed at expansion of daily price limit and improvement of market stabilisation facilities for the KOSPI, KOSDAQ and Derivates Markets of the Korea Exchange (“KRX”) on 29th April.

Exact dates of implementation are yet to be announced, highlights of the changes include:

— Expansion of daily price limit: The daily price limit for stocks, DRs, ETFs, ETNs and beneficiary certificates of the KOSPI and KOSDAQ market is expanded from ±15% to ±30% based on base price. Daily price limit for stocks in the KONEX Market will remain at current level of ±15%.

— Introduction of Static Volatility Interruption (“SVI”): Sets a cooling-off period for two minutes for a sudden price change by 10% or more based on the price determined at the single price auction and is designed to control larger price change. The Dynamic Volatility Interruption (“DVI”) was establish in September 2014 and sets dynamic price range consecutively based on the most recent price in order to curb any short-term price movement caused by a specific quotation.

— Improvement in random end trading mechanism: The improved random end trading mechanism will be applied to single price auction whose functions, in part, overlap with the volatility interruption. The current conditional execution is triggered when potential call price deviates by more than 5% from either the highest or the lowest expected call prices published during last 5 minutes to the call execution time. For the new mechanism, there will be a random delay of up to 30 seconds for all securities after which execution will become unconditional (rather than conditional)

— Providing information on VI triggering: KRX will provide investors with information on current Volatility Interruptions and details on the past VIs on KRX home-page by issue and date for reference of trading activity to investors.

— Improved Circuit Breakers (“CB”):

PHASE Criteria for triggering CB Details of Market Management

1 — 8% or more decline of KOSPI or KOSDAQ market index from previous day, lasting 1 minute

— The entire market halts trading for 20 minutes (cancellation quotation only accepted)

— Resuming with single price auction for10 minutes

2 — 15% or more decline of KOSPI or KOSDAQ market Index from previous day.

— Additional decline of 1% or more from the time of Phase 1 CB triggering (Both conditions must be met, lasting 1 minute )

— The entire market halts trading for 20 minutes (cancellation quotation only accepted)

— Resuming with single price auction for 10 minutes



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Fig 2. Since Korea’s central bank cut its benchmark rate to a historical low of 1.75% in March, retail investors, frustrated by slow wage growth and low deposit rates, have poured into stocks. Similar to China, turnover in Korea is being led by retail liquidity, which accounts for 65% of stock-market turnover, compared with China’s 80% to 90%

Fig 3. Average trade sizes in Korea have increased by 5% and spreads narrowed 11% since the beginning of this year. .

.


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Fig 4. Kospi index has been riding the bull run alongside China and Hong Kong, benchmark index is up 11% YTD and up nearly 4% in April



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29


3 — 20% or more decline of KOSPI or KOSDAQ market Index from previous day.

— Additional decline of 1% or more from the time of Phase 2 CB triggering (Both conditions must be met,lasting 1 minute )

— The entire market shall be closed (Entire quotations including cancellation quotation are not accepted)

— After-hour market shall not open.

Tightened conditions to trigger VI on the last trading day: In case of last trading day’s closing price for equity-related derivatives product (settlement price for derivatives products), more stringent conditions are applied to trigger dynamic VI, which aims to limit the risk of a steep change in the closing price of the stock

For the full notice click here: http://eng.krx.co.kr/coreboard/BHPENG09004/view.jspx?bbsSeq=20227&secretYn=N

FSC outlines measure for Capital Market Reform

On 23rd April the FSC released details of their policy direction for capital market reform aimed at revitalising the capital markets and strengthening its support for real economic activities.

Highlights of the policy direction are summarised in the table below, see more details on: http://www.fsc.go.kr/downManager?bbsid=BBS0048&no=96162

Current situation Policy direction (5) Detailed tasks (15)

Stock exchange market is stagnant compared to advanced overseas markets

Reorganize the he bourse system

1. vitalize the KONEX market2. foster competition among

exchanges3. enhance the vitality of capital

markets

Investment in start-ups and venture companies still fall short

Boost venture capital investment

4. remove barriers for venture capital investment

5. diversify venture capital investors’ options to recoup their investment

6. stimulate private bond markets

Needs for asset accumulation grow for aging population, while investment returns fall

Improve asset management efficiency in financial

7. revise PEF regulations8. enhance management of

pension assets9. foster financial investment

advisory businesses

Market infrastructure and investor protection lag behind international standards

Enhance efficiency and trust in transaction

10. introduce electronic securities system

11. improve public disclosure rules

12. establish a ‘stewardship code’

Regulations and practice restrict market players’ business activities

Strengthen competitiveness of financial investment businesses

13. strengthen the role of securities firms in raising capital

14. encourage securities firms to offer asset management services

15. strengthen competit-iveness of asset management businesses

Exemption of Securities Transaction Tax For Market Makers of Single Stock Futures & Options

Since 13th March, the Securities Transaction Tax (“STT”) of 0.3% has been exempted for the portion of underlying stocks that are sold for the purpose of hedging against the risk of price fluctuations that may occur in the course of market-making for single stock futures and options by the market makers concerned.

This tax exemption is implemented for single stock futures/options market makers in the KOSPI market first and is expected to be expanded further to KOSDAQ’s single stock futures to be listed by the end of this year.

KRX expects that with easier risk hedging made possible by the exemption of the STT, the supply of liquidity will be expanded further.

