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Deutsche BankEquities

Global Market StructureAsia Pacific Newsletter Issue 35

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Global Market Structure

Contents

APAC and ASEAN 4

Hong Kong 6

China 10

Taiwan 13

Japan 16

India 19

South Korea 23

Australia 26

Thailand 29

Singapore 31

Philippines 34

Indonesia 35

Malaysia 36

Chart Definitions 38

Editor

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

Quantitative Content

Winnie Khattar, Head of APAC Analytics [email protected]

Contributors

Andrew Walker, Shalabh Sood

Issue 35, 2014Welcome to the APAC Market Structure News Book containing summaries of regulatory and exchange news accompanied by microstructure analytics.

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Global Market Structure Deutsche BankEquities

Global Market Structure Newsletter Issue 35, 2014

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

2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India

26% 34% 29%Japan10% 6% 6%South Korea

5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia

31% 26% 23%Singapore18% 17% 16%Indonesia


Fig.5 Impact Cost Estimate

0.0

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25.0

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35.0

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

Imp

act

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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

South Korea Japan Hong Kong Taiwan China India Singapore Thailand Malaysia

Bill

ion

s

Avg Turnover (US$ Bn)

Open Interest (US$ Bn)

0

5

10

15

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30


Fig.6 Turnover Velocity

0%

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Indonesia MalaysiaPhilippinesThailand SingaporeTaiwan AustraliaChina Hong KongIndiaJapan South Korea

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Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14

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126 5 4 3

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2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

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20.0

25.0

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Imp

act

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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




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126 5 4 3

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2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

5.0

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20.0

25.0

30.0

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Imp

act

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stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times




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The Hong Kong and Shanghai markets have seen material changes in micro structure features on expectation of the Shanghai-Hong Kong Connect go-live in October. Equity trading volumes in China are up 40% and A-share listed ETF volumes in Hong Kong are up over 100% in last two months compared to full year 2014 average. Volatility in China is up 30%, daily trading spreads are narrower and trade sizes larger, see page 10 for details. The Hang Seng index gained 6.8% in July to reach its full year high, Hong Kong’s turnover velocity is higher than the past two years.

Market links continue to develop with Taiwan and Singapore signing a letter of intent to create a trading link and Malaysia launching an ASEAN booking platform. Southeast Asian markets are the best performers so far this year with all major emerging market indices are up 20% and Thailand’s SET index up 22% YTD. Low volatility in the region is good for long only investors as trading costs comes down.

1. Increased volatility in China and Hong Kong ahead of Shanghai-Hong Kong Connect as industry participants get ready on expectations of October go-live date.

2. High volatility period in India ahead of election results in month of May. Index gain over 10% leading up to results

3. Biggest CNY drop in the year, as USD gained after FED raised its interest rate forecasts for next year

4. Japanese yen rallied, as sell off in emerging markets deepened and increased scrutiny of credit risk in China boosted demand for Japan assets

5. China’s 3rd plenum meeting after 35 years from last to plan next phase of China’s economic reform

6. INR currency depreciation. INR slid 14% against USD as India’s current account deficit widened

1. Low volatility period in south-east Asia makes it attractive as cost of trading comes down, while all Asian emerging market indices are all up nearly 20% YTD.

2. Thailand index, volatility and volumes surges after Thailand’s army formally assumed control on May 22nd. Index has risen over 8% since 3. Strong foreign investor inflows over 3 weeks in Indonesia. Index rallied nearly 5% in three weeks

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Global Market Structure











2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

5.0

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15.0

20.0

25.0

30.0

35.0

40.0

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




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


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





0

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0.35

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0.45 USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan


0

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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



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



0%

50%

100%

150%

200%


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











2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

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(b

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Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

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Kospi 200

Straits Times




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


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





0

0.05

0.1

0.15

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0.25

0.3

0.35

0.4

0.45 USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan


0

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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



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



0%

50%

100%

150%

200%




1 2 3 4 5

1 2

131211



$0

$10

$20

$30

$40

$50

$60

Malaysia



ThailandSingaporeTaiwan ChinaHong Kong IndiaJapanSouth Korea











2012 2013 2014Australia 6% 5% 6%

35% 37% 39%China

8% 7% 7%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 4%ASEAN

2012 2013 2014

28% 35% 36%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

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Imp

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stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times




Bill

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126 5 4 3

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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 39% 167% 100% - -1% 1% 9 4,669 15% 41,813 71,545 163

JAPAN 29% 179% 92% 20.9 -1% -1% 24 1,697 12% 21,888 15,489 70

HONG KONG 7% 16% 99% 15.9 0% 7% 13 5,794 10% 6,249 6,820 109

SOUTH KOREA 6% 86% 100% 22.2 -2% 1% 21 67 10% 5,757 17,405 72

AUSTRALIA 6% 68% 84% 16.1 0% 5% 12 1,044 9% 4,578 3,149 13

TAIWAN 5% 79% 100% 19.1 1% 9% 34 5,541 11% 4,098 8,047 36

INDIA 4% 37% 100% 18.6 3% 27% 5 195 13% 3,262 2,889 3

THAILAND 1% 61% 100% - 4% 17% 45 8,315 11% 1,522 1,794 -

SINGAPORE 1% 6% 100% 12.9 -1% 5% 22 4,059 6% 623 329 1

MALAYSIA 1% 32% 100% - 0% 0% 32 7,185 6% 659 307 -

INDONESIA 1% 56% 100% - 0% 21% 18 8,949 13% 528 9 -

PHILIPPINES 0% 29% 100% - 3% 18% 16 8,936 9% 195 - 1

6

Global Market Structure Hong Kong


Global Market Structure Hong Kong Newsletter Issue 35 , 2014

Market Structure

Process for SFC authorised Unit Trusts and Mutual Fund authorisation compliance in relation to Stock Connect released

On 23rd September, the Securities and Futures Commission (“SFC”) released a FAQ on the disclosure and approval requirements for existing SFC authorised funds that are looking to use Stock Connect. The following principals were set out:

— The funds proposed investments via Stock Connect must be consistent with existing investment objectives

— Disclosures must be true, accurate and not misleading and be updated in a timely manner

— Other requirements in the SFC Handbook such as the UT Code must also be followed.

Different approaches can be taken depending on the proportion of NAV that the Connect investments will make up of the fund. Q19 sets out these parameters.

— Substantial Investment is defined as having 30% or more A –share investment whether via QFII, RQFII, A –share market access products.

— If a fund is considering using Connect, the SFC states this could be seen as a “Immaterial Change” so long as the Overriding Requirements set out in Q9 are met (changes do not constitute a material change to the scheme, no material change to the risk profile, changes do not materially prejudice the rights or interests of investors).

— Offering documents need to be updated to show the intended proportion of investment via Stock Connect and any additional risks such as the fact investment may not be possible due to the quota limits.

— Documents must be filed with the SFC as soon as possible.

— Ancillary investments is where an existing fund proposes to have 10 - 30 % of the fund’s NAV consists of A-share exposure, no prior SFC approval is needed. Managers should

— Ensure that offering documents are up to date and contain relevant disclosures and risks associated with the use of Stock Connect

— File updated docs with the SFC with the appropriate forms as set out in Q10 of the FAQ

— Inform investors as soon as is reasonably possible any scheme change

— Minimal investment A-share exposure consists of under 10% of the NAV and does not require prior SFC approval. Managers should review the disclosures to decide whether any enhanced disclosures are required. If it is decided that changes should be made, updated documents should be filed with the SFC in accordance with relevant procedures.


Fig 4: Lit versus Dark Market Share

0% Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Aug-14

20%

40%

60%

80%

100%HKG 0.41% Dark 0.76%


Fig 1: Turnover Velocity

Turn

ove

r V

elo

city

(%

)

Tu

rno

ver

(Bill

ion

s U

SD

)

2012 Turnover 2013 Turnover 2014 Turnover

2012 Velocity 2013 Velocity 2014 Velocity

$0

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$120

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0%

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

Fig 1. Hong Kong’s turnover in equities picked up again during the earnings season In July and August, turnover velocity higher up 12% from 2013 level and up 35% from 2012 level.


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)

Jul-14 Aug-14 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 0

20

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120

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$0

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$8

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Fig 2. Offshore investments in China ETFs listed in Hong Kong have been on a rise in the last 2 months as investors prepare for HK-Shanghai Stock Connect. ETFs under the Renminbi Qualified Foreign Institutional Investor (RQFII) posted significant net inflows of CNY 8.2Bn (US$ 1.3Bn) in July, highest since December 2012 and nearly double from June, according to Morningstar data.

Fig 3. Futures trading volume also surged with equities and ETFs in the past month.


Fig 3: YoY futures average daily turnover

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

July-13 Aug-13Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Mill

ion

s

HSI Fut

Hong Kong

8


HKMA announce new payment link with Thailand

The HKMA and the Bank of Thailand jointly announced the launch of a new cross-border payment-vs-payment (“PvP”) mechanism between Hong Kong’s US$ real time gross settlement system and Thailand’s equivalent THB system. The new link eliminates settlement risk in foreign exchange transactions between the US dollar and the baht allowing banks in Thailand to better control counterparty risks. It is also hoped that banks in Hong Kong will be able to identify new service opportunities in Thailand.

Peter Pang, HKMA Deputy Chief Executive said that: “It has been built based on the proven model of the existing PvP links with Malaysia and Indonesia. The implementation of this link sets another excellent example of central bank cooperation to provide solutions to enhance regional financial stability and meet market needs“.

Hong Kong government issues first ‘Sukuk’ bond

The Hong Kong Monetary Authority (“HKMA”) acted as the Hong Kong government’s representative for their first Sukuk bond offering which was successfully priced on 10th September ahead of being listed on the Hong Kong, Dubai and Malaysia bourses.

The Shariah-compliant bond with a notional of US$1 billion and a term of five years represents the world’s first USD-denominated Sukuk bond to be issued by an AAA-rated government. Strong demand from international investors led to it being priced at 2.005% (23 basis points over 5-year US Treasuries).

Financial Secretary of Hong Kong, John Tsang commented: “We are pleased to see such strong demand for the HKSAR Government’s inaugural Sukuk, as evidenced by the significant order book size and tight pricing. The success of this transaction demonstrates that issuance of Sukuk using Hong Kong’s platform is a viable fund-raising option and widely accepted by investors around the world”.

Venue News

Hong Kong – Shanghai Stock Connect update

A full summary of the Deutsche Bank Shanghai-Hong Kong Stock Connect offering is available on request. Please email [email protected]

In Hong Kong, the following updates have been announced with regard to Connect.

Draft rules available from HKEx

Released 25th August, the draft rules for SEHK and CCASS, the HKEx cash equity clearing house, and the CCASS Operational procedures were released. The market is keenly awaiting confirmation of the final rules. Once these have been finalised, Deutsche Bank APAC Market Structure will be releasing a summary of the key features as a Trader Guide.

Proposed amendments to the Rules of the Exchange http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/SEHK%20rules-25%208%2014published.pdf

Topics include the liability of participants (pg 17) and fee types (pg 30) with a new Chapter 14 (pg 40) setting out the detail of the China Connect Service.

Chapter 14A (pg 57) contains the detail on trading topics including operational hours, trading days, typhoon and black rain procedures, securities inclusion, quotation requirements and restrictions, order types, turnaround trading and pre-trade checking requirements, shareholder restrictions, disclosure requirements and forced sale notices.

Proposed amendments to the General Rules of CCASShttp://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/CCASS%20rules-25%208%2014published.pdf

HKSCC here states that they ‘acknowledge and confirm that it has no proprietary interest in China Connect Securities” and that it “does not guarantee title to any China Connect Securities held through it“(s 824 pg 15). Further, Participants will confirm “that their title and interest in and entitlement to China Connect Securities (whether legal, equitable or otherwise) shall be subject to the applicable laws of Mainland China and Hong Kong”.

Chapter 41 details the new China Connect Clearing Services including the criteria for becoming a Clearing Participant, the novation of contracts for settlement purposes, risk management measures and mark-to-market process, collateral, guarantee fund and requirements for general compliance with regulation.

Operational Procedures http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/OP-25%208%2014-published.pdf

Much of the meat of the project is contained in this material with details on account set up, stock codes, forced-sale process in case of breach of foreign ownership limits, operational service schedules including daily processing and securities and money settlement cut offs, depository services as they relate to voting and corporate actions, entitlements and buy-in process.

Chapter 10A is there new section for this document setting out the detail on Continuous Net Settlement, netting and settlement.

New renminbi liquidity measures announced

The introduction of the Hong Kong - Shanghai Stock Connect is expected to significantly increase the demand for renminbi in Hong Kong. The HKMA have now announced a series of measures intended to address concerns over what this additional demand will do to the liquidity of the renminbi currency. The changes include:

— Introduction of a RMB10 billion intra-day repurchase facility.

— Five to six banks to be selected to act as primary liquidity providers (HKMA will enter into repo transactions with them).

— Daily conversion limit for Hong Kong residents to be lifted (currently set at RMB20,000).

HKMA Chief Executive Norman Chan commented: “We estimate demand for renminbi will be huge after the stock connect scheme, though it is difficult to quantify it. We’ve talked with banks and believe the 10 billion yuan repo quota should be enough”.

Source: Dealogic

Fig 9: IPO Sector Distribution

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

Auto/Truck

Construction/Building

Consumer

FIG

Healthcare

Industrials

M&M

REGAL

TMT

Utility & Energy Jan-July 2014 Aug 2014


Fig 10: IPO Performance

Source: Dealogic


# of IPO 1 day 1 month Current

May-14 6 3% 5% 17%

Jun-14 25 8% 12% 29%

Jul-14 15 75% 43% 65%

Aug-14 4 170% 0% 151%

9


Two Rounds of Market Rehearsals completed

On 31st August HKEx announced that the first round of market rehearsal (“MR1”) for Shanghai-Hong Kong Stock Connect completed smoothly and all the planned scenarios in the rehearsal were covered.

