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Deutsche BankEquities

Global Market StructureAsia Pacific Newsletter Issue 34

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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 24

Australia 27

Thailand 30

Singapore 32

Philippines 34

Indonesia 35

Malaysia 36

Chart Definitions 37

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, Feiran Tao

Issue 34, 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 34, 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% 37%China

8% 7% 8%Hong Kong

4% 3% 4%India

26% 34% 32%Japan10% 6% 6%South Korea

5% 4% 5%Taiwan

5% 4% 3%ASEAN

2012 2013 2014

28% 35% 33%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia

31% 26% 25%Singapore18% 17% 16%Indonesia


Fig.5 Impact Cost Estimate

0.0

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act

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ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times


Fig.6 Turnover Velocity


Fig.8 APAC Market Microstructure Matrix

South Korea Japan Hong Kong Taiwan China India Singapore Thailand Malaysia

Bill

ion

s

Avg Turnover (US$ Bn)

Open Interest (US$ Bn)

0

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

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2012 2013 2014Australia 6% 5% 6%

35% 37% 37%China

8% 7% 8%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 3%ASEAN

2012 2013 2014

28% 35% 33%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

5.0

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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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2012 2013 2014Australia 6% 5% 6%

35% 37% 37%China

8% 7% 8%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 3%ASEAN

2012 2013 2014

28% 35% 33%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

5.0

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15.0

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25.0

30.0

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Imp

act

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times






Bill

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s



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New governments in India and Thailand have lead to highlights for Asia in May and June. Election results in India were announced mid-May and index has rallied over 17% since the new BJP government came to power (24% YTD). There’s bullish sentiment among investors as the new Finance Minister in India announced a series of tax reforms at the Union Budget earlier in July.

In Thailand military has taken control to bring an end to political unrest that had been ongoing since November last year, during which period foreign investors had withdrawn their money from the country. SET50 Index has now gained 11% since peace returned in May 2014, equities volumes are up 30% YOY and nearly 100% up since January this year.

China and Hong Kong have also seen a rally in the last two weeks, following as China GDP growth numbers came out better than expected and July flash PMI rose to its 11-month high level.

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

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

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

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

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

6. China cash crunch and poor GDP data signalling economic slowdown

1. Thailand index, volatility and volumes surges adter Thailand’s army formally assumed control on May 22nd. Index has risen over 8% since 2. Strong foreign investor inflows over 3 weeks in Indonesia. Index rallied nearly 5% in three weeks 3. IDR currency depreciation - 15% fall against USD as Indonesia’s current account deficit widended

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Global Market Structure











2012 2013 2014Australia 6% 5% 6%

35% 37% 37%China

8% 7% 8%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 3%ASEAN

2012 2013 2014

28% 35% 33%Thailand

6% 7% 6%Philippines

16% 16% 20%Malaysia




0.0

5.0

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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






Bill

ion

s



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May-13 Jun-13 Jun-13 Jul-13 Aug-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 Source: Thomson Reuters

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


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





0

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0.45 USAEuropeAustraliaChinaHong KongIndiaJapanSouth KoreaTaiwan


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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%

Indonesia MalaysiaPhilippinesThailand SingaporeTaiwan AustraliaChina Hong KongIndiaJapan South Korea

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


1 2 3 4 5

1 2

131211


Fig.7 Primary Futures Turnover vs Open Interest

$0

$10

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$60

Malaysia



ThailandSingaporeTaiwan ChinaHong Kong IndiaJapanSouth Korea









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


2011 2012 2013

28% 33% 40%Thailand

4% 6% 6%Philippines

15% 15% 15%Malaysia




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

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$60

Malaysia












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


2011 2012 2013

28% 33% 40%Thailand

4% 6% 6%Philippines

15% 15% 15%Malaysia




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














2012 2013 2014Australia 6% 5% 6%

35% 37% 37%China

8% 7% 8%Hong Kong

4% 3% 4%India


5% 4% 5%Taiwan

5% 4% 3%ASEAN

2012 2013 2014

28% 35% 33%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

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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

Co

st E

stim

ates

(b

ps)

Hang Seng Composite

Nikkei 225

Taiwan TAIEX

NSE S&P Nifty

S&P/ASX 200

Kospi 200

Straits Times






Bill

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s



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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 36% 109% 100% - 7.6% 0.02% 11 3,686 19% 25,738 59,468 139