This tax exemption should also make trading environment more favourable for investors as VWAP impact cost narrows due to the narrowing quotation spread resulting from the expanded liquidity supply by market makers.


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Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

090430.KS 1064% 1,218,421,000 1.27 128940.KS 73% 1,751,836,000 3.12

002790.KS 1019% 258,315,200 0.81 006650.KS 55% 286,463,800 2.97

004800.KS 40% 632,075,600 2.18 002240.KS 35% 46,230,870 1.89

006800.KS 29% 1,659,584,000 2.99 005300.KS 33% 246,875,000 1.94

016360.KS 25% 1,027,601,000 2.75 000210.KS 30% 911,374,300 1.76

139480.KS -5% 341,483,000 1.30 003490.KS -10% 558,817,500 0.95

034220.KS -6% 1,338,041,000 1.43 005610.KS -11% 160,679,100 1.61

051900.KS -6% 1,416,004,000 2.07 011070.KS -11% 459,947,000 1.16

009150.KS -7% 1,006,050,000 1.37 052690.KS -11% 227,355,000 1.22

006400.KS -10% 900,671,600 1.32 003300.KS -17% 80,328,920 1.56


Source: Dealogic



IPO

Vo

lum

e (U

S$

m)


Mar

ket

Cap

(U

S$

tri

llio

n)

1020

1040

1060

1080

1100

1120

1140

1160

1180

0

50

100

150

200

250

300

350

400


Fig 6. 4 new listings in the year so far, all of which are trading at a big premium to their listing price.

Source: Dealogic


FY 2014 Apr 2015

0% 20% 40% 60% 80% 100%

Industrials

TMT



Source: Dealogic



Jan-15 1 76% 30% 40%

Feb-15 - - - -

Mar-15 3 33% 5% 12%

Apr-15 - - - -

30


Venue News

KRX relaxed listing and de-listing criteria for REITS

Effective as of 29th April, the KRX has revised the listing and delisting criteria per details below for REITs companies not specialised in real estate development project.

Criteria Contents

Listing a. Stock distribution: public offering of 25% of outstanding stocks, at least 200 stock holders

b. Business performance: KRW 30 billion in sales (KRW 10 billion for REITs not specialized in real estate development project), KRW 10 billion of equity capital, KRW 2.5 billion of profits

c. Others : Favorable auditor’s opinion, more than 70% of real estate out of total assets

d. Qualitative listing eligibility review criteria : Evaluation regarding going concern, management transparency and business stability, etc.

Delisting a. The same delisting criteria as those of general companies including unfavorable auditor’s opinion

b. Less than KRW 5 billion in sales (KRW 3 billion for REITs not specialized in real estate development project)

c. Failure of meeting criteria on assets composition and distribution stipulated in the Real Estate Investment Company Act

d. Occurrence of malpractice, embezzlement and suspension of major business among criteria for the listing maintenance review (Criterion of less than KRW 500 million in quarterly sales is removed.)

KRX’s US Dollar Futures trading hits new record

Trading volume of the nighttime US dollar futures market posted 1,885 contracts on 24th February. It is the highest figure ever recorded since opening of the market on 8th December, 2014.

According to KRX, this bullish performance is attributable to the fact that the trading orders which had been accumulated during the four New Year’s holidays were absorbed by the nighttime market when it was reopened immediately after the end of the holidays and the investors had the intention to hedge against currency risks that arose during the holidays.

KRX reaches out to overseas investors for boost revive its derivatives market

As part of KRX’s long term plan to expand its overseas business and also to give a boost to its derivatives market, the Korean exchange is actively reaching out to potential investors overseas.

“We may no longer sit back and blame (the government’s excessive) regulations for holding back our derivatives market,” said Kang Ki-won, director of the KRX derivatives market division.

Korea’s derivatives market is largely represented by KOSPI200 futures and options, and also includes product derivatives such as oil, gold and carbon emission rights. Korea’s derivatives market, which was once the world’s No. 1, recently slipped down to No. 11 due in part to the growth of rival countries such as China and India, according to officials. “It is now up to the capacity of the KRX to lower the threshold for investors and to expand the market.” said Kang Ki-won.

KRX and STOXX Signed MOU on Index Projects Cooperation

Mr. Ho-Cheol Lee, President and CEO of KRX and Mr. Hartmut Graf, CEO of STOXX signed a Memorandum of Understanding in Zurich, Switzerland on April 22.

Under this MOU, the two parties agreed to build a long-term mutual cooperation and promote various joint projects such as joint developments of advanced new index and audit aid in partner’s business territory.

Contact


Sources:

www.eng.krx.co.kr

http://www.fsc.go.kr/

http://english.donga.com

http://www.koreaherald.com

31

Global Market Structure Australia


Global Market Structure Australia Newsletter Issue 37, 2015



Turn

over

Vel

ocity

(%)




$0

$20

$40

$60

$80

$100

$120

$140

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Tu

rno

ver

(Bill

ion

s U

SD

)

Market Structure

ASIC repeals certain Market Integrity Rules, allows more crossing flexibility

The Australian Securities and Investments Commission (“ASIC”) has repealed certain obligations listed under the ASIC Market Integrity Rules to reduce the onerous compliance requirements for market participants. This action specifically included a change to the special crossing rules. Previously the rule prohibited the transacting of special crossings and late crossings in companies subject to takeover bids, and companies carrying out an on-market buy-back. Effectively this meant that you could only cross at the mid-point for stocks under takeover, even if the cross was special size. However the amendment of this rule means that brokers will now be able to cross stock in special size outside the spread.