The two-day MR1 allowed Participants to ascertain their system readiness for the programme. The tests involved trading, clearing and settlement both into the Shanghai and Hong Kong Markets. Both Northbound and Southbound trading processes, as well as clearing and settlement cycles in Hong Kong and Shanghai, were verified.

On 13th September HKEx announced that the second round market rehearsal (“MR2”) for Shanghai-Hong Kong Stock Connect also completed. The MR2 was primarily arranged to verify contingency arrangements upon simulated system failover from primary to backup data centre and system capacity.

A total of 97 Exchange Participants (EPs), accounting for about 80% of the total securities market turnover, and 108 CCASS Participants participated in both the MR1 and MR2. The success of MR1 and MR2 show Shanghai’s trading system is technologically ready for the official launch.

Full circulars can be accessed here: http://www.hkex.com.hk/eng/newsconsul/hkexnews/2014/140831news.htm

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2014/140914news.htm

Price limit set on Opening Call Auction and Continuous Trading

A circular released on 26th August stated that if buy orders are submitted with a lower price limit more than a certain percentage away from the best bid (or last traded price if no bid available), it will be rejected. For MR1, the limit was set at 4%, this was lowered to 3% for the Practice Session conducted on 20th and 21st September. http://www.hkex.com.hk/eng/market/partcir/sehk/2014/Documents/CT04714E.pdf

http://www.hkex.com.hk/eng/market/partcir/sehk/2014/Documents/CT04214E.pdf

Four-party agreement signed

As announced in 29th April, the Stock Exchange of Hong Kong Limited (“SEHK”) and Hong Kong Securities Company Limited (“HKSCC”), wholly-owned subsidiaries of HKEx, signed an Four-Party Agreement on 4th September with the Shanghai Stock Exchange (“SSE”) and China Securities Depository and Clearing Corporation Limited (“ChinaClear”) for the establishment of Shanghai-Hong Kong Stock Connect.

The main content of the Four-party Agreement was explained in the circulars issued by SEHK and HKSCC on 29th April. HKEx Chief Executive Charles Li said, “After the joint announcement by CSRC and SFC in early April, we knew we had to accomplish three important things before Shanghai-Hong Kong Stock Connect could be launched: signing a four-party framework agreement, incorporating the operating arrangements into the respective rules and getting final approvals from the regulators. Today’s signing of the Four-party Agreement indicates that we are getting closer to our goal. ”

For the full notice click here:


HKEx issue ‘concept paper’ on dual-class share structures

At the end of August the HKEx issued a concept paper in order to commence the public debate on whether to change the existing ‘one share, one vote’ listing rules that prevent dual-class share structures (or weighted voting rights) which provide certain shareholders with more rights than others.

The paper is deliberately presented as a ‘concept paper’ as opposed to a consultation paper because the HKEx are keen to avoid adopting a formal position on the issue. Instead the results of the public debate will determine whether further consultations take place in the future.

Such dual-class share structures have been banned in Hong Kong since 1989. Although Alibaba is the most recent and most high profile company to be rejected for this reason there have been others in recent

years including Jardine Matheson and Manchester United who instead listed in London and Singapore respectively.

Approximately a third of the mainland Chinese companies who are listed in the US have dual-class share structures so the belief is that Hong Kong can attract more listings if it starts to offer more flexible share structures. However one important legal distinction between the US and Hong Kong is that the US allows for class-action suits which offer investors a mechanism through which to safeguard their rights. Hong Kong does not currently allow such class-action suits.

HKEx Chief Regulatory Officer and Head of Listing David Graham explained that: “The Concept Paper is intended to be a neutral, factual and analytical presentation of the relevant issues and considerations. The Exchange has formed no view and looks forward to receiving the views of respondents”. The concept paper including the questionnaire designed to capture responses (due by the end of November) can be accessed here:


HKFE revises minimum margins for Futures contracts

On 27th August the Hong Kong Futures Exchange Limited (“HKFE”) updated the minimum margins that Exchange Participants (“EPs”) collect from their clients on futures contracts. The revised minimum margin levels came into effect on 1st September and are available in the following link:http://www.hkex.com.hk/eng/newsconsul/hkexnews/2014/Documents/1408272news.pdf

The HKFE stressed that these are minimum levels and that the actual margin collected by EPs should be set according to their clients particular circumstances.

Personnel News

Senior Executive changes at HKEx

Roger Lee has been selected to run HKEx’s new Market Operations group (comprising Cash Trading, Derivatives Trading and Market Data). Mr Lee has previously held a variety of senior positions within HKEx, and was most recently Head of Structured Products, Fixed Income and Primary Market Information within the HKEx’s Listing and Regulatory Affairs Division. Wayne Wong will replace Mr Lee in this role having previously acted as Senior Vice President in the same Listing and Regulatory Affairs Division.

HKEx also announced that Bryan Chan will retire on 20th September from his role as Co-Head of Equities, Fixed Income and Currency in the Global Markets Division.

Executive Director departs HKMA

The HKMA recently announced that Dong He has resigned from his role as Executive Director (Research) with effect from 18th October. HKMA are currently in the process of identifying a suitable replacement.

SFC announce new appointments

The financial secretary of Hong Kong has appointed William Wong Ming-fung and reappointed Teresa Ko Yuk-yin as non-executive directors at the SFC for two year terms that started in August. Mr Wong is Senior Counsel at Des Voeux Chambers while Ms Ko is China Chairman at Freshfields Bruckhaus Deringer.

Anderson Chow Ka-ming and Chan Ping Keung have both stepped down from their roles on various SFC committees.

Sources:http://www.hkex.com.hk/

http://www.sfc.hk/

http://www.hkma.gov.hk/

http://www.scmp.com/

http://www.ignitesasia.com/

http://www.complinet.com/

http://www.reuters.com/

10

Global Market Structure China


Global Market Structure China Newsletter Issue 35, 2014

Market Structure

QFII and RQFII updates

The following new QFII licenses received quota in July and August:

July:

1. None

August:

1. GF International Investment Management Limited, US$100 million

2. Paradigm Asset Management Co., Ltd., US$100 million

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

July:

1. Société Générale, US$200 million

2. Bank Negara Malaysia, US$500 million

3. Yuanta Securities Investment Trust Co.,Ltd., US$200 million

4. Value Partners Hong Kong Limited, US$100 million

5. CDH Investment Advisory Private Limited, US$150 million

6. E Fund Management (Hongkong) Co.,Limited, US$200 million

August:

1. UBS Global Asset Management (Singapore) Ltd, US$500 million

2. Merrill Lynch International, US$300 million

3. BlackRock Asset Management North Asia Limited, US$500 million

4. Uni-President Assets Management Corporation, US$100 million

5. OrbiMed Advisors LLC, US$50 million

6. CSOP Asset Management Limited, US$100 million

7. Guotai Junan Assets (Asia) Limited, US$100 million

New Statistics - year on year QFII quota returned or taken back by SAFE below

Year Bn US$2011 -0.182012 -0.162013 -0.172014* -0.36*2014 data is year to date until Aug 2014



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Fig 1. China’s equities market has rallied for past 2 months, up 9.3% since July on high volume. Investor sentiment is said to be rather cautious as buying takes place in undervalued blue chip stocks, considered safe investment.



EQUITY FUTURES ETFS

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Fig 2. China A-shares have rallied since mid-July on expectations that HK-Shanghai stock connect would start in October some time. Mutual fund industry in mainland China saw a 5.6% increase (RMB 204Bn, US$ 32.7Bn) in AUM YOY in July, on the back of a rally in the A-shares market.

Fig 3. Futures trading gained momentum mid July with A-shares rally and China consumer inflation numbers came in below the government’s goal in July.

Fig 4. Average trading spread on Chinese stocks has narrowed 14% since beginning of the year (8.97bps in August versus 10.49bps in January this year), while average trade sizes have increased over 30% (4,870 in August versus 3,550 in January) since January this year.



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Source: Deutsche Bank, CSRC, SAFE

Cumulative QFII and RQFII Licenses and Quota Granted

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

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Cumulative QFII licenses with quota

QFII Quota approved

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12 27 33

51 51 75

94 107

136

181

228 254

Source: Dealogic


0% 10% 20% 30% 40% 50% 60%

Auto/Truck


Consumer

Healthcare

Industrials

M&M

TMT

Utility & EnergyJan-July 2014 Aug 2014

Source: Dealogic

Fig 7: Avg Monthly IPO size and Exchange Market Cap

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

Mar

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The following was granted to existing RQFIIs:

July:

1. CSOP Asset Management Limited, RMB 2 billion

2. Fullgoal Asset Management (HK) Limited, RMB 1 billion

3. Essence International Financial Holdings Limited, RMB 1 billion

4. Guoyuan Securities (HK) Co., Ltd, RMB 1 billion

5. Taikang Asset Management (Hong Kong) Limited, RMB 1 billion

6. ABC International Asset Management Limited, RMB 1 billion

August:

1. CSOP Asset Management Limited, RMB 1 billion

2. Harvest Global Investments Limited, RMB 1 billion

3. Bosera Asset Management (International) Co., Ltd., RMB 1 billion

4. Haitong International Holdings Limited, RMB 1 billion

5. Guoyuan Securities (HK) Co., Ltd, RMB 1 billion

6. CCB International Asset Management Limited, RMB 1 billion

7. Taikang Asset Management (Hong Kong) Limited, RMB 1 billion

8. China Life Franklin Asset Mgt Co Ltd, RMB 1 billion

9. Greenwoods Asset Management Hong Kong Limited, RMB 1 billion

QFII and RQFII updates cont.

QFII given back in July and August 2014

July:

1. None

August:

1. Martin Currie Investment Management, US$44 million

2. Invesco Ltd., US$30 million

Separately, SAFE granted new RQFIIs the following quota:

July:

1. Enhanced Investment Products Limited, RMB 300 million

August:

1. BOCOM Schroder Asset Management (Hong Kong) Company Limited, RMB 1 billion

2. State Street Global Advisors Asia Limited, RMB 1 billion

3. New China Asset Management (Hong Kong) Limited, RMB 1 billion

4. Qilu International Holdings Limited, RMB 800 million

5. Phillip Capital Management (HK) Ltd, RMB 100 million

6. BlackRock Advisors (UK) Limited, RMB 2.1 billion

7. HSBC Global Asset Management (UK) Limited, RMB 3 billion

8. APS Asset Management Pte Ltd, RMB 1.5 billion

9. New Silk Road Investment Pte. Ltd., RMB 1.5 billion


Fig 5: MoM Index Price Change

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

%FY2013 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14

Fig 5. CSI 300 Index gained over 8% in July and recovered its losses for the full year 2014, up ~1% from January 2014.

Fig7. There were 22 new listings in July and August combined. Average IPO size of US$ 86Mn.

Fig 6. A-shares stocks across all sectors were the biggest gainers in the last 2 months rally.

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

600893.SS 19% 1,553,841,000 1.37 000009.SZ 40% 1,862,866,000 2.18

600010.SS 17% 4,361,921,000 2.69 600633.SS 37% 4,085,923,000 2.07

600256.SS 16% 3,083,578,000 1.51 603000.SS 36% 2,667,767,000 2.38

600023.SS 15% 721,268,700 2.13 002202.SZ 24% 1,096,696,000 1.69

601888.SS 12% 536,095,100 1.52 000728.SZ 21% 2,284,715,000 1.84

601328.SS -6% 2,001,437,000 1.32 000100.SZ -6% 1,222,278,000 2.20

000002.SZ -6% 2,072,805,000 0.86 000831.SZ -7% 1,541,647,000 1.34

600383.SS -6% 376,087,900 0.35 600352.SS -7% 1,906,189,000 1.46

000895.SZ -7% 878,929,000 1.29 600315.SS -7% 901,850,100 1.34

000538.SZ -9% 1,183,039,000 1.29 000400.SZ -8% 1,321,155,000 1.37

Source: Dealogic


Fig 6: Large and Mid Cap Index movers

12


China promotes retail equities

The state-run media in China have been strongly pushing equity investments to the general public with a significant number of promotional articles in newspapers and on TV. Reduced trading fees, streamlined account opening processes and other incentives have also been run in parallel in an attempt to encourage more equity investments and less speculation in property and risky wealth products.

Credit Suisse recently reported that in 2013 only 4 % of Chinese household assets were held in equities and in early August the number of equities accounts containing funds hit a four and a half year low. However the new plan appears to be yielding some quick results as new account openings have doubled since May and the People’s Daily have reported funds shifting from property into equities.

This advertising campaign follows the July pledge from the China Securities Regulatory Commission (“CSRC”) to “vigorously promote” innovation in the market. It is believed that a strong equity market will help to attract greater foreign investment and support the forthcoming Shanghai - Hong Kong Stock Connect platform.

CSRC release 2013 Annual Report

In his opening remarks Chairman Xiao Gang highlighted the CSRC’s mission statement to “maintain transparent, fair and equitable markets, strengthen the protection of investors, small investors in particular, and facilitate the sound development of the capital markets”. He also reflects on some of the key developments in the Chinese capital markets in the past year including:

— Stabilisation of the equity markets allowing the process of resuming new share offerings to commence.

— New guidelines leading to the introduction of preference shares.

— Significant derivative product innovation (including the introduction of new stock index futures and commodity futures) helping to propel China among the top global markets for futures trading volumes.

— Efficient and effective enforcement processes.

— Focus on retail investors (and especially their protection).

— Increasing the QFII and RQFII quotas to US$150 billion and RMB 400 billion respectively while also expanding the RQFII program to Taiwan, Singapore and London.

— Preparation for a crude oil futures market by setting up the Shanghai International Energy Exchange (“INE”) within the Shanghai Free Trade Zone (“FTZ”).