JAPAN 31% 160% 89% 23.7 2.1% -1% 25 1,651 19% 24,611 19,039 86

HONG KONG 8% 13% 99% 13.3 6.5% 6% 14 6,024 15% 5,050 6,293 41

SOUTH KOREA 6% 101% 100% 26.2 3.7% 3.2% 22 77 10% 4,897 16,065 54

AUSTRALIA 6% 69% 84% 6.5 4.4% 5.2% 13 1,146 9% 4,941 2,976 11

TAIWAN 5% 77% 100% 15.2 -0.8% 8.2% 35 5,447 8% 4,375 5,307 23

INDIA 4% 39% 100% 21.1 2.3% 23.5% 4 312 10% 4,018 2,942 4

THAILAND 1% 61% 100% - 2.1% 15.5% 43 7,770 10% 1,423 1,829 0

SINGAPORE 1% 9% 100% 11.4 3.8% 6.7% 22 4,220 9% 635 326 1

MALAYSIA 1% 22% 100% - -0.4% 0.4% 31 6,479 4% 528 286 0

INDONESIA 1% 58% 100% - 4.3% 19.1% 18 10,265 24% 383 9 0

PHILIPPINES 0% 28% 100% - 0.4% 16.7% 18 9,277 12% 207 - 1

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Global Market Structure Hong Kong


Global Market Structure Hong Kong Newsletter Issue 34, 2014

Market Structure

“Regulation for Quality Markets” - SFC annual report published

The SFC have released an annual report for 2013-14 that provides an overview of the regulatory developments and achievements from the last year whilst also setting out the strategy and priorities for the future.

Key themes from the Chairman and CEO messages include:

— Re-focus on conduct to ensure behaviours are consistent with long-term sustainability.

— Enhanced public disclosures (and increased use of review of such announcements to identify questionable behaviour).

— Increased corporate governance engagement with companies.

— Encouraging shareholder engagement with the companies they have invested in.

— More oversight of intermediaries to promote control and risk cultures.

— Focus on more robust design and approval processes for new products.

— Continuing to seek remedial redress for the investing public where they have suffered from market misconduct.

— Collaboration with China (including the mutual stock market access project between Shanghai and Hong Kong).

— Fostering international regulatory collaboration (without necessarily automatically adopting US and European approaches).

To access the full report click here:

http://www.sfc.hk/web/annualreport2013-14/html/index.html

Potential reduction in Hong Kong trading levy

The Securities and Futures (Levy) (Amendment) Order 2014 sets out a proposal to reduce the Hong Kong trading levy by 10%. Such a change would impact the current rates as follows:

— Levy on security transactions reduced from 0.0030 % to 0.0027 %.

— Levy on futures contracts reduced from HK$0.60 to HK$0.54.

— Levy on Mini-Hang Seng Index Futures contracts, Mini-Hang Seng Index Options contracts, Mini-Hang Seng China Enterprises Index Futures contracts, a stock futures contract or an option for such a contract reduced from HK$0.12 to HK$0.108.

It is estimated that these changes would decrease market transaction costs by approximately HK$105 million per annum. If approved by the Legislative Council the change would take effect from 1st November.

HKMA pledges continuing support for USD peg

The Hong Kong Monetary Authority (“HKMA”) Chief Executive Norman Chan Tak-lam has reiterated his ongoing support for the Linked Exchange Rate System (“LERS”) under which the HKD is pegged to the USD. His comments appeared in a HKMA letter reflecting on his first 5 year term as Chief Executive. Norman Chan Tak-lam commented that

“The HKMA and the HKSAR Government’s commitment to maintaining Source: Thomson Reuters

%

HKG Dark

Fig 4: Lit versus Dark Market Share

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

100%

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


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

$20

$40

$60

$80

$100

$120

$140

$160

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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

Fig 1. Despite the low volatility in the region, Hong Kong equities turnover is at par with 2013 level and well above 2012 turnover.


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

EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

20

40

60

80

$0

$2

$4

$6

$8

$10

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

Fig 2. ETFs turnover in Hong Kong is down nearly 50% versus last year. ETF industry is Hong Kong is primarily concentrated on Hong Kong and mainland stocks,but given the performance of Hong Kong and mainland stocks hasn’t been great so far this year the investor confidence and consequently ETF volumes are on a decline.