The requirement for certain market participants to notify ASIC of their professional indemnity insurance details and obtain ASIC’s approval before sharing business connections were also removed. Cathie Armour, ASIC Commissioner said: “These obligations, which were based on rules in place before ASIC assumed responsibility for market supervision in 2010, imposed an unnecessary cost on business. ASIC is committed to reducing the compliance burden for participants by administering the law efficiently with a minimum of procedural requirements”.

Australia, US collaborate to supervise cross-border regulated firms

The Australian Prudential Regulation Authority (“APRA”) and the US Commodity Futures Trading Commission (“CFTC”) have signed a memorandum of understanding (“MoU”) to collaborate in the supervision of cross border regulated firms. The agreement between the two bodies is expected to facilitate cooperation and exchange of information necessary in oversight and supervision of firms operating on a cross border basis in Australia and USA. The MoU covers swap dealers and major swap participants.

Through this agreement, the bodies have agreed to consult each other on supervision of institutions that increase risk to the financial markets, the authorisation of swap dealers and the laws that apply to dealers in the US and Australia.

Venue News

ASX announces Q2 trading platform enhancements, new block trading rule

ASX confirmed a number of trading platform enhancements including:

a. Block Trading - Enhancement of ASX Centre Point to support block trading at or outside the NBBO (National Best Bid or Offer). This optional functionality requires two conditions:

i. The participant needs to indicate their willingness to trade at or outside NBBO on their order entry; and

ii. The trade must be above block size. (A$ 1 million for Tier 1, A$ 500,000 for Tier 2 and A$ 200,000). Orders above block size that do not carry the required willingness indicator will continue to


Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)



0

200

400

600

800

1000

1200

1400

1600

1800

0

2

4

6

8

10

12

14

16

18



%


0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%ASX CHA


Fig. 3. ASX chief Elmer Funke Kupper claimed last month that HFT accounts for less than 20% on ASX, with the rest of the market trading being done by retail and institutional investors while two-thirds of the trades retail and institutional investors made on Chi-X were with high-frequency traders. Source of statistics was not revealed. Details on http://www.smh.com.au/business/markets/hft-twothirds-of-chix-trades-claims-asx-chief-20150424-1msjt0.html

Fig 1. Turnover velocity April 2015: 66% April 2014: 55% April2013: 69% .



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

5

10

15

20

25

30

$0

$2

$4

$6

$8


Fig 2. Australia’s equities market saw robust trading volumes in February and March this year, hitting over US$ 5Bn a day. Australia’s growing ETF market has seen increasing flows since last year, up over a 100% yoy.

Australia

Fig. 4. Average trade sizes in Australia have inched up 11% since beginning of this year, while average spreads have narrowed by 8% in the same time.

32


Fig 5. Australia’s benchmark index dropped to year’s low in April as oil prices continued to slip.

trade in the current manner.

Two new order types have been added to ASX Trade OUCH to support these conditions:

i. OUCH Order Type = C: Any Price Block order.

ii. OUCH Order Type = E: Any Price Block order with single fill MAQ.

b. Crossing Dealing Capacity (i.e. Principal / Agency) – Simplified process whereby a new field is utilised to send back crossing dealing capacity in real time (requires a mandatory upgrade of Participants’ systems).

c. Further enhancement to ASX Trade OUCH which will include:

i. Explicit confirmation of whether an order was executed aggressively or passively.

ii. Support for Minimum Acceptable Quantity (MAQ)

iii. 3 new order types will be added to ASX Trade OUCH to support single fill MAQ (“B” for Mid-point, Centre Point block order, “F” for Dark Limit, Centre Point block order & “T” for Limit Sweep Order).

iv. Support for Mid Tick on Mid Point Orders with 8 order types permitting entry of limit prices at half-tick (optional).

v. Order Priority Changes in Centre Point:

1) Amendment of Mid-Tick – order time priority is lost for any amendment of the mid tick c field. (Previously only amending from “with half tick improvement” to “without half tick improvement” or vice-versa results in a loss of time priority).

2) Dark Limit Execution – the previous matching sequence for dark limit orders was time priority for mid-point executions and price time priority for price levels other than mid-point. This priority was changed such that allocations are made based on time priority at each possible execution price.

For further details on the changes see the full notice here:

http://www.asx.com.au/communications/notices/2014/1509.14.12.a.pdf

ASX plans wide scale technology upgrades

ASX announced that it is committed towards upgrading all its major trading and post trade platforms in the coming 3-4 years. This investment is expected to enhance innovations, liquidity and efficiency to customers, and also establish ASX as one of the leading stock exchanges in the world.

The first stage of implementation will involve replacing current equities and derivatives platforms, market monitoring systems and risk management systems and is expected to take between 18 and 24 months. Following that, the second stage will include an upgrade of post trade services, cash market clearing and central securities depository services.

In this regard, Elmer Funke Kupper, ASX Managing Director and CEO, said: “ASX provides critical infrastructure that sits at the centre of Australia’s financial markets. Our investment in new technology will create a more flexible exchange infrastructure and deliver greater innovation to Australia’s financial markets. The new infrastructure will also reduce the internal costs for ASX clients to connect to the exchange and improve time to market for new products. The program has been developed over the last twelve months and has involved extensive benchmarking of alternative solutions for the Australian market”.