— Increased public relations efforts with a full-time press office and social media accounts.

The report also touches on the future priorities for CSRC including the focus on internationalisation of markets (especially with respect to the Shanghai – Hong Kong Stock Connect and Shanghai FTZ).

The full annual report is available here:http://www.csrc.gov.cn/pub/csrc_en/Informations/publication/201407/P020140701434921717761.pdf

Venue News

More details released for the Shanghai – Hong Kong Stock Connect

See the Hong Kong section for some further updates on the Shanghai – Hong Kong Stock Connect scheme.

SSE to maintain existing trading hours

The Shanghai Stock Exchange (“SSE”) are not currently intending to change their existing trading hours. There had been some speculation that SSE would extend their hours to align them with those on the Hong Kong Stock Exchange (“HKEx”) as part of the Shanghai – Hong Kong Stock Connect scheme. The current trading hours of the two exchanges are summarised below:

Trading Session Shanghai Hong Kong

Morning Session 9.00am to 11.30am 9.00am to 12.00pmAfternoon Session 1.00pm to 3.00pm 1.00pm to 4.00pm

Any changes to SSE’s hours would require consultation with brokerages and it is believed that regulators would prefer to ensure the Stock Connect platform is launched in a controlled manner before making any further changes to the market structure in Shanghai.

New unified accounts for Shanghai and Shenzhen trading, single broker restriction lifted for individuals

China Securities Depository and Clearing Corporation (“CSDC”) confirmed that from October investors would be able to trade Shanghai and Shenzhen stocks using a single account. The creation of this unified platform is intended to help integrate the two markets, reduce complexity and provide operational cost savings for brokerages and investors.

Furthermore, a requirement for individual investors to trade through a single broker has been abolished. The CSDC press release is available in Chinese below:http://www.chinaclear.cn/zdjs/gszb/201408/701eeafdf0134dc48662197dc0590b50.shtml

Shanghai FTZ to open 8 trading platforms

Plans submitted by the Shanghai municipal government in August indicated that the Shanghai Free Trade Zone (“FTZ”) are planning to launch 8 international trading platforms covering the following commodities:

1. Oil2. Gas3. Iron ore4. Cotton5. Liquid chemicals6. Silver7. Bulk commodities8. Non-ferrous metals

These new platforms should be set up within the next year.

Personnel News

Wu Lijun named as Chairman of SZSE

On 1st September Xiao Gang, Chairman of CSRC, announced that Wu Lijun would take over as Chairman of the Shenzhen Stock Exchange (“SZSE”) and Secretary of the SZSE Party Committee (though his official start date was not formally confirmed). Wu Lijun was previously CSRC Assistant Chairman and Member of the CSRC Party Committee and he assumes his new role following the retirement of Chen Dongzheng.

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

http://www.szse.cn/

http://www.safe.gov.cn/

http://www.chinaclear.cn/

http://uk.reuters.com/

http://www.wantchinatimes.com/

http://www.scmp.com/

http://ignitesasia.com/

13

Global Market Structure Taiwan


Global Market Structure Taiwan Newsletter Issue 35, 2014



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FSC green lights leveraged and inverse ETFs

In July the Financial Supervisory Commission (“FSC”) amended the “Regulations Governing Securities Investment Trust Funds” to allow securities investment trust enterprises (“SITEs”) to offer and issue leveraged ETFs and inverse ETFs. It is hoped that this will help boost ETF trading volume on the TWSE up to 5 % of total turnover from their current level of 1 %.

Julian Tsung-Sheng Liu (President of Yuanta Securities Investment Trust Company) suggested in an interview with Asia Asset Management that: “With the high exposure of leveraged and inverse ETFs, the products will only be limited to sophisticated investors”.

Overseas branches of local banks allowed to trade TWD NDFs

The Taiwan central bank has announced that overseas branches of local banks will be allowed to trade TWD non-deliverable forwards (“NDFs”). Such activity had been suspended since the Asian financial crisis in 1998.

Taiwanese companies trading in such derivatives were also urged to ensure that they have robust risk management controls. A time line was not given for roll out.

New research report regulation

In an attempt to prevent market manipulation, rules are being considered whereby local and foreign brokerages would be banned from providing individual stock target prices to the media. The new rules would potentially also require the media to clearly attribute research reports.

FSC Chairman William Tseng said: “Brokerages from time to time pass their reports to media in an indirect way to manipulate stock prices. We want to protect investors’ rights.”

Some brokers expressed concern that such changes could restrict foreign investment (which currently accounts for approximately one third of Taiwan’s market capitalisation) as some brokerage firms may be reluctant to publish reports on local companies.

Originally it was expected that these new rules would become effective in August though as at 16th September they had not yet been officially introduced.

Venue News

Taiwan and Singapore exchanges sign Letter of Intent to create trading link

Following ongoing discussions between the two parties, on 10th September the Taiwan Stock Exchange (“TWSE”) and the Singapore Exchange (“SGX”) signed a Letter of Intent to create a trading link between the two markets. The objective is to create a cost efficient process for cross-border orders including settlement, clearing and custody services.

It is hoped that such a move will offer investors a greater choice of

Fig 3. Futures volumes were up 40% in July-Aug period versus previous two month’s average.

products, reduce operational costs and increase investment allocations into both markets.

TWSE Chairman Sush-der Lee commented that: “TWSE and SGX have built a broad consensus around expanding international cooperation. The signing of the Letter of Intent is a practical mechanism for facilitating cross-border trade and will enable TWSE and SGX to provide more diversified services to their respective market investors”.

Similarly to the Shanghai Hong Kong Stock Connect, the new structure will maintain the existing trading rules and regulations of each market. The TWSE and SGX will each set up a special purpose vehicle (‘SPV’) in their respective local markets for the purpose of connectivity and order

Fig 1. Taiwan’s equity trading volumes and turnover velocity continues to be ahead of 2013 and 2012 level at the same time of the year.

Turnover velocity Aug 2014: 79.4% , Aug 2013: 74.4%, Aug 2012: 78.1%



EQUITY FUTURES ETFS

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Fig 2. Taiwanese ETF volumes also gained as offshore investors boost demand for Chinese equity linked products. ETFs turnover was up over 50% in July-Aug compared to May-Jun period.

Taiwan

14


Source: Dealogic


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

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Jan-July 2014 Aug 2014



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May-14 2 29% 31% 28%

Jun-14 - - - -

Jul-14 - - - -

Aug-14 3 21% 0% 35%

routing, and for the transfer of payment and settlement instructions. The TWSE website reports that the centralised depositary and custodian companies in each market will also provide local post-trading support to simplify the shareholder registration process and other post-trading arrangements.

Work has now begun and is expected to be completed within six months subject to regulatory approvals.

TWSE rolls out improved FAST trading system

The TWSE has replaced all existing trading platforms with a second generation FAST (Fully Automated Securities Trading) system. All listed products have been migrated on to the new platform which will offer significant benefits including:

— Increased trading capacity.

— Reduced latency.

— Improved system efficiency.

TWSE President Michael Lin said: “The network infrastructure, data dissemination, trade engine, risk management and monitoring functions of the new system conform to the latest international standards and will better meet the demands of changing regulatory requirements and the rapid expansion of day-trading volumes in the Taiwan market”.

New products expected through TAIFEX / EUREX link up

Earlier this year a trading link was created between the Taiwan Futures Exchange (“TAIFEX”) and the Eurex Exchange. Following the success of the initial product offerings, additional products are now being planned for launch in October including ETF futures linked to the Shanghai Stock Exchange Composite Index and futures linked to the FTSE TWSE Taiwan 50 index.

TAIFEX also confirmed that the two exchanges are planning to offer RMB-denominated derivatives in 2015 to capitalise on the increasing appetite for renminbi products and to help grow Taiwan as an offshore renminbi trading hub.

TWSE update multiple trading account rules

Currently FINIs and QDIIs from China can apply to open multiple trading accounts (“MTAs”) i.e. more than one trading account with the same broker. Such MTAs have to be for specific purposes related to areas such as the need to appoint external fund managers, accommodate different trading platforms or different fund managers.


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Volume traded (US$)

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2327.TW 25% 227,408,800 1.05 3057.TW 20% 99,879,230 0.94

2615.TW 24% 61,276,660 1.41 5538.TW 19% 15,900,350 1.79

3231.TW 23% 673,600,800 1.54 4733.TW 17% 106,278,100 0.72

3665.TW 20% 177,757,000 0.78 2368.TW 17% 43,538,780 0.97

8046.TW 19% 127,696,100 0.91 8110.TW 15% 32,074,840 0.98

4137.TW -17% 38,817,290 0.79 1447.TW -16% 14,334,690 0.67

2450.TW -18% 38,589,590 1.81 3013.TW -18% 62,575,610 1.04

9907.TW -18% 114,125,400 1.84 2390.TW -20% 190,295,900 1.11

1476.TW -19% 405,802,200 1.32 4142.TW -21% 52,173,020 1.81

1704.TW -33% 117,284,300 2.36 4994.TW -23% 98,592,600 1.29



-6-5-4-3-2-10123456

%

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Source: Dealogic



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Fig 5. TWSE Equity index dropped 3% in first two weeks of August following global emerging market indices trend and recovered through the month to close at +0.7%.

Fig 7. US$ 192Mn IPO of Aerospace Industrial Development (2634 TT) took place in August. Stock is currently trading up over 100% from its IPO price

15


Contact


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

http://www.fsc.gov.tw/

http://etfiasia.com/

http://www.chinapost.com.tw/

http://www.reuters.com/

http://www.theasset.com/

http://www.asiaasset.com/

http://focustaiwan.tw/

The TWSE are making a number of updates to these requirements including:

— Discretionary investment accounts and domestic professional institutional investors are added to the investors that are permitted to open MTAs.

— FINIs, discretionary investment accounts and domestic professional institutional investors will no longer be required to apply for MTAs and the limitations of the purposes as referred to above will be lifted. (Although there is no limitation for the purpose, the amendments still require that the purpose shall be inserted into the account names of MTAs).

— QDIIs, however, still need to apply for MTAs and their purposes are still limited as well.

These changes come into effect on 29th September.

Taiwan and Japan exchanges explore areas of cooperation

The TWSE and the Japan Exchange Group (“JPX”) continue to explore potential areas for bilateral cooperation. At a recent capital markets forum JPX CEO Atsushi Saito specifically raised the following five topics:

1 Mutual market promotion – including investment seminars and increased availability of materials in Chinese and Japanese on each other’s exchanges.

2. Sharing of personnel and information on trading and technology platforms in order to foster innovation.

3. Product development – potentially including new derivatives linked to each others indexes or the creation of a cross-market index.

4. Cross-border listings – with a particular focus on ETFs.

5. Establishing a cross-border trading platform.

TWSE Chairman Sush-der Lee said: “As global capital markets become more open, I believe both Taiwan and Japan can complement each other and enhance their competitiveness and influence in the Asia-Pacific region by expanding their existing base, building consensus, and jointly developing both markets”.

TWSE promotes Taiwan during UK visit

The TWSE continued their investors outreach program with a visit to the UK in September. The delegation discussed potential cooperation opportunities with management from the London Stock Exchange (“LSE”), hosted a seminar with institutional investors to highlight new products and recent market reforms, and also attended the 32nd International Symposium on Economic Crime.

The visit objective was to promote Taiwanese investment opportunities and attract more international capital inflows. Sush-der Lee (TWSE Chairman) led the delegation and stated that: “TWSE has been proactively developing closer ties and trading links with major stock exchanges in order to deepen ties and promote the internationalisation of the Taiwan capital market. As capital markets become more globalised, fostering closer cross-border cooperation between stock exchanges has become a key strategy for leading stock exchanges”.

16

Global Market Structure Japan


Global Market Structure Japan Newsletter Issue 35, 2014



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Market Structure

GPIF reduces domestic bond holdings, PFA survey shows similar trend

As previously announced, earlier this year the Government Pension Investment Fund (“GPIF”) restructured their investment portfolio guidelines with increased allocations for a number of asset classes including local and foreign equities and a corresponding decrease in allocations of domestic bonds. Recently released Q2 data shows that the domestic bond holdings actually fell to 51.9% at the end of June which represented the lowest level since data was compiled in 2008. This new record low level was also slightly below the designated minimum target of 52% marking the first time that the GPIF have dropped below any of their target limits. GPIF Director General of Research Tokihiko Shimizu confirmed to Dow Jones that it is permitted to breach the thresholds when preparing for portfolio realignments.

The Pension Fund Association (“PFA”) announced the results of their annual member survey which highlighted some similar changes to those occurring at GPIF. As at 31st March 2013 the proportion of assets allocated to domestic bonds and domestic equities was 27.6% and 14.9% respectively. Both of these levels represented slight reductions on the previous year’s survey results with corresponding increases in foreign bonds and foreign stocks.

Meanwhile Japan Post confirmed that they do not currently intend to shift their investment portfolio away from Japanese Government Bonds (“JGBs”). Japan Post’s Taizo Nishimuro stated that such a reallocation of assets could adversely impact the market given the significant size of their JGB holdings.

FSA announce agreement with Thailand

The Financial Services Agency (“FSA”) have signed the ‘Exchange of Letters for Cooperation’ with the Ministry of Finance, Thailand. The relationship continues the trend of cross-border relationships designed to promote enhanced financial markets and regulatory regimes.

Under this agreement Japan and Thailand will share experience and information relating to financial products, markets and regulatory frameworks.

FSA host Financial Stability Board meeting

The seventh meeting of the Financial Stability Board (“FSB”) Regional Consultative Group for Asia was hosted by the FSA in Kyoto. The group focused their discussions on four key areas:

1. Building resilient financial institutions.

2. Ending ‘too-big-to-fail’.

3. Transforming shadow banking.

4. Making OTC derivative markets safer.

Other topics covered included Asia specific economic and financial developments, implementation of the Basel Committee’s large exposure supervisory framework and regional integration across Asia.