Fig 3. Trading volumes in futures also come off as markets slows down, futures trading down compared to same period last year as well.


Fig 3: YoY futures average daily turnover

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

July-13 Aug-13 Sep-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

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the LERS is clear and unwavering. Despite its imperfections, the LERS is still the most suitable regime for Hong Kong after thorough consideration of all the related factors and analysis”.

These comments came a week after the HKMA’s first foreign exchange market intervention since Q4 of 2012. The HKMA were obliged to defend the peg by buying US$2.1 billion and it is expected that further actions will be required going forwards as upward pressure builds on the HKD as a result from inflows into Hong Kong’s equity and bond markets and renewed optimism towards the Chinese equity market.

To read the whole HKMA letter click here:

http://www.hkma.gov.hk/eng/key-information/insight/20140707.shtml

Hong Kong planning to introduce paperless securities regime

The Securities and Futures and Companies Legislation (Uncertified Securities Market Amendment) Bill 2014 sets out the proposal to introduce a paperless securities market regime.

The key points of the Bill include:

— Investors would be able to choose to hold and transfer securities without paper documentation.

— Investors would be able to register securities in their own names (therefore enjoying full legal ownership).

— The Bill would introduce the broad framework into the Securities and Futures Ordinance (“SFO”) and the Companies Ordinance (with the operational details contained in some new subsidiary legislation under the SFO).

— The scheme will fall under the oversight of the Securities and Futures Commission (“SFC”).

— Initially only shares listed on (or to be listed on) the Hong Kong Stock Exchange would be covered but it is expected that the scheme would subsequently be expanded to cover other Hong Kong Stock Exchange products (e.g. debentures and unit trusts).

— There will be a transition period where both the paper-based and uncertified systems operate in parallel.

Professor K C Chan (Secretary for Financial Services and the Treasury) announced that “it marks an important step forward for Hong Kong moving towards an uncertified securities market regime which will increase overall market efficiency, improve investor protection and enhance Hong Kong’s competitiveness”.

The full Bill is available under the following link:www.fstb.gov.hk/fsb/topical/usma.htm

2013 Fund Management Activities Survey results released

Since 1999 the SFC have conducted an annual Fund Management Activities Survey (“FMAS”) in order to help collect important data for operations and strategy planning. 555 firms voluntarily contributed to the 2013 survey, the results of which have now been released.

The highlight finding was that the combined fund management business reached a record high of HK$6,007 billion at the end of 2013 representing a 27.2% increase on the previous year. Mrs Alexa Lam (SFC Deputy Chief Executive and Executive Director of Investment Products, International and China) commented that “the record high assets under management of our combined fund management business at the end of 2013 ranks us among the top asset management hubs in Asia ex Japan”.

The full report is available for review under the following link:http://www.sfc.hk/web/EN/files/ER/Reports/2013%20FMAS%20Report.pdf

Hong Kong and Malaysia host Islamic fund seminar

On 17th June the SFC and the Securities Commission Malaysia (“SC”) together held a seminar to discuss the opportunity for Hong Kong to become a platform for Islamic fund products.


Avg

Tra

de

Siz

e

Avg

Sp

read

(B

PS

)

Avg Trade Size Average Spread (BPS)

Fig 5: Average Index Spread and Trade Sizes

Apr-14 May-14 Jun-140

1000

2000

3000

4000

5000

6000

7000

8000

0

2

4

6

8

10

12

14

16


Fig 6: MoM Index Price Change

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

FY2013 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

%

Fig 6. Hong Kong index gained 5% in May-June combined as quarterly results for Hong Kong and China turned out better than expected estimates.

Fig 5. Index spread and trade sizes in Hong Kong are nearly unchanged in the year so far and YoY.

Fig 7. Tech Stock 700 HK (Tencent Holdings) with 8.9% weight in HSI index, posted better than expected results. Stock gained 5.8% and index level rose to its highest since April.