For the full announcement see here: http://www.asx.com.au/documents/investor-relations/ASX_Ltd_Technology_Upgrade.pdf



-3

-2

-1

0

1

2

3

4

5

6

7

%


Source: Dealogic

IPO

Vo

lum

e (U

S$

m)


Mar

ket

Cap

(U

S$

tri

llio

n)



1.341.351.361.371.381.391.41.411.421.431.441.45

0

200

400

600

800

1,000

1,200

1,400


Source: Dealogic


FY 2014 Apr 2015

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Auto/Truck

FIG

Healthcare

Industrials

REGAL

TMT



-3

-2

-1

0

1

2

3

4

5

6

7

%


Fig 7. 11 new listings in Australia so far this year, average size of IPOs is smaller compared to last year.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

STO.AX 20% 1,414,790,000 0.91 LNG.AX 46% 359,055,500 1.44

OSH.AX 15% 1,295,641,000 1.16 OZL.AX 23% 208,901,000 0.93

FMG.AX 15% 1,748,058,000 1.09 WOR.AX 23% 610,636,700 1.26

ORG.AX 14% 914,958,000 0.87 WHC.AX 20% 93,113,940 0.93

NCM.AX 10% 1,169,828,000 0.92 NEC.AX 12% 143,010,000 1.01

SPK.AX -6% 90,666,430 0.90 SGM.AX -9% 250,119,900 0.98

ANZ.AX -7% 4,476,052,000 1.00 COH.AX -9% 486,344,000 0.97

MPL.AX -7% 485,333,000 0.50 ANN.AX -10% 648,298,700 1.76

WBC.AX -7% 4,686,816,000 1.02 BSL.AX -13% 332,344,400 0.93

RMD.AX -14% 990,732,900 1.09 SGH.AX -19% 692,886,400 2.79




Source: Dealogic



Jan-15 - - - -

Feb-15 3 3% 59% 26%

Mar-15 5 18% 13% 11%

Apr-15 3 10% 0% 6%

33


Chi-X set new turnover records

On 5th May Chi-X Australia set two new turnover records as follows:

1. Chi-X Daily Continuous Trading Value Traded at A$ 770.9 million (beating the previous high of A$ 731.9 million set on 18th February).

2. Chi-X Daily Hidden Liquidity Value Traded at A$ 201.9 million (beating the previous high of A$ 178.1 million set on 18th February).

ASX and China Futures Association sign MoU

On 26th April the ASX and China Futures Association (“CFA”) signed a MoU to cooperate in areas of mutual interest within the futures markets in China and Australia (complementing a number of other recent strategic agreements between the two nations). In the initial phase, the MoU will involve cross training of the staff of the two countries and exchange of information to develop understanding of products and markets of the two jurisdictions.

In this regard, Peter Hiom, ASX Deputy CEO, said: “The MOU enables ASX to develop a better understanding of China’s futures markets at a time when these markets are evolving rapidly, and the trade and investment flows between Australia and China are growing. ASX operates some of the most liquid and mature interest rate and equity derivatives markets in the Asia-Pacific region. We look forward to learning more about the strong development of the equity and commodity futures markets in China”.

Liu Zhichao, CFA Chairman also commented: “With the joint efforts of both parties, we truly believe that this collaboration will further promote the development of the China futures industry. We look forward to working with ASX in the years ahead”.

Chi-X considering sale at market valuation of US$ 400Mn

Chi-X Global Holdings is exploring a sale that could fetch as much as $400 million. Chi-X handles about 18% of Canadian stock trading, almost 10% of Australian volume and 1.3% of trading of Japan’s Nikkei 225 Stock Average. Chi-X’s owners are keen to sell the company as a whole but may also consider breaking it up regionally. News of Chi-X sale has drawn interest from potential buyers including Nasdaq OMX Group Inc. and Singapore Exchange Ltd. Information above is sourced from people with knowledge of the matter and media as representatives from Nomura, Moelis, Nasdaq and Singapore Exchange have not made any official comments.

Contact


Sources:

http://www.asx.com.au/

http://cmsau.chi-x.com/

http://www.asic.gov.au/

http://www.hedgeweek.com/


34

Global Market Structure Thailand


Global Market Structure Thailand Newsletter Issue 37, 2015

Market Structure

SEC aims to boost foreign company listings

The Thai Securities and Exchange Commission (“SEC”) is refurbishing its strategy to promote foreign activity in the country, including IPOs and listing on the Stock Exchange of Thailand (“SET”). In this regard, the SEC has put in place rules allowing foreign companies to have a primary listing in Thailand.

Foreign companies that are inclined towards raising funds in Thailand will face a similar approval regime to domestic firms with some additional regulatory conditions including:

— Shares publicly offered must be listed on the SET.

— Investor protection measures must be comparable to Thai rules.

— Regulators from the home country must be able to assist with investigations and information and in the event of security law breaches.

— At least two directors must be Thai nationals.

— Financial statement disclosures must be made under Thai accounting standards or internationally accepted standards.

“Primary listing of foreign shares will promote Thai capital market’s linkage with regional and global markets. As such, alternatives for both fundraisers and investors will be widened which will not only foster the growth and attractiveness of Thai capital market, but will also back fund raising and sustainable growth of Thai businesses offshore as well as foreign businesses in need of fund, especially those in neighbouring countries,” said Vorapol Socatiyanurak, SEC Secretary-General.