Fig 1. Japan equities turnover remained nearly flat month on month. Following a strong start to the year, investors have been risk averse in Q2 and volumes consequently lower.



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Fig 2. Futures and ETFs trading volumes dropped in July and Aug while equities remained flat. ETF volumes are down nearly 40% from the beginning of this year.

Fig 4. Phase 2 of tick reduction in Japan went live in third week of July for all TSE 100 names. Following tick reduction Chi-X market share has dropped to under 2% average on Nikkei 225 index names and under 4% for Japannext market share.

Fig 3. Index futures turnover in Q2 has declined over 35% versus Q1 this year.


%

TYO 0.76% JNX 0.34% CHJ 0.43% FKA

Fig 4: Market Share by Venue

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17


Source: Dealogic


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

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Consumer

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Healthcare

Industrials

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TMTJan-July 2014 Aug 2014



Source: Dealogic



May-14 1 5% -3% -3%

Jun-14 8 54% 76% 52%

Jul-14 3 92% 99% 88%

Aug-14 - - - -

Venue News

Chi-X Japan launches Chi-Match VWAP

As announced on 22nd September, Chi-X Japan has launched a new feature which will allow for participants to access a broker neutral morning, afternoon and all day cross.

Mr. Oishi, Director of Deutsche Securities, commented, “In Japan, we have seen a lot of demand for a broker-neutral VWAP Cross. We are delighted with Chi-Match’s recent launch and are confident that the trading community will benefit from another source of liquidity.”

For the full announcement click here: http://www.chi-x.jp/Portals/10/Docs/Chi-X_Japan_Launches_Chi-Match_VWAP_Cross_EN.pdf

JPX-Nikkei Index 400 Futures expected to be launched in November

Earlier this year the JPX-Nikkei Index 400 was launched to track the performance of 400 top TSE listed Japanese firms (selected using a variety of eligibility criteria including financial performance, market capitalisation, standards of governance and disclosure etc). Usage of the benchmark has been increasing with a number of products already linked to the index including ETF trackers. However further products are expected to be introduced in the future including the launch of JPX-Nikkei Index 400 futures at the end of November.

The trading details for the new futures are expected to be as follows:

— Day session:

— Opening auction at 9:00am — Regular session from 9:00am to 3:10pm — Closing auction at 3:15pm

— Night session:

— Opening auction at 4:30pm — Regular session from 4:30pm to 2:55am the next day — Closing auction at 3:00am on the next day

— Contract months – 5 nearest quarterly contract months.

— Contract size - ¥100 multiplied by the index point of the JPX-Nikkei Index 400.

— Order types – both market orders and limit orders will be available.


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Fig 6. Topix index dropped nearly in early 2% August on concerns that geopolitical crisis in Ukraine and Middle East might disrupt global growth. Bank of Japan also cut its industrial production outlook.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

1959.T 25% 55,205,330 1.25 4246.T 67% 57,397,890 1.36

7846.T 25% 47,586,750 1.27 1899.T 65% 84,813,470 3.84

1860.T 24% 288,996,000 2.01 4047.T 65% 123,570,100 3.89

7735.T 21% 361,483,200 1.21 4548.T 56% 114,384,700 2.44

2384.T 19% 20,291,160 1.69 1866.T 39% 26,703,490 3.41

6383.T -13% 234,158,200 1.35 6409.T -16% 56,004,260 1.92

5541.T -14% 391,170,300 0.93 4694.T -16% 22,908,680 0.96

9435.T -14% 367,513,000 1.20 5413.T -19% 250,830,700 1.15

8515.T -16% 4,583,996,000 0.65 2461.T -20% 314,584,800 0.90

6728.T -31% 268,098,600 2.05 7294.T -23% 138,923,400 3.08




-6-5-4-3-2-10123456

%


Source: Dealogic

Average Monthly IPO Volume (US$m)

Exchange Market Cap (US$Trillion)

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Fig 8. 3 new listings took place in the month of July, with average IPO size of US$ 21.8Mn.

18


— Tick size – 5 points (1 point for J-NET Trading and Strategy Trading).

See link below for further details:http://www.ose.or.jp/f/en_public_comments/77/wysiwyg/e_rule_public_comment_17.pdf

TSE to consider extending hours

Since February an advisory panel has been discussing the relative merits of creating an evening session, introducing a new afternoon session or extending the existing Tokyo hours. At only 5 hours the Tokyo Stock Exchange (“TSE”) currently has the shortest trading day across developed global markets. (London has 8.5 hours and New York has 6.5 hours).

The panel, which included representatives of traditional and online brokerages, was unable to agree on a single approach therefore they did not ultimately make a firm recommendation. They did however suggest that the TSE should first investigate the option of creating a night session as a way of attracting more trading volumes from locals after they finish work and also from international investors in Europe and the US. The TSE will make the final decision on any changes.

Japan and Taiwan exchanges explore areas of cooperation

See Taiwan section for further details.

Contact


Sources:http://www.tse.or.jp/http://www.ose.or.jp/http://www.chi-x.jp/http://www.fsa.go.jp/http://ignitesasia.com/

http://www.bloomberg.com/http://www.ijapicap.com/http://www.reuters.com/http://asiaetrading.com/

19

Global Market Structure India


Global Market Structure India Newsletter Issue 35, 2014



SGX Nifty NSE Nifty Banks NSE Nifty

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Market Structure

Stricter norms for disclosure of price-sensitive information proposed

SEBI released a discussion paper on review of clause 36 and related clauses of Equity Listing Agreement proposing stringent norms related to disclosure of material and price sensitive information for listed companies. These proposed amendments aim to ensure that adequate and uniform disclosure levels are followed across the securities markets.

Under the proposed rules, all listed companies would be required to disclose all material and price sensitive information to the stock exchanges within a day of such events along with the reasons for such developments. SEBI has also suggested quantitative criteria calculated as a percentage of gross turnover for identifying material events to be reported. In cases where such disclosures are not made within a day, the companies will have to provide reasons for the delay along with the disclosure.

SEBI has also prescribed a new format for submitting disclosures for Substantial Acquisition of Shares and Takeovers under the SAST regulations. The new format is available here:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1408959397769.pdf

The discussion paper can be accessed at: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1408444809721.pdf

Sourcehttp://www.thehindu.com/business/markets/securities-and-exchange-board-of-india-SEBI-issues-stricter-norms-for-disclosing-pricesensitive-information/article6332394.ece

SEBI may ease minimum market cap requirements for FPOs

SEBI is considering a relaxation in the minimum free-float market capitalisation requirement for publicly traded companies to raise money through fast-track Follow-on Public Offerings (FPOs) and rights issues with an aim to reduce the associated timelines and to encourage more listed firms to raise money through public issuances in order to revive the primary markets. The bar may be lowered to Rs 2,000 Crore against the current requirement of Rs 3,000 crore and is also likely to assist the government which has been planning to offload stakes in a number of public sector units as part of its asset-sale programme.

Sourcehttp://www.livemint.com/Money/LgmWWUkruvw0aChFQsJqVP/SEBI-planning-to-relax-FPO-rules.html

SEBI allows financial regulators to share KYC details; looks to standardise norms

SEBI has issued norms to allow sharing of KYC (Know Your Client) details with entities regulated by other financial sector regulators in order to facilitate a common KYC system for the entire financial sector. Also, the systems of KYC Registration Agencies (“KRA”) will be allowed to connect to any central KYC registry authorised by the Central Government for the purpose of collation and sharing of the KYC information in the financial sector.

SEBI is also planning to standardise the KYC norms across the investor base in the country and has proposed a risk based KYC approach for domestic investors as well in line with the requirements for Foreign Portfolio Investor (“FPI”) regime.



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Fig 1. Volatility on Nifty Index is at its lifetime low, and equities turnover has come off the highs seen near election period, whilst still higher than same period in last 2 years. Investors have confidence in the new government but low volatility is indicative of reduced risk appetite among investors.

Fig 2. Reduction in ETFs and Futures volumes seen in August is the trend observed across Emerging Markets. Investors may be dialing back their emerging market exposure in anticipation of risks ahead.

Fig 3. Index futures turnover in Q2 has declined 7% in last two months versus May-June average this year.


%

NSI 0.73% BSE 0.73%


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

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Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Aug-14

India

20


The risk based approach is a rationalised risk assessment system, where investors will be categorised into low, medium and high risk categories based on their ability and tendency to take risks in the financial markets and ability withstand adverse conditions. This approach along with the currently followed financial due diligence would enable the intermediaries to take a more proactive approach in determining the risk category of their clients.

SEBI Gazette can be accessed here:http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407751773191.pdf

Sources http://www.jagranjosh.com/current-affairs/SEBI-issued-norms-for-sharing-kyc-details-with-financial-regulators-1409400439-1

http://www.thehindubusinessline.com/markets/stock-markets/kyc-norms-for-domestic-investors-too-to-be-based-on-risk-classification/article6398054.ece

http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/SEBI-to-align-kyc-norms-for-local-investorsfpi-regime_1175390.html

SEBI implements a risk-based supervision model

Post the recommendations of an independent global consultant, Oliver Wyman, SEBI has adopted a risk-based supervision model for the securities market with enhanced focus on big ticket crimes. Under the new model, a robust surveillance system is utilised to handle most of the smaller offences so that the investigation resources are effectively and efficiently utilised to tackle serious violations in the markets.

Sourcehttp://articles.economictimes.indiatimes.com/2014-09-07/news/53653000_1_SEBI-chief-u-k-sinha-SEBI

Indian Parliament gives SEBI search and size powers

The Securities Laws (Amendment) Bill, 2014 has been passed on 6th August 2014. The Bill empowers the capital markets regulator SEBI to effectively crackdown on fraudulent investment scheme operators and market manipulators through search and seizure, attachment orders and access to call data records of offenders. A special SEBI court would also be set up in Mumbai to fast track prosecution proceedings launched by the regulator and clear search and seizure operations proposed by SEBI.

The final act as released by the Government of India is available here:http://www.sebi.gov.in/cms/sebi_data/attachdocs/1409135096979.pdf

Source http://www.india.com/business/parliament-clears-securities-laws-amendment-bill-2014-117019/http://articles.economictimes.indiatimes.com/2014-08-20/news/53028821_1_insider-trading-SEBI-act-securities-appellate-tribunal

SEBI board approves REITs and InVITs Regulations

The SEBI board in its meeting held on 10th August, 2014 approved the draft regulations for the establishment and working of REITs (Real Estate Investment Trusts) and InVITs (Infrastructure Investment Trusts) with a few amendments. This is expected to attract capital inflows of Rs 1 Lakh Crore into the real-estate and infrastructure projects infusing a new lease of life into the sector.

A major amendment to the proposed regulations is relaxation in the requirement for an REIT to have a minimum of Rs 1,000 Crore worth of assets under management which has been lowered to Rs 500 Crore. This is expected to encourage even smaller real estate developers from Teir II and Teir III cities to raise funds through the REIT route thus increasing the overall retail participation in the markets.

The minimum issue size for initial offer is set to be Rs 250 crore and units offered to the public in the initial offer cannot be less than 25% of the total number of units of the REIT on post-issue basis, while minimum subscription amount for retail investors has been set at Rs 2 Lakhs.

The InVITs (Infrastructure Investment Trusts) Regulations also got the board approval and will help in funding of the various infrastructure projects through public issue of units outside the traditional banking system.


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Fig 6. Nifty index continues to rise despite reduced turnover. Investors are hopeful and optimistic on the new government plans. Index gained 1.5% day after Indian Independence Day (Aug 15) when new prime minister delivered his message. Nifty closed at its all time high in August.

Source: Dealogic




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Fig 8. 3 new small cap listings took place in the month of July, with average IPO size of US$ 1.5Mn.

Fig 5. Average trade size spikes seen monthly overlap with monthly futures expiry dates when volatility picks up. In the last quarter there was an observed 8% reduction in spreads and 38% increase in trade sizes on future expiry days.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

TAMO.NS 19% 982,801,600 1.19 MAHM.NS 20% 479,623,400 1.09

ONGC.NS 13% 705,488,100 0.86 KTKM.NS 12% 312,867,700 0.95

SUN.NS 11% 444,097,300 0.74 TEML.NS 11% 421,560,500 0.89

HCLT.NS 8% 441,530,000 0.91 LUPN.NS 10% 162,871,400 0.93

INFY.NS 8% 1,011,689,000 0.80 BAJA.NS 10% 272,265,400 1.19

SBI.NS 1% 1,408,313,000 0.86 AXBK.NS 3% 424,090,900 0.63

TCS.NS 0% 769,242,800 0.86 ASPN.NS 0% 163,829,700 0.90

COAL.NS -1% 291,317,000 0.60 NMDC.NS 0% 89,609,750 0.56

NTPC.NS -1% 243,945,300 0.62 PGRD.NS 0% 230,005,800 0.82

BRTI.NS -2% 491,856,600 0.95 SESA.NS -2% 452,426,300 0.65



-6-5-4-3-2-10123456

%



21


Various SEBI circulars can be accessed at: http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/28905_t.html

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1405596795567.pdf

Sourceshttp://www.thehimalayantimes.com/fullNews.php?headline=SEBI+approves+establishing+REITs&NewsID=424287

http://profit.ndtv.com/news/industries/article-industry-welcomes-norms-on-realty-infrastructure-investment-trusts-628604

http://www.deccanchronicle.com/140811/business-latest/article/SEBI-steps-infuse-rupees-1-trillion

SEBI strengthens the risk management framework for Clearing Corporations

In a bid to further strengthen the Risk Management framework in the local markets particularly in view of the concerns being raised on the Trading Risk front after the recent network outages at the Bombay Stock Exchange (“BSE”), SEBI has prescribed norms for Core Settlement Guarantee Fund (“Core SGF”), Default Waterfall and Stress Testing for the Clearing Corporations (“CCs”) to enable them to effectively deal with defaults of the clearing members including large Institutional Investors.