Fig 7: Large and Mid Cap Index movers



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


%

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

1928.HK 7% 2,364,072,000 0.88 0151.HK 4% 482,780,000 1.14

0700.HK 6% 5,291,128,000 0.99 0027.HK 3% 1,960,434,000 0.88

0857.HK 5% 1,530,668,000 0.74 0762.HK 3% 787,352,000 0.77

0883.HK 5% 1,583,292,000 0.74 0004.HK 2% 740,834,300 0.85

0386.HK 4% 1,513,736,000 0.70 0019.HK 1% 281,780,100 0.74

1299.HK -1% 1,411,359,000 0.66 0012.HK -2% 436,589,100 1.15

0001.HK -2% 1,010,038,000 0.78 0011.HK -2% 328,400,100 0.88

0941.HK -2% 2,468,446,000 0.69 2388.HK -2% 601,354,000 0.92

0005.HK -4% 2,230,521,000 0.79 0322.HK -2% 177,257,400 0.79

2628.HK -5% 1,445,428,000 0.93 0688.HK -4% 1,309,614,000 0.92

Source: Dealogic

Fig 8: Avg Monthly IPO size and Exchange Market Cap

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

Mar

ket

Cap

(U

S$

tri

llio

n)

IPO

Vo

lum

e (U

S$

m)

68

70

72

74

76

78

80

82

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY 13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Fig 8. Hong Kong IPO market picked up, with 30 new listings in months of May-June, together adding US$ 4.5Bn to exchange market cap.

8


Mrs Alexa Lam (SFC Deputy Chief Executive Officer and Executive Director of Investment Products, International and China) said “our robust infrastructure and world class reputation as well as first mover advantage in RMB finance and products, all combine to make Hong Kong an excellent platform to further develop Islamic products for sale to investors domestic and internationally”.

SFC publish first corporate regulation newsletter

The first edition of the Corporate Regulation Newsletter has now been published by the SFC. The SFC Chief Executive Officer Ashley Alder said that “this newsletter is part of ongoing efforts to improve corporate behaviour in general”.

The first newsletter focuses on corporate behaviour, disclosures and listing applications and is available on the SFC website under the following link:

http://www.sfc.hk/web/files/ER/Reports/CRN/CR_20140704.pdf

Interested parties can receive this newsletter automatically going forwards by opting in on the subscribe section of the SFC website here:https://www.sfc.hk/CampaignHelper/campaignForm.jsp?lang=EN

Venue News

HKEx release more details on the Shanghai – Hong Kong Stock Connect

In July the HKEx published a Participant Briefing paper containing further updates on the Stock Connect project. Importantly, Market Participants are required to have completed their end to end testing and confirm their readiness to the HKEx by the deadline of 15th August. Other key points from the paper include:

— There will be no bulk cancel functionality therefore orders will need to be cancelled individually as required.

— Existing 30% aggregate foreign ownership limits will apply to A Shares. The HKEx will cease taking orders when 28% foreign ownership is reached and will only start re-accepting orders once the level subsequently falls back below 26%. If a Stock Connect order results in the 30% limit being breached then the HKEx will require the relevant EP to follow a force sell down process.

— An additional morning settlement session will be created allowing the pre delivery check to be performed pre open on T rather than on T-1 to make it easier for custodians and brokers to meet the requirement of transferring A Shares to the selling broker.

— A new tiered CCASS portfolio fee will be introduced.

— Investors may exercise their A Share voting rights by giving instructions through CCASS participants using the existing Voting Instruction Maintenance function. The exchange will confirm whether they are able to submit a split vote to the Shanghai Stock Exchange in due course.

— No outstanding Continuous Net Settlement short position is permitted or all corresponding standing instructions will be put on-hold for the Exchange Participant.

— ChinaClear will be treated as another clearing participant (however they will not have access to the guarantee fund).

The full briefing paper is available here:http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Documents/Water%20EP-CP%20briefing%202nd%20round%20ppt%20(full%20pack)_vF5.pdf

Note that the HKEx website now has a dedicated Stock Connect section that can be accessed through the link below. All related materials can be accessed and reviewed here including:

— Information Books for both Investors and Market Participants.

— Technical system specification requirements.

— Educational videos.

— Presentation materials used for various briefing sessions.

— FAQ papers.

— Copies of news releases and circulars.http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/chinaconnect.htm

Shanghai-Hong Kong Connect Gateway offline simulator package available for download

EP’s are now able to download the China Connect Open Gateway (“CCOG”) Offline Simulator Package by following the instructions in the HKEx circular below:

http://www.hkex.com.hk/eng/market/partcir/sehk/2014/Documents/CT02314E.pdf

The package is intended to help EP’s perform system testing in preparation for the forthcoming Shanghai – Hong Kong Stock mutual market access.