See the full SEC press release here: http://www.sec.or.th/en/Pages/News/Detail_News.aspx?tg=NEWS&lg=en&news_no=45&news_yy=2015

Source: Dealogic


IPO

Vo

lum

e (U

S$

m)


M

arke

t C

ap (

US

$ t

rilli

on

)

17

17.5

18

18.5

19

19.5

20

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000


Source: Dealogic


FY 2014 Apr 2015

0% 20% 40% 60% 80% 100% 120%

Auto/Truck

FIG

Industrials

REGAL

TMT

Utility & Energy



ETFs

(U

S$

Mill

ion

s)

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

0

0.2

0.4

0.6

0.8

1

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5


EQUITY FUTURES ETFS

Thailand



Source: Dealogic



Jan-15 2 39% 46% 35%

Feb-15 - - - -

Mar-15 2 12% 35% 46%

Apr-15 1 0% 0% 0%

Contact


Sources:http://www.sec.or.th/http://ignitesasia.com/http://www.complinet.com/

Fig 1. Both futures and equities turnover in Thailand is up (11% and 6%) versus last yeardespite the slow growth in the economy. ETFs turnover is down 11% versus last year.

Fig 2. Thai companies have raised a total of US$ 2.2Bn this year so far but half of that was accounted by just one deal – Jasmine Broadband Internet Infrastructure Fund’s US$ 1.1Bn IPO in Feb.

35

Global Market Structure Singapore


Global Market Structure Singapore Newsletter Issue 37, 2015



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

0.5

1

1.5

2

$0

$0.2

$0.4

$0.6

$0.8

$1.0


Market Structure

Singapore becomes first ASEAN country to sign tax information MAS moves to complete OTC derivatives reforms, proposes new short selling regime

In February the MAS published a consultation paper focused on completing its reforms in the OTC derivatives market and which sets out proposed legislative amendments to the Securities and Futures Act (“SFA”) to this effect. MAS commenced OTC reforms about 3 years ago by amending the SFA to regulate trade repositories and central counterparty clearing houses whilst also allowing for mandatory reporting and central clearing of OTC derivatives.

The consultation proposals from the MAS include the following key points:

a. New definitions - for example switching to a principles-based definition of derivative contracts which would capture OTC derivatives and futures.

b. New licensing rules - introducing licensing requirements for individuals dealing in derivatives contracts. (Previously certain OTC derivatives activities were not captured as licensed activities but now all dealing in securities, futures, derivatives and leveraged FX will be collectively regulated as ‘dealing in capital market products’).

c. Commodity derivative oversight - transferring the function of commodity derivative regulatory oversight from the International Enterprise Singapore to the MAS.

d. Organised Markets - introducing of the concept of ‘organised markets’ being defined by their ‘underlying function of facilitating the exchange, sale or purchase of specified products regulated under the SFA, including derivative contracts’. Such organised markets will be either approved exchanges (systematically important Singaporean companies such as the SGX and ICE) or recognised market operators (either less systematically important or overseas companies such as Australia Stock Exchange, Chicago Mercantile Exchange and Eurex who all have members in Singapore).

In addition to the OTC derivative related changes, the MAS consultation also included the potential introduction of a new section to the SFA to cover short selling. The new SFA section would set out the regulatory framework for short selling including the marking of short sell orders and short position reporting. It is expected that detailed requirements will be separately consulted at a later date.

The deadline for feedback on the above points closed in March. The full consultation is available here:http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%20Papers/Consultation%20Paper%20on%20Proposed%20Amendments%20to%20the%20SFA%20Revised%20on%2016%20Feb%202015.pdf

Singapore government mulls fund, REIT tax break

The government is planning to improve the current ‘enhanced tier fund’ tax incentives to include master feeder fund structures (which deploy a special purpose vehicle to hold their investments) and Real Estate Investment Trusts (“REITs”).

Source: Dealogic

Average Monthly IPO Exchange Market

IPO

Vo

lum

e (U

S$

m)


Mar

ket

Cap

(U

S$

tri

llio

n)

3

3.05

3.1

3.15

3.2

3.25

3.3

3.35

3.4

3.45

0

50

100

150

200

250


Fig 2. Singapore has been one of the weakest IPO markets in Asia this year with only 2 IPOs till date, both of which together added US$ 22Mn to the market. Canada’s Manulife Financial Corp is considering listing some of its U.S. property assets in Singapore in the second half of the year which could be an IPO worth US$ 450Mn.

Fig 1. Singapore’s benchmark index has risen 4% YTD riding the run in Hong Kong and China markets, however investors fail to find any adjectives to describe Singapore’s stock market. Singapore’s planned connect link with Taiwan, expected to launch in July this year may give a boost to stagnating market volumes.

Source: Dealogic


FY 2014 Apr 2015

0% 20% 40% 60% 80% 100%

M&M

REGAL

Source: Dealogic


Source: Dealogic


Singapore


Jan-15 - - - -

Feb-15 - - - -

Mar-15 - - - -

Apr-15 2 0% 0% -9%

36

Contact


Sources:

http://www.mas.gov.sg/


http://www.ignitesasia.com/

Global Market Structure Singapore

These tax incentives are aimed towards enhancing Singapore’s competitiveness in the asset management industry, which has been a key growth sector over the last decade. Currently, there are three fund related tax incentives in Singapore: the offshore fund scheme, the Singapore resident fund scheme and the enhanced tier scheme. The primary advantage of the enhanced tier fund scheme is that there is no limitation on the percentage of Singaporean Investors in the fund and fewer restrictions as to the choice of fund entity or its place of residence (though to qualify for the enhanced tier fund scheme the fund must have at least SG$ 50 million in assets and have at least SG$ 200,000 of local business spending per annum).