The depositories have been asked to set up a Core Settlement Guarantee Fund that would act as a safety net in case of a default by any market participant. The clearing houses will have to establish separate funds for all segments of the market including equity, debt and currency thereby ring-fencing each segment of the clearing corporation from defaults in other segments.

CCs will also have to undertake periodic stress tests to simulate risks arising from defaults especially by large institutional investors and align their respective stress testing practices with CPSS-IOSCO Principles for Financial Market Infrastructures.

The SEBI circular can be accessed at: http://www.sebi.gov.in/cms/sebi_data/pdffiles/29028_t.pdf

Sourceshttp://businesstoday.intoday.in/story/SEBI-revamps-bse-trading-rules-for-better-risk-management/1/209763.html

http://in.reuters.com/article/2014/08/27/india-regulator-risks-idINKBN0GR1AB20140827

SEBI expands the Offer for Sale (“OFS”) mechanism

In a bid to boost the primary markets, Securities and Exchange Board of India (SEBI) has expanded the scope of Offers for Sale (“OFS”) mechanism by making the below modifications to the framework

— The mechanism has been available to top 200 companies by market capitalisation in any of the last four completed quarters (compared to top 100 companies earlier)

— The route has been opened for non-promoter shareholders as well who hold at least 10% of share capital in an eligible company

— Promoters / Promoter group entities are allowed to purchase shares from non-promoter shareholders offloading their stake through OFS subject to compliance with applicable provisions of SEBI

— A minimum of 10% of the offer size needs to be reserved for the retail segment and the seller may offer discounts to the retails participants

The new framework opens up a new avenue for large institutional shareholders (including private equity firms) to sell shares of a portfolio company through the stock exchanges and is expected to infuse life into the sluggish primary markets.

SEBI circular can be accessed at: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407495883694.pdf

Sourceshttp://freepressjournal.in/SEBI-eases-offer-for-sale-norms-non-promoters-can-also-use-route/

http://www.vccircle.com/news/finance/2014/08/08/SEBI-allows-pe-other-investors-sell-stake-listed-cos-ofs-mechanism

SEBI signs MoU with 27 European Regulators under AIFMD

The SEBI has signed a bilateral Memorandum of Understanding (“MoU”) with market regulators of 27 member States of the European Economic Authority (“EEA”) under the ambit of Alternative Investment Fund Managers Directive (“AIFMD”) regulations. The Directive seeks a greater level of consultation, cooperation and the exchange of information related to the supervision of the Alternative Investment Fund Managers (AIFMs) particularly in the areas of investor protection, fostering market and financial integrity, and maintaining confidence and systemic stability in all the countries party to the agreement.

Under the framework of AIFMD, the existence of such co-operation arrangements between EU and non- EU authorities is a precondition for allowing greater market access and cross border functioning of the AIF business. These MoUs would thus enable Indian fund managers to manage or market AIFs in the EU region and the EU fund managers to manage or market AIFs in India.

Sourcehttp://www.sebi.gov.in/cms/sebi_data/pdffiles/28853_t.pdf

Issuance of partly paid equity shares and warrants to foreign investors allowed

The RBI has allowed Indian companies to sell partly paid shares or warrants to foreign investors (including FIIs and FPIs) and consider the instruments eligible for Foreign Direct Investment (“FDI”). Partly paid shares and warrants are securities for which a buyer makes a partial payment initially at the time of allotment and pays the remaining amount at a pre-determined future date.

According to RBI guidelines, the pricing for partly paid shares/warrants needs to be determined upfront and 25% of the total consideration amount (including share premium, if any) has to be received upfront. The rest of the amount needs to be received within 12 months in case of Equity shares and 18 months for warrants where the issue size is <= Rs 500 Crore. The proceeds can be received at a later date in case the issue size exceeds Rs 500 Crore, provided the investee appoints a monitoring agency in line with the SEBI (Issue of Capital and Disclosure Requirements (ICDR)) Regulations.

So far, only equity shares and compulsorily and mandatorily convertible preference shares and debentures were recognised as FDI compliant instruments.

Sourcehttp://www.business-standard.com/article/news-cm/rbi-allows-issue-of-partly-paid-equity-shares-and-warrants-to-foreign-investors-114071500628_1.html

Source: Dealogic


Jan-Jul 2014 Aug 2014

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Consumer

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May-14 4 0% -8% -18%

Jun-14 1 0% 0% 0%

Jul-14 3 -6% 0% -13%

Aug-14 - - - -

Source: Dealogic


22


Contact


Introduction of 12.36% service tax on brokerage services

In the recent budget announcement, service tax of 12.36% has been extended to broker/agent services which includes securities trading. As a result local brokerage firms, FIIs/FPIs , FDIs for all types of securities trading will be charged an additional levy of 12.36% of gross commission along with the agreed brokerage fee with respective broker.

This tax fee will become effective starting from October 1st.

Sourcehttp://www.ey.com/IN/en/Services/Tax/EY-budget-connect-2014

Venue Updates

BSE-USE Merger gets go ahead from regulators

Market regulator SEBI and the Competition Commission of India (“CCI”) have given a nod to the proposed merger of United Stock Exchange of India (“USE”) with the BSE. The boards of BSE and USE had approved the merger in May earlier and the application for the merger has been filed before the Bombay High Court for approval.

Under the merger terms, each USE shareholder will get 1 share of BSE for every 385 shares held. BSE is currently the largest shareholder in USE and holds 14.56%. This merger would allow USE’s members who were not members of BSE earlier to now trade on the BSE platform as well.

The merger is also aimed at boosting BSE’s stressed currency trading business (currently dominated by rival National Stock Exchange) where it has made significant gains during the year.

Sourceshttp://www.business-standard.com/article/markets/bse-use-merger-gets-regulatorynod-114090101254_1.html

http://zeenews.india.com/business/news/finance/bse-gets-seb i-cci-go-ahead-for-use-takeover_107287.html

Market capitalisation of companies listed on BSE crosses $1.6 trillion mark as bourses touch new highs

Indian secondary markets continued to maintain momentum and reached new highs. The NSE Nifty hit a fresh all-time high above 8,173 points, while the BSE Sensex crossed a record high at 27,319 on 9th September. The market capitalisation of companies listed on the BSE also crossed the $1.6 trillion mark buoyed by heavy buying by funds and retail investors amid a firm Asian trend.

Sourcehttp://timesofindia.indiatimes.com/business/india-business/M-cap-over-1-6tn-markets-at-new-peak/articleshow/42062530.cms

Volumes of DMA, Algo Trading on exchanges increasing

More investors are opting to trade using the quick-to-market routes such as Direct Market Access (“DMA”) and algorithmic trading a recent analysis of trading volumes at the exchanges has revealed. The use of algorithmic trading has grown by 10% over the past year while DMA trading now constitutes approx 33% of all Institutional trading on BSE. A large proportion of volumes from algo trading and DMA is likely to be driven by derivatives trading.

Source http://www.business-standard.com/article/markets/more-stock-exchange-volumes-coming-in-through-quick-to-market-routes-114082500948_1.html

BSE revises equity transaction charges

The BSE has released a revised schedule of transaction charges for trading in the equity segment effective 1st September 2014. BSE will levy a uniform transaction fee of Rs 275 per crore of the gross turnover for both active as well as passive orders on the equity segment.

The charges for transactions in securities traded and settled in physical mode in equity segment have also been revised to Rs 1 Lakh per Crore of Gross Turnover for both Active and Passive orders.

The BSE circulars are available here: http://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20140813-19

http://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20140818-12

Sourceshttp://articles.economictimes.indiatimes.com/2014-08-18/news/52941899_1_transaction-charges-currency-derivative-segment-passive-orders

http://profit.ndtv.com/news/market/article-bse-revises-equity-transaction-

charges-646732

23

Global Market Structure South Korea


Global Market Structure South Korea Newsletter Issue 35 , 2014

Market Structure

Korea plans to widen the daily stock price movement band

FSC said it will expand the limit that stocks are allowed to rise or fall in a given day gradually from current range of 15% to 30% for example. The exact range and timing of this change is yet to be determined.

The move announced last month is part of government shake up in financial services sector to help boost the falling volumes and slowing economy.

FSC outlines action plan to promote ‘Creative Finance’

The FSC have released an action plan to promote ‘creative finance’ and the growth of new companies in order to bring long term boost to economy.

The three key foundation pillars to ‘creative finance’ are:

— Facilitate technology finance: FSC will offer banks incentives for credit loans to start-ups and tech firms based on technology assessment. An ‘Investment fund for technology evaluation’ worth KRW 300 billion will be established under the existing ‘Growth Ladder Fund’ to encourage investment based on technology evaluation.

— Revitalise venture capital market: A ‘Start-Up Fund,’ a subordinate fund of the Growth Ladder Fund, will be increased by KRW 120 billion from the current KRW 250 billion. The total investment volume and proportion of government funds invested in start-ups will be increased to 40% and 70% respectively.

— Cultivate Innovation - Friendly Culture in Financial Sector: FSC will reduce its practice of excessive sanctions against financial institutions so that banks have more freedom to provide loans to technology finance and new ventures.

More details can be found here:

http://www.fsc.go.kr/eng/new_press/releases.jsp?menu=01&bbsid=BBS0048

Introduction of Liquidity Coverage Ratio starting January 2015

Under the Basel III, the Liquidity Coverage Ratio (“LCR”) is set to be globally introduced in January 2015. The FSC has announced its plans to introduce LCR to banks operating in Korea. Starting from January, minimum LCR begins at 60% and will rise 10% per year to meet 100% in 2019 for all banks.

For further information click here:

http://www.fsc.go.kr/eng/new_press/releases.jsp?menu=01&bbsid=BBS0048

Policy Priorities to Bring Professional Investors to Korea’s Derivatives Market - KCMI

KCMI released a report last month where it highlights key priorities to attract professional investors (“PIs”) to Korea’s derivatives market. Per KCMI, regulations on how securities firms and asset managers use derivatives in asset management should be eased. KCMI suggests an incentive-compatible market microstructure to attract PIs, for example, introducing market maker system and the block trade system which makes it easier for PIs to find liquidity in the market.



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Fig 1. Turnover velocity Aug 2014: 85.5% , Aug 2013: 92.6%, Aug 2012: 108.9%



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Fig 2. Equities volume in Korea stock market picked up slightly in August following government’s tax policy announcement that may force companies to increase their dividend payout. Average daily turnover in Equities was up 5% in August versus July this year.

Fig 3. Wide spreads and reduced liquidity in Korea is adding to the cost pressure of trading in Korean equities market.


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Fig 4. KOSPI Index reached its 2014 high in July and closed over 3% above its January 2014 level.



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Before regulation was tightened in 2013, institutional investors formed over 30% of Korea’s options and futures market share, which has since declined to 10% in options market and 20% in futures market. Foreign investor’s market share has grown to 50-60% in the same period. Since retail investors form a large portion of KOSPI market share it is important to prevent their losses whilst keeping focus on the agenda of making Korea’s derivatives market more amicable for professional investors.

Investment from big local PIs such as the National Pension Service and Korea Post will help reduce concentration of foreign investors in turn reducing the risk of large capital outflows from derivatives market. KCMI suggests exemption of stock transaction taxes for NPS and Korea Post, and its three fold benefit - ease concentration in capital markets, increase the tax revenue from more market activity and increase expected rate of return from national pension.

See full report here: http://www.kcmi.re.kr/eng/periodical/opinion_listasp?syear=2014&pg=1&zno=1010

FSC plans to give more autonomy to institutions for disciplinary actions against individual investment decisions.

With an aim to strengthen the financial industry’s role in providing money to help start-ups get the capital they need to create and expand their businesses, FSC plans to reduce the amount of oversight on individual investment decisions while focusing more on overall company’s investments.

FSC said technology credit bureaus will assess credit risks of technologies and ideas that haven’t yet been invested in and store that data. Local banks that extend loans to technology start-ups with high-growth potential will get incentives including having the government cover up to three percentage points of their loan interest rate.

FSC preparing to set up an Independent Financial Advisory (IFA) committee

It has been reported that an Independent Financial Advisory (“IFA”) internal committee has been set up to hold discussions on the introduction of IFAs in South Korea. The FSC is preparing to release details this month.

In Korea, investment products are currently sold through banks, securities companies and insurance firms that largely sell products from affiliated fund companies. An IFA industry once set up should open a new sales channel for asset management companies and could foster an environment of providing better, suitable investment advice to retail investors.

The FSC has emphasised that poor advice from banks and securities firms has led to the misselling of inappropriate, complex financial products to retail investors.

Korea shares its anti-money laundering knowhow with Saudi Arabia

The Korea Financial Intelligence Unit (“KoFIU”) is holding a workshop to transfer knowhow and technology of its anti-money laundering system to Saudi Arabian officials. Established in 2001, the KoFIU analyses suspicious transaction reports and relays information to law enforcement agencies once the transaction is deemed connected with money laundering or proceeds of crimes.

The FSC said that the number of requests from other countries to learn the Korean anti-money laundering system have grown from South Eastern Asian nations to other regions. There have been foreign delegations from 16 countries in past 5 years that visited KoFIU to learn about its technology and processes.

Venue News

KRX to incentivise companies to pay out more dividends

South Korea’s stock exchange operator, KRX, will adopt incentives within this year to encourage companies to increase their dividend payout ratio, its chief said.

KRX’s dividend payout and dividend yield are considerably low compared to other foreign markets. The latest KRX data show South Korea’s dividend payout ratio at 22.4 percent, far below the average of 47.7 percent in other countries. The dividend yield ratio is 1.1 percent, compared with 2.7 percent overseas.