HKEx launches the Orion Central Gateway

On 27th June the HKEx announced the launch of the Orion Central Gateway which acts as a new access point for Stock Exchange Participants (“EPs”) to connect to the HKEx’s securities trading system. 54 EPs are already connected via the OCG but the existing Open Gateway connectivity will continue in parallel allowing other EPs to migrate in the future.

The OCG connectivity has several advantages including:

— New architecture eliminates the Exchange’s footprint within EPs’ premises.

— Introduces an industry standard FIX interface.

— Reduced latency.

— Increased resiliency.

Charles Li, HKEx CEO, said that “the successful launch of the OCG was another big step for our Orion programme and we appreciate the preparation work of the EPs that were involved in the roll out. We will continue to invest in technology for our markets to ensure they remain attractive”.

HKEx to consider special listing boards

HKEx Chairman Chow Chung-kong confirmed that they hope to set up a consultation to consider specialised listing boards during the second half of 2014. He said “Hong Kong is a financial hub. We have to be very aware of market changes and demands. We have a very open attitude as to what to do in the future”.

These comments follow a recent suggestion from the Financial Services Development Council that the HKEx and regulators should set up

Source: Dealogic

Fig 9: IPO Sector Distribution

Auto/Truck

Construction/Building

Consumer

FIG

Healthcare

Industrials

M&M

REGAL

TMT

Utility & Energy

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

Jan-May 2014 Jun 2014


Fig 10: IPO Performance

Source: Dealogic


# of IPO 1 day 1 month Current

Mar-14 4 -8% -12% -17%

Apr-14 3 -1% -2% 23%

May-14 6 3% 7% 7%

Jun-14 25 -2% 0% 4%

9


several new boards to help increase the attractiveness of Hong Kong as a venue for potential listing candidates.

2014 H-share listings may break 2006 record

Long queue times and listing quotas on the Shanghai and Shenzhen exchanges are leading some Chinese firms to pursue H-share listings in Hong Kong instead. The annual record for the number of H-share listings was set in 2006 with 23 but in the first half of 2014 there have already been 13 (raising HK$31 billion) with at least another 10 currently in the pipeline for the remainder of the year according to PWC capital markets group partner Edmond Chan. This represents a significant increase on the 2013 total of 3.

HKEx publishes Consultation Paper on Corporate Governance

On 20th June the Stock Exchange of Hong Kong Limited (a subsidiary of HKEx) published a consultation paper on proposed changes to the internal controls section of their Corporate Governance Code and Corporate Governance Report (Appendix 14 and Appendix 15 of the Main Board listing rules and the Growth Enterprise Market Listing Rules respectively).

The key changes contained in the consultation paper include:

— Highlighting that internal controls are an integral part of risk management.

— Defining risk management and internal control roles and responsibilities for the board, committees and management.

— Enhanced disclosure recommendations for internal control policies, processes and annual control reviews.

— Internal audit recommendations.

David Graham, HKEx’s Chief Regulatory Officer and Head of Listing, said that “this consultation paper is part of our ongoing efforts to ensure that the Code remains up-to-date and reflects international best practice”.

The full consultation paper can be accessed at the following link:

http://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp201406.pdf

Interested parties are invited to respond to the consultation paper before the 31st August deadline via the questionnaire contained in the below news release:

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2014/140620news.htm

HKFE revises minimum margins for Futures contracts

On 24th June the Hong Kong Futures Exchange Limited (“HKFE”) updated the minimum margins that EPs collect from their clients on futures contracts. The revised minimum margin levels came into effect on 2nd July and are available in the following link:http://www.hkex.com.hk/eng/market/rm/rm_dcrm/riskdata/margin_hkcc/fomargin.htm

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.

HKEx extend after hours futures trading

From 3rd November the After-hours Futures Trading (“AHFT”) session will be extended as shown in the table below.

Current Arrangement Arrangement from 3 November 2014

AHFT Trading Session

5:00 pm - 11:00 pm 5:00 pm - 11:45 pm

T+1 Clearing Session 5:00 pm - 11:45 pm 5:00 pm - 12:30 am

This change is intended to increase the business hours overlap with other key international markets. EPs will be able to test their readiness for this change in a forthcoming market simulation that the HKEx will arrange.