Furthermore, the government has also proposed that the scheme of income tax reliefs to REITs will be extended until end of March 2020. With this incentive, the tax exemption on qualifying foreign sourced income will be applicable if the overseas property is acquired directly or indirectly by the REIT or its wholly owned Singapore resident subsidiary. REITs listed in Singapore currently also enjoy tax transparency if the trustee disburses 90 percent of its taxable income to holders in the same year in which the income was earned.

Singapore updates AML/CFT laws

The Singaporean Government has proposed legislative amendments to the Monetary Authority of Singapore Act (“MAS Act”) to bring Singapore into line with international best practice while dealing with issues such as anti-money laundering and countering terrorist financing (“AML/CFT”). The amendments proposed by the Monetary Authority of Singapore (“MAS”) are aimed at clarifying its powers in relation to AML/CFT supervision, enhancing the AML/CFT regime in Singapore and improving international cooperation in AML/CFT supervision.

Specifically, amendments to the MAS Act seek to achieve a number of objectives including:

a. Determining the rules regarding customer due diligence conducted by financial institutions.

b. Establishing MAS’ rights to carry out AML/CFT inspections and to approve inspections conducted by respective counterparts.

c. Enabling MAS to exchange information with foreign counterparts.

d. Allowing MAS to extend the scope of their AML/CFT regime (for example to include designated financial holding companies).

As per a press release issued on 13th April 2015, the MAS amendment Bill had passed its first reading in the Parliament earlier that day.

Venue News

Singapore- Taiwan stock connect to go live on 1st July

Please see Taiwan section for details.

SGX encourages ETF access for retail investors, temporary waiver of ETF clearing fees

The Singapore bourse is planning to launch educational and fee incentives to encourage retail access to ETFs. This latest development was preceded by the MAS amending of the definition of Excluded Investment Products (“EIPs”) for collective investment schemes which allowed retail investors to more easily access ETFs. These steps are intended to provide a simple and low cost option for retail investors to build a diversified portfolio.

To help the investors better understand the products offered on the exchange, the SGX is providing a new ETF investor guide along with informative seminars on a monthly basis. In addition to this, the exchange has also declared that it will waive the ETF clearing fees for both institutional and retail investors from 1st June to 31st December 2015.

In this regard, Chew Sutat, Executive Vice President at SGX commented that, “we expect to see several ETFs converting to EIP status over the course of the next few weeks, giving investors better access to international markets and other asset classes.”

37

Global Market Structure Philippines


Global Market Structure Philippines Newsletter Issue 37, 2015

Venue News

PSE shareholders approve acquisition of majority stake in PDS

In the Annual Stockholders Meeting (“ASM”) held on 8th May, shareholders of the Philippine Stock Exchange (“PSE”) approved the acquisition of a stake of at least 67% in the Philippine Dealing System Holdings Corp (“PDS”) at a price valuation of P2.25 billion. The PSE currently holds 21% of PDS and has previously made offers to other shareholders the largest of whom are SGX (who hold 20%) and the Bank Association of the Philippines (29%) . PSE President Hans Sicat said

“We’re moving ahead with the transaction. It is still in the valuation P2.25 billion, and we expect it to close by the end of July.”

The President said that eventually, the platforms would be merged although work would begin with combining the shared services units to take advantage of the cost and operational efficiency. The President also mentioned that the board is focused on ensuring that the depository function, which is one of the largest units in PDS, is being integrated vertically in the clearing house function of PSE.

To read the full minutes of the ASM click here:http://www.pse.com.ph/resource/memos/2015/2015%20ASM%20Minutes%20(Subject%20to%20Approval%20By%20Stockholders)_AVE.pdf

New PSEtrade XTS system to go live 1st June

In March and April the final market rehearsals were performed for PSEtrade XTS (the new PSE trading system provided by NASDAQ) ahead of its planned go-live in May.

PSEtrade XTS is prepared to handle more volumes and trades even as the local stock market has seen the number trades increase almost five-fold from 2010. The new system also provides for same-day recovery in case the disaster recovery site is utilised. It is also capable of facilitating new products and services that are being planned to be rolled-out by the exchange.

“The market testing we conducted the last few weeks provided our market participants the opportunity to test the features and functions of the PSEtrade XTS in a simulated trading session. We look forward to a smooth and seamless transition to the new system,” Mr. Sicat stated.

For the full press release click here: http://www.pse.com.ph/stockMarket/pressRoom-pressReleases.html?id=PSE_PRRLS20150000064

PSE index achieves all time high, significant turnover growth

Since the start of the year the Philippine Stock Exchange index (“PSEi”) has set a series of new records. It breached the 8,100 level for the first time intra-day on 7th April when it reached 8,136.97 then subsequently set a new closing record of 8,127.48 a few days later on 10th April. Overall the PSEi gained almost 10 % over the first quarter benefiting from low interest rates and benign inflation. PSE trading activity increased 40 % to almost P 642 billion in the first quarter compared to P 457 billion in the same period last year.

PSE President and CEO, Hans Sicat commented: “We are pleased with the market participation we saw in the first quarter. Investors are really keen on being part of the Philippine growth story. We hope that upbeat corporate earnings and optimism over the local economy will continue to attract investors to our market “.