KRX head Choi Kyung Soo shared intentions to develop new indices,


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Stock Price Return

Volume traded (US$)

20D/ 100D ADT

034730.KS 20% 532,680,700 1.31 049770.KS 30% 34,824,280 1.12

001040.KS 20% 292,740,500 1.02 002240.KS 21% 29,419,150 1.81

011210.KS 19% 553,745,600 1.42 005610.KS 18% 67,524,460 1.42

090430.KS 17% 780,484,800 1.22 010780.KS 17% 46,862,410 1.07

086280.KS 14% 484,537,200 1.26 007310.KS 17% 40,042,430 1.10

078930.KS -9% 223,722,900 1.02 011780.KS -12% 208,764,500 1.05

096770.KS -10% 923,971,000 1.08 001740.KS -13% 176,320,700 0.99

009150.KS -11% 372,861,900 0.81 120110.KS -14% 118,496,100 1.04

011170.KS -13% 620,235,500 1.10 047040.KS -14% 199,558,200 1.32

010950.KS -15% 413,266,700 1.57 002350.KS -14% 99,480,700 0.74


Source: Dealogic

Volume (US$m) Exchange Market Cap (US$Trillion)

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Fig 6. Cuckoo Electronics (192400 KS) was this year’s biggest IPO in Korea at US$ 248Mn. 8 new listings took place in July, average deal size of US$ 46Mn.

Source: Dealogic


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Source: Dealogic



May-14 1 51% 63% 24%

Jun-14 1 38% 0% 3%

Jul-14 9 48% 12% 25%

25


such as those covering high-dividend stocks or preferred shares, to widen the base for dividend-related investment.

KRX announced real-time price banding in Korean derivatives to add stability

As of 1st September, the KRX has introduced real-time price banding in derivatives market to prevent mass fluctuations.

Per new price banding rules, KRX is able to reject orders/quotations received that fall outside of the live upper and lower bands, set at between one and 5% of the previous price. This mechanism is different to circuit breakers, whereby trading in the instrument is halted for a period of time to prevent crashes and busted trades.

The exchange has also introduced a new policy for handling error trades, adding a fill or kill capability, which will allow the exchange to cancel the full order amount in case of partial fill. This will be a new order type like existing IOC, which cancels the partial unfilled execution amount.

KRX expects that this new mechanism will add significant load to the trading platform since all calculations are done real time whenever a transaction or change in transaction takes place. However, it does not expect it to affect order speed because the capacity of the KRX trading system is dramatically improved.

The new price bands apply to Kospi 200 futures, Kospi 200 options, single- stock futures (except e-mart futures), US dollar futures, European euro futures, Japanese yen futures, three-year KTB futures and ten-year KTB futures. It will not apply to night or negotiated block trading, recently announced by the KRX.

More details on: http://eng.krx.co.kr/coreboard/BHPENG09004/viewjspx?bbsSeq=20100&secretYn=N

Sources:http://www.fsc.go.kr/http://www.kcmi.re.kr/http://eng.krx.co.kr/

http://www.asianinvestor.nethttp://english.yonhapnews.co.kr

Contact


26

Global Market Structure Australia


Global Market Structure Australia Newsletter Issue 35 , 2014



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AUSTRAC’s new levy proposal raises concerns

The Australian Transaction Reports and Analysis Centre (“AUSTRAC”) act as the anti-money laundering regulator in Australia. They have proposed a new fee structure which would place the burden of cost on the larger reporting entities resulting in some concern within the financial sector.

The proposals set out how AUSTRAC recover the costs related to the data and intelligence work that they perform for government and law agencies. Only the 1,029 largest reporting entities captured under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 will pay the new ‘industry contribution’ which is expected to result in an additional A$79 million over the next four years. Approximately 3,600 smaller entities will no longer have to pay.

Concerns with the plan include the belief that it has been directed at those entities having a perceived ability to pay (rather than using any fundamentally equitable allocation) and the fact that the government and law agencies who are the primary beneficiaries of AUSTRAC’s intelligence work (and who recover significant tax and crime proceeds) do not contribute. Furthermore the new levy is technically no longer a ‘cost recovery’ fee which therefore means that it ceases to be subject to the government’s cost recovery guidelines which require an efficient and justifiable process of recovery from the entities that create the regulatory demand.

For further details see the original AUSTRAC discussion paper here:

http://www.austrac.gov.au/files/industry_contribution_discussion_paper.pdf

ASIC release latest six-monthly supervision report

Every six months the Australian Securities & Investments Commission (“ASIC”) produce a report summarising the results of their supervisory and surveillance activities (including details on enforcements). In August the latest report was released covering the period from 1st January to 30th June. The key findings included:

— Market surveillance

— Successful rollout of ‘MAI’ the new market surveillance system allowing ASIC to more easily analyse large volumes of trade data. Anomalous trades can be identified more quickly and the new system has also facilitated reviews of high-frequency trading and algorithm trading activity.

— Trade surveillance alerts reduced significantly compared to the previous six month period (from 19,255 to 17,091). This fall was largely attributed to the more sophisticated and automated alert processes built into the new MAI system and also the creation of the Derivatives Surveillance team towards the end of 2013.

— The number of market enquiries increased compared to the previous six month period (from 102 to 122). Most enquiries related to insider trading or market manipulation with the increase being largely attributed to a growth in the Australian takeover market.

— The number of issues referred to the Market Integrity Enforcement team (21 issues) was broadly consistent with the previous period.


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Fig. 3. Chi-X maintains 17% market share in Australia.

Fig 1. Turnover velocity Aug 2014: 68%, Aug 2013: 74.4%, Aug 2012: 69.8%



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Fig 2. Faltering AUD against USD coupled with weakness in iron ore and coal prices has short term foreign investors and hedge funds pulling their money out of the market. Equities turnover remained low in the last 2 months, also with holiday season.

Australia

27


Fig 5. ASX is up 5% YTD despite weakening AUD and commodities prices.

— Automated trading and designated trading representatives (“DTRs”) continue to be an area of focus for ASIC. In equity markets ASIC observed a significant decrease in cancellations and instances of disorderly markets. However a corresponding increase was observed in the exchange traded options and warrants markets so addressing that will be a priority for ASIC.

— Supervision of market participants and securities dealers

— The number of risk-based assessments performed by ASIC increased to 35 from 17 in the previous six month period (though this significant increase was largely due to many reviews straddling the timing cut off between periods).

— 55 compliance reviews were performed by ASIC and these highlighted several areas of concern with respect to compliance with the Corporations Act and market integrity rules. For example issues with the supervision of DTRs, insufficient resources, lack of oversight over regional and branch offices and provision of personal advice. These points are being followed up with the relevant market participants.

— The 22 self-reported breaches received by ASIC over the six months were evenly spread between Corporations Act breaches and market integrity breaches.

— Market enforcement

— Due to the time taken to identify, investigate and resolve issues the market enforcement statistics are tracked over two year periods rather than six month periods.

— During the most recent two year period (ending 30th June 2014) the number of enforcements increased significantly (from 27 to 66) compared to the previous two year period. The improved analysis capabilities of the new MAI system was considered to be partially responsible for the increase.

— Most of the enforcements related to insider trading and Market Disciplinary Panel (“MDP”) infringement notices.

The full report is available here:http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep405-published-21-August-2014.pdf/$file/rep405-published-21-August-2014.pdf

Venue News

Chi-X concern over ASIC fees

Chi-X Australia CEO John Fildes has claimed that ASIC’s current ‘cost recovery’ levies are costing Chi-X approximately half of their revenue and are impacting their ability to compete. The existing fees are charged on messaging as well as trading resulting in costs for exchanges even when markets are not earning revenues. John Fildes said: “Our point is that the government guidelines state that cost recovery should not damage either competition or innovation and we do believe it has damaged us substantially”.

Chi-X have confirmed support for a change in the ASIC fee structure from ‘cost recovery’ to ‘user pays’ which would potentially result in a more equitable distribution of costs across parties who engage in regulated activities and those who benefit from the well-regulated market. ASIC themselves are also pushing for such a change and have proposed a new fee model in a submission to the Senate Economics References Committee inquiry. The inquiry endorsed the plan and have recommended that a government consultation begin as soon as possible.



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Fig 6. Healthscope Ltd (HSO AU) was this year’s biggest IPO in Australia at US$ 2.1Bn.8 new listings took place in July, average deal size of US$ 307Mn. 3 new listings took place in August, average deal size of US$ 18.4Mn.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

CTX.AX 16% 436,815,000 1.25 AAD.AX 23% 119,681,800 1.51

COH.AX 14% 540,837,000 1.64 DMP.AX 22% 162,075,700 1.57

CSL.AX 13% 2,635,730,000 1.39 MFG.AX 20% 185,602,200 1.43

TPM.AX 11% 118,898,700 0.50 MSB.AX 18% 52,669,420 1.28

ORG.AX 11% 1,058,072,000 1.39 IRE.AX 17% 89,461,240 0.88

ORI.AX -4% 739,411,200 1.06 WOR.AX -7% 325,664,100 0.93

BHP.AX -5% 6,578,062,000 1.20 SWM.AX -7% 104,017,100 0.95

TTS.AX -5% 271,361,800 0.99 BSL.AX -10% 518,212,900 1.32

JHX.AX -5% 790,941,900 1.63 JBH.AX -12% 415,907,400 1.37

FMG.AX -11% 1,803,956,000 0.87 TPI.AX -16% 277,396,300 2.08




Source: Dealogic



May-14 8 5% 83% 18%

Jun-14 5 -5% -3% 8%

Jul-14 8 4% 0% 5%

Aug-14 3 20% 0% 22%

28


ASX release feedback on exchange traded option consultation paper

In April ASX released a consultation paper entitled ‘ASX exchange-traded options: Consultation on automatic exercise on expiry date and approach for exercise errors’. The paper sought comments on two specific points:

1 The potential introduction of automatic exercise as the default position on expiry for all in-the-money cash settled and deliverable option contracts.

2 ASX Clear’s current approach for exercise errors.

After receiving comments from 18 market participants (3 of which were provided on a non-confidential basis) the ASX have now released the consultation findings. The key feedback points included:

— Strong support for the introduction of automatic exercise as the default position on expiry for all in-the-money cash settled and deliverable option contracts. (With most responses noting the economic rationale for such action and the fact that it is already standard practice across international markets).

— ASX Clear therefore intend to make this change in Q4 2014 (subject to regulatory approvals) by amending the ASX Clear Operating Rules.

— Furthermore, clearing participants will be able to set specific automatic exercise criteria at an account level (including minimum in-the-money thresholds) though this additional functionality is not expected to be available until Q2 2015.

— Feedback on the treatment of exercise errors provided a variety of suggestions including:

— Continue with the existing process whereby exercise errors are resolved via direct negotiations between the relevant clearing participants (with ASX Clear acting as facilitator).

— Change the process so that ASX Clear formally intermediate exercise errors disputes on an anonymous basis.

— Introduce a new structured error policy framework (similar to the ASIC Market Integrity Rules).

— After consideration ASX Clear decided to continue with the existing direct negotiation process so no changes will be made with respect to this point.

The full feedback announcement (including links to the 3 non-confidential responses) is available here:

http://www.asx.com.au/regulation/public-consultations.htm

Special dividend dilution factor consultation paper released by ASX

ASX currently publish dilution factors for all ‘special dividends’ (i.e. those that are one-off, non-recurrent, out of the ordinary course of business, and take the form of a cash or in-specie return or distribution of shares in another entity). Such dilution factors are used by market participants to adjust historical share price and financial data in order to facilitate time series analysis on a comparable basis.

In early August ASX released a consultation paper which proposed changing this existing process by introducing a threshold below which no dilution factor would be published. Such a potential change would align the ASX process with that followed by other international market venues and vendors.

The thresholds used across other markets and vendors vary but ASX are proposing that dilution factors would only be published for special dividends where the payment represents 5 % or more of the share price on the day before the ex-date.

The deadline for the submission of comments recently passed, consultation feedback from ASX will be published in the forthcoming

months and any resulting changes are expected to be actioned in November.

Please see the following link for the full ASX consultation paper:http://www.asx.com.au/documents/public-consultations/dilution_factor_calculation_for_special_dividends.pdf

ASX to reduce clearing fees for interest rate futures

Interest rate futures volumes have increased significantly over recent years yet the clearing fees charged by ASX to clearing participants have remained at 90 cents per contract side for 10 years without any changes. However ASX have now confirmed that they will reduce these fees with effect from 1st October. The new fee will be calculated on a sliding scale depending on the volumes of interest rate futures and OTC notional cleared. The table below illustrates how the fee incrementally reduces from 90 cents per contract side down to 30 cents per contract side as clearing volumes increase:

All thresholds are per quarter

OTC Cleared Notional Value (A$bn)

0-25 25-50 50-100 >100

Interest Rate Futures (House Sides - Millions)

>4 40 35 30 30

2-4 50 45 40 30

1.25-2 60 55 50 40

0.75-1.25 70 65 60 50

0.25-0.75 80 75 70 60

0-0.25 90 90 90 90

ASX announced at the same time that they will also discontinue the Large Volume Rebate scheme under which ASX customers share in a rebate based on the revenue growth of the futures and OTC clearing business. It is hoped that these changes will provide greater clarity for clearing participants and encourage volume growth.

See below link for the full ASX media release which includes an example of how the new sliding scale fees will be calculated:http://www.asx.com.au/documents/media/Media_Release_ASX_Lowers_Fees.pdf

Personnel News

Michael Gallagher is new general manager of AIMA Australia National Group

In August it was announced that Michael Gallagher will succeed Brett Ireland as the general manager of the Australian National Group at the Alternative Investment Management Association (“AIMA”). Michael’s previous roles include CEO at Kima Capital Management and head of Australasian equities at Rand Merchant Bank.