SGX creates liquidity hub in Hong Kong

On July 8th it was announced that the first connectivity had been established as the Singapore Exchange (“SGX”) opened a Hong Kong office and created a presence in the Hong Kong data centre. SGX and Hong Kong Exchanges and Clearing first signed a MoU in December 2013 with the intention of increasing cooperation and connectivity between the two financial centres.

This new liquidity hub will allow Hong Kong brokers to have direct electronic access to trade derivative products via Singaporean based SGX member brokers. Five firms were signed up at the time of the announcement although it is hoped that hundreds more will follow.

Charles Li, HKEx Chief Executive said “we welcome SGX to the hosting services ecosystem at our Data Centre. We will continue to explore ways we can cooperate in areas of common interest”.

Contact


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

http://www.sfc.hk/

http://www.info.gov.hk/

http://www.fstb.gov.hk/

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

http://www.scmp.com/

http://www.hedgeweek.com/

http://www.ejinsight.com/

http://www.cnbc.com/

10

Global Market Structure China


Global Market Structure China Newsletter Issue 34, 2014

Market Structure

QFII and RQFII updates

The following new QFII licenses received quota in May and June:

May:1. Greystone Managed Investments Inc., US$100 million

2. Cascade Investment, L.L.C., US$200 million

3. Hyundai Securities Co., Ltd., US$100 million

4. NTUC Income Insurance Co-operative Limited, US$100 million

5. Matthews International Capital Management, L.L.C., US$100 million

6. Nordea Investment Management AB, US$100 million

7. HFT Investment Management (HK) Limited, US$100 million

June:1. Oppenheimer Funds, Inc., US$200 million2. Overlook Investments Limited, US$100 million

3. Taishin International Bank Co., Ltd., US$100 million

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

May:

1. Abu Dhabi Investment Authority, US$500 million

June:1. Platinum Investment Company Limited, US$150 million

2. Aberdeen Asset Management Asia Limited, US$55 million

3. Neuberger Berman Europe Limited, US$75 million

4. Prudential Financial Securities Investment Trust Enterprise, US$50 million

5. William Blair & Company, L.L.C., US$100 million

Separately, SAFE granted new RQFIIs the following quota:

May:1. Cephei Capital Management (Hong Kong) Limited, RMB 1.3 billion

2. BlackRock Asset Management North Asia Limited, RMB 2 billion

3. Schroder Investment Management (Hong Kong) Limited, RMB 1 billion

4. Macquarie Funds Management Hong Kong Limited, RMB 1 billion

June:1. Fullerton Fund Management, RMB 1.2 billion

2. Nikko Asset Management Asia, RMB 1 billion

3. CMS Asset Management (HK) Co., Limited, RMB 1 billion

4. Yue Xiu Asset Management Limited, RMB 1 billion

5. Pureheart Capital Asia, RMB 0.2 billion



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Fig 1. Volatility in China hit record low in May as investor interest in equities and related products declined. Trading volumes slow down in equities, futures and ETFs.



EQUITY FUTURES ETFS

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Fig 2. Domestic futures volumes also decline as equities volume keeps low. Futures turnover is down 38% since the beginning of this year.



$0

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HSCEI Futures SGX FTSE China A50 CSI 300 Fut



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China

11


Source: Deutsche Bank, CSRC, SAFE

Cumulative QFII Licenses and Quota Granted

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

0

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Cumulative Investment Quota approved

Source: Dealogic



0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Auto/Truck

Consumer

Healthcare

Industrials

M&M

TMT

Utility & Energy

Source: Dealogic



Mar

ket

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New “negative list” released for Shanghai FTZ

On 1st July the Shanghai Municipal People’s Government issued a revised negative list. The negative list was first published in 2013 and contains industry sectors which are subject to foreign investment restrictions or prohibitions. Therefore any sector not on the list is open to foreign investment and such investments have a simplified filing procedure with no requirement for government approval.

51 sectors have been removed completely from the list (though a significant number of these relate to sectors being combined and regrouped). Sectors where foreign investment restrictions have been removed include:

— Development of tracts of land.

— Operation of premises to provide internet access.

— Railway cargo transport companies.

— Cotton processing.

— Paper pulp and paper manufacturing.

— Production of Benzedrine, dyes and coatings.

— Production of chemical medicines.

— Smelting of non-ferrous metals.