EQUITY

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30


Philippines

Fig 1. Philippines’ equities index is up 7% since the beginning of this year. Exchange turnover is up 31% compared to last year.

Sources:

http://www.pse.com.ph/

http://business.inquirer.net/

http://www.bworldonline.com/

http://www.manilatimes.net/

Contact


38

Global Market Structure Indonesia


Global Market Structure Indonesia Newsletter Issue 37, 2015

Market Structure

Indonesia working to increase foreign ownership limits to 70 %

In preparation for the launch of the ASEAN Economic Community later this year, Indonesia is moving towards relaxing the foreign ownership restrictions for a number of sectors including communications and transportation. The ASEAN Framework Agreement allows foreign investors access to 74 sub sectors across 12 business sectors, including business, finance, transportation, health and social services.

Foreign ownership of Indonesian businesses is currently limited to between 49 % and 60 % depending on the industry sector. But Indonesia is now planning on increasing the limits as members are required to allow foreign ownership up to 70 % next year.

According to the Jakarta Post, the Trade Ministry’s Head of Business, Distribution and Finance Services, Iskandar Panjaitan, said the government was working on its compliance with the framework agreement, as the deadline was approaching. “We are trying to realise our commitment in these 74 sub sectors. Each sector is now working on this issue. For now, our regulations still stipulate [foreign ownership] under 70 percent.”

Venue News

IDX target 20% growth in 2015

In an interview with the Oxford Business Group, Ito Warsito, President of the IDX, said the exchange is targeting 20% growth in 2015 in terms of market capitalisation. By 2020, the goal is to have at least 750 companies listed on the IDX – from its current level of just over 500 companies − with its market cap doubling from Rp5535trn ($457.5bn) to around Rp11,000trn ($909.26bn).

“If Indonesia wants to become a larger economy in ASEAN, the government must push its capital market industry to grow,” Warsito said, adding that foreigners were investing in the bourse.

A potential area for growth could come from State-Owned Enterprises (“SOEs”) as only 20 of 138 SOEs are currently listed. Warsito said “There should be more SOEs listed in the stock exchange. We understand this might not be a priority at the moment, but it is something that needs to be stimulated and encouraged by the central administration,” Warsito told OBG.

Exchange still considering joining the ASEAN Trading Link

The ASEAN Trading Link was introduced in September 2012 as a platform for securities brokers to offer cross-border investment opportunities between ASEAN member countries. To date Singapore, Thailand and Malaysia have all joined the link with the take up mostly limited to the local retail brokerage community. The Indonesia Stock Exchange (“IDX”) is still considering whether it is appropriate to join due to reservations relating to differences between exchange platforms across the region and questions about how potential disputes would be managed.



EQUITY FUTURES

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

Fu

ture

s (U

S$

Mill

ion

s)

10

0

20

30

$0.0

$0.2

$0.4

$0.6


Indonesia

The potential inclusion of Indonesia would help to further integrate the ASEAN capital markets ahead of the AEC roll out. The Financial Services Authority (“OJK”) Commissioner for Capital Market Supervision Nurhaida commented: “We are ready to join the trading link; our market is ready to be integrated. But we are still assessing whether or not this system is favourable for our stock exchange”.

Sources: http://www.thejakartapost.com/

http://www.oxfordbusinessgroup.com/

Contact


Fig 1. Indonesia stock market saw the biggest foreign investors sell off this year, net US$ 172Mn of Indonesian equities sold on a single day (April 27) as index dropped 3.5%, steepest decline since 2013 on investor concerns around poor earnings data and international condemnation of Indonesia’s plan to execute convicted drug smugglers.

39

Global Market Structure Malaysia


Global Market Structure Malaysia Newsletter Issue 37, 2015

Market Structure

OTC derivative reforms begin to take shape in Malaysia

In November 2013 a consultation paper proposing the introduction of mandatory trade reporting for OTC derivatives was collectively released by the Bank Negara Malaysia, the Securities Commission Malaysia (“SC”) and the Perbadanan Insurans Deposit Malaysia. The period for public feedback closed in January 2014 but the regulators have yet to publish their consultation conclusions. However it is now understood that a number of OTC derivative reforms are being considered and prioritised, in line with the G20 regulatory agenda, including mandatory trade reporting, mandatory clearing and margin requirements for bilateral trades.

Central clearing of OTC derivatives is still largely voluntary across most of Asia though it is expected that more jurisdictions will move to make it mandatory later this year. In Malaysia, the Bursa Malaysia is currently the only central counterparty clearing house so it is possible that they could offer central clearing for OTC derivatives in the future. One challenge being that the Malaysian OTC derivative market is largely focused on FX forwards and FX swaps which tend to be highly customised (therefore adding complexity to the implementation of central clearing).

Another recent development is the Netting of Financial Agreements Act 2015 which became effective on 30th March. This Act helps align Malaysia with international practices by establishing a legal framework for close-out netting of financial transactions. Such close-out netting enhances operational efficiency and reduces systemic risk by allowing counterparties to net off credit risk exposures. The Financial Ministry commented: “With the Act coming into force, efficiency of the financial markets in Malaysia will be enhanced as Malaysian banks are able to deal more competitively with foreign counterparties globally and develop new hedging instruments and innovative financial products to corporations, businesses and consumers”.