AIMA’s Australian chairman Paul Chadwick confirmed that: “Michael will coordinate with AIMA’s various groups and stakeholders, including its Executive Committee, Regulatory Committee and Education Committee, both locally and regionally to refine and implement the association’s strategic plans”.

Contact


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

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

http://www.austrac.gov.au/

http://www.chi-x.com.au

http://www.complinet.com/

http://www.ignitesasia.com/

29

Global Market Structure Thailand


Global Market Structure Thailand Newsletter Issue 35, 2014

Market Structure

Thailand allows foreign issuers

Thailand’s Securities and Exchange Commission (“SEC”) is changing rules to allow foreign companies to seek IPOs and dual-share offerings on the national stock exchange. Prospective companies must be in compliance with the laws and regulations of their home jurisdiction, and have at least two Thai residents on the board of directors. Financial statements can use either IFRS or Thai accounting standards.

Companies from Cambodia, Laos, Myanmar and Vietnam to show interest in listing in Thailand, according to IFR Asia with listings expected to be below US$100m.

Thailand market regulator seeks strict monitoring of share-trading

The SEC has asked stock market authorities and brokerage firms to strictly monitor trading in share markets, the regulator’s Secretary General said on 17th September.

Vorapol Socatiyanurak said he discussed the issue with the Stock Exchange of Thailand (“SET”) in a monthly meeting last week.

“I told the SET to strictly monitor the stock trading in both SET and MAI (Market of Alternative Investment) markets. I have given the same instruction to brokerage firms,” Vorapol told reporters.

Thailand Plans Rules to Curb Stock Manipulation With Fines

Thailand is planning new rules granting the SEC powers to file civil actions and impose fines on those found to be engaging in stock-market manipulation.

The rules take inspiration from the success of U.S. regulators in getting monetary settlements, Vorapol Socatiyanurak, Gecretary General of the SEC, said in an interview in Bangkok on 27th August. A bill with the proposals has been sent to the National Council for Peace and Order, Thailand’s junta leaders.

Declare services, says BoT

Financial institutions operating in Thailand are required to report their IT outsourcing services to the Bank of Thailand to enhance information and system securities as well as increase greater cost management efficiency.

Somboon Chitphentom, Senior Director of the regulatory policy department, said on 6th August both domestic and foreign financial institutions have to declare their critical IT outsourcing services at least 30 days before commencing an operating system or changing the service provider.

SET, SEC watch for overheating

The SET has discussed with the SEC ways to control overheating of stock prices and their irregular movement, and the rapid gains of initial-public-offering shares of listed companies, particularly small ones.

Prapan Charoenprawatt, SET senior Vice President and President of the Market for Alternative Investment (“MAI”), said the discussion focused on possible ways to oversee stocks with irregular movement. Personally, he said that if stock prices continue to move up sharply, there could be additional measures to combat their overheating.

Source: Dealogic


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Fig 2. Following the recent rally on SET Index, Thailand IPO market is expected to prosper as well. There have been 17IPOs in first half of the year so far and exchange expects about 30 new listings in rest half of the year to raise atleast US $3.1Bn.

Source: Dealogic


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30

Global Market Structure Thailand

Venue News

Thailand to launch SME trading platform

Thailand will launch a new trading board later this year with the intention of giving investors access to the country’s substantial SME sector.

The Bangkok Post cited Vorapol Socatiyanurak, Secretary General of the SEC, as saying that the first batch of between 10 and 20 SME equities will begin trading on the board this year. The board is aimed at allowing SMEs to raise funds to support business expansion.

Thai bourse first in ASEAN to join UN Sustainable Stock Exchanges

The SET announced on 10th September the partnership with the UN Sustainable Stock Exchanges Initiative (UN SSE Initiative), becoming the first ASEAN exchange to join other 12 leading exchanges that have publicly committed to promoting sustainable practices.

SET Chairman Sathit Limpongpan said that the Thai exchange in July signed the voluntary commitment with the UN SSE Initiative, committed to working with investors, companies and regulators to promote long-term sustainability through enhancing corporate transparency and performance on environmental, social and governance issues among the listed companies, and encouraging responsible long-term approaches to investment among investors.

SET to offer index for firms that have foreign exposure

The SET plans to launch an index based on listed companies that have foreign revenue in order to help investors track which stocks actually have international exposure.

The SET is screening qualified stocks to be components in the index and selecting an index provider, said Pakorn Peetathawatchai, Executive Vice-President for corporate strategy and finance on 2nd September. The index is expected to be unveiled next year.

Contact


Sources:http://www.marketwatch.comhttp://www.bangkokpost.comhttps://www.asia-first.com

http://online.wsj.comhttp://www.nationmultimedia.comhttp://www.phnompenhpost.com

31

Global Market Structure Singapore


Global Market Structure Singapore Newsletter Issue 35, 2014



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

Jul-14 Aug-14 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 0

0.5

1

1.5

2

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

Market Structure

MAS and MoF consult on Proposed Regulations to comply with US FATCA

The Monetary Authority of Singapore (“MAS”), the Ministry of Finance (“MOF”) and the Inland Revenue Authority of Singapore (“IRAS”) have proposed regulations with a view to help financial institutions in Singapore comply with the US Foreign Account Tax Compliance Act (“FATCA”). FATCA requires all financial institutions outside of the US to regularly submit information on financial accounts held by US persons to the US Internal Revenue Service, or face a 30% withholding tax on certain gross payments received from the US. Public feedback is invited on

— Draft Income Tax (International Tax Compliance Agreements) (United States of America) Regulations 2014, which set out the due diligence and reporting obligations of Singapore-based financial institutions in relation to the FATCA IGA

— Draft FATCA e-Tax Guide, which provides further explanation of those obligations

The consultation is open until 17th October 2014 and can be accessed here:

http://app.mof.gov.sg/pc_fatca_2014.aspx

MAS seeks public opinion on new outsourcing guidelines and set of ‘minimum standards’

The MAS has released two consultation papers aimed at setting up a number of ‘minimum standards’ for outsourcing management and enhance MAS’ regulatory framework. The proposals include a new notice on outsourcing, establishing a set of requirements for; the assessment of service providers, access to information, the conduct of audits on a service provider, protection of customer data, and termination of and exiting from outsourcing arrangements

The consultations are open until 7th October 2014 and can be accessed here: http://www.mas.gov.sg/News-and-Publications/Consultation-Paper/2014/Consultation-Paper-on-Notice-and-Guidelines-on-Outsourcing.aspx

MAS and SGX issue response to the consultation on the review of the securities market structure and practices

The MAS and Singapore Exchange (“SGX”) after receiving feedback on the joint consultation paper on Review of securities market structure and practices have issued their response to the consultation. It has been decided to proceed with the implementation of all five proposals as below:

— Introduction of a minimum trading price as a continuing listing requirement (decided at S$0.20, details available in a separate section below).

— Implementation of a minimum 5% collateral requirement for securities trading in order to promote financial prudence and discourage excessive leverage by investors. (However, Institutional investors, trades settled through delivery-versus-payment mode, and funds from the Central Provident Fund and Supplementary Retirement Schemes will be exempted from the collateral requirement).

Source: Dealogic



IPO

Vo

lum

e (U

S$

m)


Mar

ket

Cap

(U

S$

tri

llio

n)

2.98

3

3.02

3.04

3.06

3.08

3.1

3.12

3.14

3.16

3.18

3.2

0

100

200

300

400

500

600

700

800


Fig 2. Number of Chinese IPOs in Singapore has reduced significantly this year over last year as HK and China financial ties become stronger.

Japan based Accordia Golf Trust IPO in July this month at US$ 612Mn has so far been the biggest IPO in Singapore this year.

Fig 1. Singapore’s equities turnover remains nearly the same MOM and for the full year 2014 trading, the volumes in Singapore have been consistent despite lack of volatility in the market.

Source: Dealogic


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

Auto/Truck

Consumer

Healthcare

Industrials

M&M

Oil & Gas

REGAL

TMT Jan-July 2014 Aug 2014

Source: Dealogic


Source: Dealogic



Jun-14 3 0% 2% 4%

Jul-14 6 26% 23% 30%

Aug-14 2 4% 0% 8%

Singapore

32


— Implementation of aggregate short position reporting requirements whereby only those short positions that exceed the lower of 0.05% or S$1 million of issued shares will have to be reported.

— Transparency of trading restrictions imposed by securities intermediaries. The Securities Association of Singapore will be developing the industry guidelines to address the concerns of information asymmetry with regard to the dissemination of information on trading restrictions imposed by their members.

— Implementation of the SGX listings and enforcement framework by establishing three independent committees (Listings Advisory Committee, Listings Disciplinary Committee and Listings Appeals Committee) and introducing a wider range of sanctions for breaches of listing rules.

All the above initiatives will be introduced over the next 24 months in collaboration with industry participants through individual consultations on some of the above subjects.

The MAS and SGX response can be accessed here:http://www.mas.gov.sg/News-and-Publications/Consultation-Paper/2014/Review-of-Securities-Market-Structure-and-Practices.aspx

MAS signs MoU with ASIC for sharing Trade Repository data

The MAS and Australia’s Securities and Investments Commission (“ASIC”) have signed a Memorandum of Understanding (“MOU”) that will enable both the regulators to easily access information about financial derivatives that are traded over-the-counter in the two jurisdictions. Under the agreement, trade repositories licensed in Singapore will be allowed to provide relevant data to the Australian authority and vice versa while appropriately maintaining the confidentiality of the information provided.

MAS releases updated Guidebook For Audit Committees

The MAS, the Accounting and Corporate Regulatory Authority (“ACRA”) and the SGX have issued a revised Guidebook for Audit Committees in Singapore. The update of the workbook was carried out by a workgroup constituted in 2013 and covers the relevant changes in the regulations and guidelines. They have also introduced guidance on new areas of concern to Audit Committees that were not covered in the previous edition.

The new guidebook can be accessed here: http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulatory%20and%20Supervisory%20Framework/Corporate%20Governance%20of%20Listed%20Companies/Guidebook%20for%20ACs%202nd%20edition.pdf

Venue News

August 2014 SGX performance snapshot

SGX reported that both securities trading and derivatives volumes increased in August. Major highlights below:

— Total value of securities traded was S$21 billion, at par with last month.

— Five new listings raised S$1.4 billion in August

— Securities daily average value was still 27% lower year-on-year

— Derivatives volume declined 9% year-on-year to 9.4 million contracts.

— China A50 futures volume rose 112% year-on-year to a record 3.7 million contracts.

— Nikkei 225 futures volumes fell 21% to 1.7 million contracts.

Consultation released proposing independent listings committees and broader enforcement powers

The SGX has released a public consultation proposing establishment of a number of listing committees and widening of the enforcement powers with SGX to act against breaches of the listing rules as below. Market comments are invited on:

— Listings Advisory Committee (“LAC”) that will consider listing policy issues and initial public offer (“IPO”) and reverse takeover applications which meet the stipulated criteria.

— Composition of the LAC which is proposed to include 15 members appointed by its board in consultation with MAS — Appropriateness of the proposed criteria for cases to be referred to this committee

— Listings Disciplinary Committee (“LDC”) that will hear charges brought by SGX against parties for breaches of listing rules and will have powers to impose regulatory sanctions.

— Proposal for the LDC to hear disciplinary proceedings against issuers (including their key management personnel) — Appropriateness of the disciplinary powers made available to the LDC (including the issuing of public reprimands, imposition of fines against issuers etc.)

— Listings Appeals Committee (“LApC”) will hear appeals from parties subject to sanctions by the LDC, and from issuers subject to certain SGX regulatory decisions.

— Proposed scope of matters for which an appeals mechanism is available — Any other matters for which an appeals mechanism can be made available

— Strengthening the Listings Enforcement Framework

— Proposal to expand SGX’s enforcement powers including the power to offer compositions/fines to issuers — Proposal to provide SGX enforcement powers over directors, executive officers and issue managers and financial advisers including those on the Catalist platform

— Compliance Fund SGX has proposed to create a Compliance Fund which will comprise of contributions from listing revenue paid to SGX and fines collected by the LDC, LApC and other existing disciplinary and appeals committees. Market comments are invited on proposed uses of the Compliance Fund.

The consultation will be open until 16th October and can be accessed here: http://www.sgx.com/wps/wcm/connect/4f659a93-81b5-4081-9393-047de90878c7/Consultation+Paper+on+Reinforcing+the+SGX+Listings+and+Enforcement+Framework.pdf?MOD=AJPERES

http://www.sgx.com/wps/wcm/connect/sgx_en/home/regulation_v2/consultations_and_publications/PC/Consultation-Paper-on-Reinforcing-the-SGX-Listings-and-Enforcement-Framework

SGX seeks public comments on Minimum Trading Price and Codification of Regulatory Tools

The MAS and SGX are looking to introduce a minimum trading price requirement for all mainboard listed stocks as part of the continuing listing requirements and is aimed at restricting excessive speculation on penny stocks and its associated risks. A minimum trading price of S$0.20 has been finalised for the stocks listed on the mainboard.

Companies whose stock prices trade below S$0.20 will be given a transition period of 12 months to reach the threshold by undertaking corporate actions. After the initial 12 months, the stocks still trading below S$0.20 will be added to a watch-list for a cure period of 36 months before being delisted. According to SGX, about 220 of the 660-plus companies on the mainboard have share prices below 20 cents.

SGX is looking to introduce the minimum trading price requirements by March 2015, and make them effective by March 2016.