— Wholesale, retail and distribution of vegetable oil and sugar

The following was granted to existing RQFIIs:

May:1. CSOP Asset Management Limited, RMB 2 billion

2. Harvest Global Investments Limited, RMB 1 billion

3. HFT Investment Management (HK) Co., Ltd., RMB 1.5 billion

4. E Fund Management (HK) Co., Limited, RMB 500 million

5. GF International Investment Management Limited, RMB 1.5 billion

6. LFM Global Investment (Hong Kong) Company Limited, RMB 500 million

7. Everbright Securities Financial Holding Co., Ltd., RMB 800 million

8. Guotai Junan Financial Holdings Ltd., RMB 1 billion

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

10. China Investment Securities (HK), RMB 300 million

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

12. China Life Franklin Asset Mgt. Co. Ltd., RMB 3 billion

13. China Everbright Assets Management Limited, RMB 1.2 billion

June:1. ICBC Credit Suisse Asset Management (International) Co., Limited, RMB 2 billion

2. UBS SDIC Asset Management (Hong Kong) Company Limited, RMB 1 billion

3. CITIC Securities International Company Limited, RMB 0.5 billion

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

5. China Orient International Asset Management Limited, RMB 1.5 billion

6. SinoPac Asset Management (Asia) Ltd., RMB 0.5 billion

7. China Securities (International) Finance Holding Company Limited, RMB 1.2 billion



-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

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

Fig 5. China’s benchmark index remained within a small volatility range for most of the period, closing at +/- 1% from previous open each day.

Fig 6. Biggest gainers in the month of June were Industrials stocks that posted better than expected Q2 results.

Fig7. Mainland China IPO market resumed after 4 month halt. 9 new listings took place in the month of June. CSRC said it is planning 100 new listings in second half of this year.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

600372.SS 16% 505,421,500 0.75 002081.SZ 24% 808,266,500 1.32

600383.SS 14% 373,258,700 0.33 600893.SS 19% 913,746,800 0.97

601989.SS 10% 1,029,998,000 1.00 000768.SZ 16% 601,578,700 1.37

000333.SZ 10% 997,493,000 0.83 002450.SZ 14% 535,371,200 0.83

000858.SZ 7% 546,631,700 0.51 002292.SZ 13% 525,087,000 0.82

600309.SS -6% 390,650,000 0.83 601117.SS -7% 310,650,500 0.62

002415.SZ -7% 750,870,700 0.92 000413.SZ -7% 415,782,900 1.00

000538.SZ -8% 802,762,300 1.05 000024.SZ -8% 644,054,700 0.70

601633.SS -10% 394,862,200 0.72 002146.SZ -9% 556,236,800 0.54

000001.SZ -14% 1,499,451,000 0.90 600827.SS -14% 598,587,700 0.66

Source: Dealogic



12


Although these changes continue the trend of further opening up the Shanghai FTZ they were not as substantive as some foreign investors had expected.

Korea and Germany join RQFII scheme

In July the overseas expansion of the RQFII scheme continued as Korea and Germany were each granted RMB 80 billion of quota. The China Securities Regulatory Commission (“CSRC”) confirmed that as at June there were 84 overseas financial institutions that have been granted an aggregate RQFII quota of RMB 250 billion.

China and Korea also agreed to create a direct trading mechanism between RMB and the Won (eliminating the intermediate need to exchange the currencies into USD) . Bank of Communications has been appointed as a clearing bank for RMB business in Seoul.

QDII scheme hits 3 year low

The Qualified Domestic Institutional Investor scheme (“QDII”) allows Chinese to invest in overseas equities and fixed income products and forms part of China’s efforts to create an efficient mechanism for two-way cross-border capital flows. However at the end of June only RMB 52 billion was held in QDII funds representing the lowest level since 2011.

Stefano Chao at AZ Investment Management suggests that the QDII scheme suffered from unfortunate timing. “QDII is very unfortunate because it was introduced in 2007, when stock markets were at their peak. The financial crisis the year after led to massive losses, and since then the QDII has had a bad reputation in Chinese households”. By contrast funds have flowed in the opposite direction from overseas investors into China at a much faster rate.

Asset management industry reform guidelines announced by CSRC

In June the CSRC released a framework for asset management industry reform. Several topics and issues are covered including:

— Foreign ownership limits (possibly allowing majority foreign ownership or even total foreign ownership).

— Mutual market access (possibly to be expanded to other markets in addition to Hong Kong).

— Long-term savings and pensions.

More specific details on the reform agenda and the priorities are expected in the future.