6 % GST now in effect

As previously announced in the 2015 Special Edition issue, the Malaysian Government implemented a new Goods and Services Tax (“GST”) on 1st April. The new 6% tax is applicable to the fees and commissions charged on the supply of services in relation to equity transactions. Brokerage, clearing and settlement services are all included; the fees charged by Bursa Malaysia are within scope (including the trading fees and clearing fees in both the securities market and derivatives market).

The gross consideration of equity purchase or sale transactions are not subject to the GST.

Bursa Malaysia’s FAQ on this topic is available here:

http://www.bursamalaysia.com/misc/system/assets/12173/GST%20FAQ.pdf

The Royal Malaysian Customs Department has also released a General Guide, which can be found here: http://gst.customs.gov.my/en/rg/SiteAssets/general_guides/GENERAL%20GUIDE%2016032015%20(1).pdf

Source: Dealogic




Mar

ket

Cap

(U

S$

tri

llio

n)

IPO

Vo

lum

e (U

S$

m)

1.666

1.668

1.67

1.672

1.674

1.676

1.678

1.68

1.682

1.684

1.686

0

100

200

300

400

500

600

700

800

900


Source: Dealogic


FY 2014 Apr 2015

0% 20% 40% 60% 80% 100%

Healthcare

Utility & Energy



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

0.05

0.1

0.15

0.2

0.25

$0.0

$0.2

$0.4

$0.6

$0.8


Malaysia

SC accepts applications for equity crowdfunding platforms

On 10th April, the SC announced that it will be accepting applications for equity crowdfunding (“ECF”) or Shariah-compliant ECF platforms. Eligible issuers will be able to raise up to RM 3 million within a 12-month period, and investors will be granted a 6-day cooling off period, during which they may withdraw their entire investment. The initiative is aimed at lowering barriers for start-ups and small and medium enterprises (“SMEs”) to acquire capital from a large number of investors.

Requirements for the registration of ECF platforms were released in February and can be found in the revised Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007: http://www.sc.com.my/wp-content/uploads/eng/html/resources/guidelines/rep/guidelines_rep_150210.pdf

The deadline for applications was 11th May.

Fig 1. Bursa Malaysia is up 4% YTD following the strengthening of the ringgit and the oil price this year. Equities turnover is down 13% YOY.

Fig 2. 2 new listings in Malaysia in the year so far, adding US$ 777Mn to the market 99% of which was contributed by the single IPO in Utility and Energy sector – Malakoff Corp

40

Global Market Structure Malaysia

Venue News

New e-service released by Bursa Malaysia

A new listing information network system, Bursa Link, and an on-line listing enquiry service AskListing@Bursa, were launched. All enquiries for listed issuers have moved on-line and the disclosure and submission processes digitised. The exchange is looking to ‘serve our listed issuers, directors of listed issuers and their advisors with regards to interpretation and compliance with the Listing Requirements (“LR”) for the Main and ACE Markets.’

InterActiveLR provides a new means to access including access to the Main and ACE LRs with hyperlinks to definitions and a FAQ.

To register for the new services see the instructions given in this PDF: http://customer.bursamalaysia.com:8080/MainLR/PublishingImages/Pages/Home/Registration%20with%[email protected]

Contact


Sources:http://www.bursamalaysia.com/

http://www.sc.com.my/

http://gst.customs.gov.my/


http://www.bnm.gov.my/

http://www.thesundaily.my/

http://www.finextra.com/

http://www.crowdfundinsider.com/

https://www.digitalnewsasia.com/

http://www.thestar.com.my

41

Global Market Structure Indonesia


Global Market Structure Newsletter Issue 37, 2015

Chart DefinitionsVolatility: Standard deviation of index price returns over last 30 day period

Market Share: Percentage distribution of total value traded (USD) on the exchange/venue year to data

Estimated Cost of Trading: Expected arrival price impact calculated using Deutsche Bank’s internal market impact model for all index constituents, weighted average

Turnover Velocity: Ratio of USD volume traded on the exchange versus exchange market cap for the given month, annualised

ETF Volume: Total traded value (USD) of listed equity ETFs for the given month, average

Futures Volume: Total traded value (USD) of equity index futures for the given month, average

Equities Volume: Total traded value (USD) of listed stocks on equity exchanges in respective country for the given month, average

Primary Index* Spread: Primary index bid/ask spread, averaged over the trading day

Average Trade Size: Bid/Ask size of primary index constituent averaged over the day, across constituents

Index Price Change: Monthly percent change in country’s primary index level benchmarked to beginning of the year level

Market Movers: Stock constituents of the primary index with biggest change in price levels in the given month

Total IPO Volume: Aggregated US$ size of all new equity listings in the given month

Exchange Market Cap: Aggregated US$ market capitalisation value of all individual equity instruments listed on the exchange

IPO Performance: Percentage change in price level from day of listing of the equity instrument, until the close of next following day (1day), month (1month) and last trading day of previous month (current)

*List of primary indices by country:

Australia S&P/ASX 200 IndexChina Shanghai Shenzhen CSI 300 IndexSingapore FTSE Straits Times IndexHong Kong Hang Seng IndexIndonesia Jakarta SE Composite IndexMalaysia FTSE Bursa Malaysia KLCI IndexKorea Korea SE Kospi 200 IndexIndia CNX Nifty IndexPhilippines Philippine SE Composite IndexThailand SET 50 IndexJapan TOPIX Stock Price IndexTaiwan Taiwan SE Weighted IndexUnited States S&P 500 IndexEurope Europe 600 EUR Price Index

42


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