33


Contact


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

http://app.mof.gov.sg/

http://www.sgx.com/

http://www.ft.com

http://www.tax-news.com

http://sbr.com.sg

http://www.channelnewsasia.com

http://www.legalbusinessonline.com

http://www.automatedtrader.net

http://www.todayonline.com

http://www.reuters.com

http://www.theasset.com

http://www.shanghaidaily.com

http://www.hedgeweek.com

http://www.businessweek.com

http://www.asiaone.com

http://www.businesstimes.com

http://www.asia-first.com

SGX has also invited public comments on a proposal to retain the current notification and privy list requirements and to codify them into the Listing Rules. The current rules require issuers and/ or controlling shareholders to notify SGX if they are aware of or involved in discussions that are likely to result in a takeover, reverse takeover or a very substantial acquisition by the issuer and to concurrently maintain list of persons privy to such potential transactions.

Feedback is being sought on the types of transactions requiring such notifications and concurrent maintenance of privy list, the circumstances under which the notification requirement is triggered, the sufficiency of guidance and illustrations provided and the proposed format for the notifications.

Both the consultations are open until 16th October and can be accessed here:http://www.sgx.com/wps/wcm/connect/4d8427bc-d2f2-47ab-86c6-c8248f49a49e/Consultation+Paper+on+Introduction+of+Minimum+Trading+Price+and+Codification+of+Regulatory+Tools.pdf?MOD=AJPERES

http://www.sgx.com/wps/wcm/connect/sgx_en/home/regulation_v2/consultations_and_publications/PC/Consultation-Paper-on-Introduction-of-Minimum-Trading-Price-and-Codification-of-Regulatory-Tools

Board lot size to be reduced on 19th January 2015

SGX will introduce the reduced board lot size of 100 units (from 1000 units earlier) for trading in Singapore listed stocks from 19th January 2015. The move is aimed to help investors to build more “balanced and diversified” portfolios by enabling them to invest in the pricier blue chip counters which were earlier out of reach of smaller investors.

The new rules will apply to ordinary shares, real estate investment trusts, business trusts, company warrants, structured warrants and extended settlement contracts.

“The reduced board lot size will benefit all investors and make it easier to invest in blue chips and index component stocks which tend to be higher-priced. It will also allow institutional investors to better manage their risk exposures through finer asset allocation of funds.” Magnus Bocker, CEO of SGX, said.

SGX posts FY2014 net profit of S$320 million

SGX announced its FY2014 results and reported total revenues of S$687 million (down 4% from a year earlier). Expenses were up 5% to S$315.2 million while net profit declined 5% YoY to S$320.4 million.

The securities business was the only business where the revenues declined over the previous year with an 18% decrease to S$226.9 million and contributed 33% of the total revenue (from 38% in the previous year). A total of 34 new listings in the year raised S$4.8 billion (30 listings had raised S$8.1 billion a year earlier).

Derivatives revenues were up 3% at S$209 million accounting for 30% of total revenue (up 2% from previous year). Total volumes also rose 3% to 104.3 million contracts while the average month-end open interest for equities and commodities derivatives grew 27% to 3.4 million contracts.

SGX expands in Hong Kong; opens a branch and a liquidity hub

The Singapore Exchange Derivatives Trading Limited (“SGX-DT”) has opened its Hong Kong branch to better serve its customers keen on using its suite of Asian derivative products (including the China A50, India Nifty, Nikkei 225, MSCI Taiwan and MSCI Indonesia futures) and to efficiently trade and manage risk.

SGX-DT also announced the launch of its liquidity hub at Hong Kong Exchanges and Clearing Limited’s (“HKEx”) Data Centre, bringing participants in Hong Kong a more cost effective and convenient means to trade into SGX’s derivatives market.

“SGX-DT’s presence through our new office and liquidity hub offers market participants enhanced connectivity and market access to Asia’s growth, thus complementing Hong Kong’s capital markets and bringing the financial markets and participants of Hong Kong and Singapore closer together.” Chew Sutat, Head of Sales and Clients at SGX, said.

This is the first concrete step taken by SGX and HKEx after a December 2013 agreement to cooperate in areas of common interest, including enhancing connectivity.

SGX sets up a Diversity Action Committee

The SGX announced that they have constituted a Diversity Action Committee (“DAC”) chaired by its CEO Magnus Bocker and Speaker of Parliament Madam Halimah Yacob as its adviser. The Committee comprises of both business leaders and professionals from the private and public sectors and will be tasked to build up the representation of woman directors on boards of listed companies in Singapore.

“Increased diversity on boards heightens the robustness of decision-making and broadens the catchment of risk awareness and response, resulting in superior corporate governance,” the SGX stated.

34

Global Market Structure Philippines


Global Market Structure Philippines Newsletter Issue 35, 2014

Venue News

PSE reaches 15 month highs; Trading hit by tropical storm Mario on 19th Sep

The Philippine Stock Exchange (“PSE”) on 8th September reached the 7314.9 mark, its highest levels for the year (and highest since May 2013) driven by strong foreign buying in the local markets.

PSE had to suspend all trading and settlement operations on 19th September due to heavy rainfall and storms caused by Tropical Storm Mario (Fung-Wong) and the southwest monsoon.

PSE revises the list of Shariah-compliant stocks

The PSE has published a refreshed list of Shariah-compliant stocks considered compliant with the moral code and religious law of Islam after its quarterly review. The new list consists of 51 stocks (down from 61 earlier) from a total of 260 listed companies.

The PSE said its updated Guidelines on Screening of Securities for Shariah Compliance further aligns their screening methodology and criteria with Accounting and Auditing of Islamic Financial Companies (“AAOIFI”) standards.

PSE signs Market Data agreement with Deutsche Borse

The PSE announced that it has signed a memorandum of understanding with Deutsche Borse to cooperate in the area of market data and work on new initiatives for the licensing of current market data offerings, increasing distribution channels for real-time data, and new product design and innovation.

“The keen interest of investors in the Philippine stock market has created greater demand for more extensive market data. We are excited about this partnership as the Exchange continues to look for ways to further improve its market data segment both as a service and as a revenue stream.” - PSE President and CEO Hans B. Sicat said.



EQUITY

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25


Sources:http://www.interaksyon.com

http://www.philstar.com

http://www.bworldonline.com

http://manilastandardtoday.com

http://www.themalaymailonline.com

Philippines

Contact


Fig 1. Equity trading volumes in Philippines are up over 80% since start of this year.

35

Global Market Structure Indonesia


Global Market Structure Indonesia Newsletter Issue 35, 2014

Venue News

Indonesian stocks rise to 11 month high levels

The Indonesian Jakarta Composite Index rose 0.6% to hit its highest level on 8th September as it closed on 5246.5. The foreign investment in the country has been seeing a tremendous revival following conclusion of a peaceful election with foreign portfolio trading up 55.5 trillion rupiah (about US$4.75 billion) post the elections.

Sources: http://www.thejakartapost.com



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

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ture

s (U

S$

Mill

ion

s)

0

5

10

15

20

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0


Contact


Indonesia

Fig 1. South East Asian markets are the best performers in Asia Pacific region this year. Jakarta stock exchange index is up 20% for FY 2014.

36

Global Market Structure Malaysia


Global Market Structure Malaysia Newsletter Issue 35, 2014

Market Structure

Securities Commission Malaysia launches SRI Sukuk framework

The Securities Commission Malaysia (“SC”) has launched the Sustainable and Responsible Investment (“SRI”) Sukuk framework to facilitate the financing of sustainable and responsible investment initiatives.

In a statement today, the SC said the launch of the framework was in line with the initiative set out under its Capital Market Masterplan Two to promote socially responsible financing and investment.

Malaysian Stock Exchange Explores Doc-Less Client Onboarding

The country’s main bourse, Bursa Malaysia, has issued a public consultation paper which aims to set new standards for the growing stock exchange among domestic investors by simplifying the current account opening procedure. Individuals will be able to open accounts by submitting forms and supporting documents in soft or hard copy without the need to sign in person in the presence of a notary. Depository Agents and Participating Organisations will take on the responsibility of verification.

The move highlights the contribution of technology to the governance of emerging market stock markets as they look to compete with developed markets.

The consultation closed on 29th August and can be accessed here: http://www.bursamalaysia.com/misc/system/assets/10913/public_consultation_paper_180814.pdf

Venue News

Bursa Malaysia introduces ASEAN post-trade services

Bursa Malaysia Berhad (“BM”) introduced ASEAN Post Trade services to its Participating Organisations (“POs”) for outbound (non-Bursa Malaysia Securities’) trades executed on platforms operated by participants in the ASEAN Trading Link. These post trade services are available on subscription basis and include the safekeeping of securities traded on the three venues – the Singapore Exchange, the Stock Exchange of Thailand and the Bursa Malaysia.

Bursa Malaysia to develop ETF & SBL marketplace

BM will encourage the issuance and trading of exchange-traded funds (“ETF”) and the use of securities borrowing and lending (“SBL”), as measures to develop the current marketplace.

“ETF and SBL would enhance the equity market’s eco-system and provide investors a diverse range of efficient and cost-effective products and instruments,” said Bursa Malaysia CEO Datuk Tajuddin Atan on 11th September.

Source: Dealogic




Mar

ket

Cap

(U

S$

tri

llio

n)

IPO

Vo

lum

e (U

S$

m)

1.64

1.66

1.68

1.7

1.72

1.74

1.76

1.78

0

100

200

300

400

500

600

700

800


Fig 1. Malaysian equities volumes are up 30% since beginning of this year and index is up 20%, inline with rest of south east Asian markets.

Fig 2. There were 2 IPOs in Malaysia in the month of July, average size US$ 128Mn.

Source: Dealogic


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

Auto/Truck


Consumer

Industrials

Oil & Gas




EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$ M

illio

ns)

0

0.05

0.1

0.15

0.2

0.25

$0

$0.2

$0.4

$0.6

$0.8


Malaysia

On 10th September, Malaysia looked to enhance its role as a financial hub for listed financial instruments with Bursa Malaysia hosting the first ETF focused conference. The move aims to position the Southeast Asian nation as a pioneer among emerging markets. Currently, there are six ETFs in Malaysia, including CIMB FTSE China 25 ETF, CIMB FTSE/ Asean 40 Malaysia ETF and FTSE Bursa Malaysia KLCI ETF.

37

Global Market Structure Malaysia

SBL activity recorded with BM reached US$720 million as of 8th September up from US$1.15 million in January 2012. The pool of securities eligible for SBL increased to 227 on 14th August.

The multi-asset trading venue has been strengthening its product portfolio to meet the needs of Malaysia’s evolving investor base. ETFs allow investors to gain exposure to a basket of instruments.

Contact


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

http://www.themalaysianreserve.com

http://www.finextra.com

http://www.thestar.com.my

http://www.themalaymailonline.com

http://www.automatedtrader.net

www.theborneopost.com

38

Global Market Structure Indonesia


Global Market Structure Newsletter Issue 35, 2014

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, annualized

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 capitalization 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

39

Disclaimer

This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates (“DB”). Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on any specific final documentation relating to a transaction and not the summary contained herein. DB is not acting as your legal, financial, tax or accounting adviser or in any other fiduciary capacity with respect to any proposed transaction mentioned herein. This document does not constitute the provision of investment advice and is not intended to do so, but is intended to be general information. Any product(s) or proposed transaction(s) mentioned herein may not be appropriate for all investors and before entering into any transaction you should take steps to ensure that you fully understand the transaction and have made an independent assessment of the appropriateness of the transaction in the light of your own objectives, needs and circumstances, including the possible risks and benefits of entering into such transaction. For general information regarding the nature and risks of the proposed transaction and types of financial instruments please go to www.globalmarkets.db.com/riskdisclosures. You should also consider seeking advice from your own advisers in making any assessment on the basis of this document. If you decide to enter into a transaction with DB, you do so in reliance on your own judgment. The information contained in this document is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance does not guarantee or predict future results. This material was prepared by a Sales or Trading function within DB, and was not produced, reviewed or edited by the Research Department. Any opinions expressed herein may differ from the opinions expressed by other DB departments including the Research Department. Sales and Trading functions are subject to additional potential conflicts of interest which the Research Department does not face. DB may engage in transactions in a manner inconsistent with the views discussed herein. DB trades or may trade as principal in the instruments (or related derivatives), and may have proprietary positions in the instruments (or related derivatives) discussed herein. DB may make a market in the instruments (or related derivatives) discussed herein. Sales and Trading personnel are compensated in part based on the volume of transactions effected by them. DB seeks to transact business on an arm’s length basis with sophisticated investors capable of independently evaluating the merits and risks of each transaction, with investors who make their own decision regarding those transactions. The distribution of this document and availability of these products and services in certain jurisdictions may be restricted by law. You may not distribute this document, in whole or in part, without our express written permission. DB SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS DOCUMENT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. DB is authorized under German Banking Law (competent authority: BaFin - Federal Financial Supervising Authority) and regulated by the Financial Services Authority for the conduct of UK business. In the US this document is approved and or distributed by Deutsche Bank Securities Inc., a member of the NYSE, FINRA, NFA and SIPC. In Hong Kong: This document is intended for Professional Investors as defined by the SFO.

IN HONG KONG - Deutsche Securities Asia Limited. Hong Kong is a participant of the Stock Exchange of Hong Kong and is licensed as a licensed corporation with the Securities and Futures Commission. DBAG Hong Kong Branch is regulated by the Hong Kong Monetary Authority.

In US: In accordance e with US regulation, please contact your local DB US registered broker dealer, Deutsche Bank Securities Inc., for any questions or discussion of potential transactions.

In JAPAN: This document is prepared by Deutsche Bank A. G. Hong Kong Branch and is distributed in Japan by Deutsche Securities Inc. (“DSI”). Please contact the responsible employee of DSI in case you have any question on this document. DSI serves as contact for the product or service described in this document.

In TAIWAN: This document is distributed in Taiwan by Deutsche Securities Asia Limited, Taipei Branch which is regulated by Financial Supervisory Commission, Executive Yuan. This document is intended for ‘Professional Investors’ as defined by securities regulations and is not for public dissemination’

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In MALAYSIA: This document is distributed in Malaysia by Deutsche Bank (Malaysia) Berhad.

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