RMB real time settlement launched in Australia

In July the real time RMB Settlement Service for RMB denominated payments went live in Australia marking another step forward for the internationalisation of the RMB. The service was a joint project between the Bank of China (“BOC”) and Australian Securities Exchange (“ASX”) and it utilises ASX’s Austraclear settlement system (with BOC acting as the approved Foreign Currency Settlement Bank).

Previously RMB denominated cash records could only be represented in Austraclear in AUD however they can now appear as RMB and payments can be made between participants in real time. Such RMB payments are not restricted to security transactions. Trade, investment and other payments can also benefit from this service.

China and Switzerland sign bilateral swap agreement

On 21st July a bilateral swap agreement was announced by the central banks of China and Switzerland. The deal allows the central banks to purchase and repurchase RMB 150 billion (CHF 21 billion) and will help to establish the RMB market in Switzerland. Furthermore, the Swiss central bank was also granted a RMB 15 billion investment quota in the Chinese interbank bond market.

China summer rally

Following the trading slow down post Chinese new year and holiday season, China benchmark index has rallied over 7% since beginning of July over growth signals from positive Q2 GDP numbers. Q2 GDP climbed 7.5% versus 7.4% in Q1. Along with GDP, China July HSBC flash PMI rose 3% to 52 (the highest reading in the past 18 months) which helped boost optimism in the China stock market. Index gains were backed with volumes, as trading volumes also jumped 46% in last 3 weeks of July.

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.

Personnel News

Mao Zhirong named as CEO of CESC

With effect from 1st August Mao Zhirong will replace Bryan Chan as Chief Executive Officer of China Exchanges Services Company (“CESC”). Mr Mao is currently a director at CESC and also acts as the HKEx’s head of Mainland development.

CESC also announced that Sanly Ho (currently head of derivatives trading at HKEx) will join as a director of CESC.

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

http://www.szse.cn

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

http://www.cesc.com/

http://www.mayerbrown.com/

http://www.asiaasset.com/

http://www.globaltimes.cn/

http://www.z-ben.com/

http://www.lexology.com/

http://www.scmp.com/

Contact


13

Global Market Structure Taiwan


Global Market Structure Taiwan Newsletter Issue 34, 2014



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Market Structure

Opening omnibus futures trading accounts made easier for foreign firms

At the end of May, the Securities and Futures Bureau (“SFB”) Financial Supervisory Commission (“FSC”) expanded the scope of companies that may open omnibus accounts. Previously offshore foreign futures commission merchants who are qualified as a clearing member of a foreign futures exchange could open an omnibus account. This has now been expanded to cover:

— Offshore foreign futures commission merchants who are qualified as a trading member of a foreign futures exchange; and

— Overseas subsidiaries in which a securities firm or futures commission merchant holds greater than 50 % of the shares and that are approved by the local competent authority to operate a futures brokerage business.

It is hoped that this will encourage more foreign firms to open omnibus futures trading accounts.

Renminbi fund share class restrictions lifted by FSC

Local fund companies are now able to launch RMB share classes in funds holding underlying assets that are mainly denominated in currencies other than RMB. This came into effect on 1st July when the FSC lifted the previous restriction whereby RMB denominated funds were required to invest at least 60% of their assets in RM B denominated assets.

The previous restriction was intended to protect against liquidity risks posed by large redemption requests however this risk has been mitigated by the recent growth in the Taiwanese RMB asset pool and local foreign currency market. (Local fund companies are now required to disclose associated currency exchange costs and risks in relation to these new funds).

At the end of May there were 27 RMB denominated funds in Taiwan with RMB 4.82 billion of assets under management which is relatively small in comparison to the RMB 290.08 billion of RMB deposits in Taiwan. It is expected that the lifting of this restriction will lead to the creation of more RMB denominated funds with wider diversification of underlying assets thus providing more investment opportunities for the significant and growing RMB deposit base.

Thomas Cheong (CEO and Executive Director at Manulife Asset Management Taiwan) said “now it’s a mad rush to be the first one to offer products with a renminbi-hedged share class in Taiwan”.

TFSR white paper on the financial services industry expected in late July

The Board of Directors of the Taiwan Financial Services Roundtable (“TFSR”) recently met to discuss a variety of proposals intended to overhaul the Taiwanese financial sector and the results of these discussions are expected to be published in a white paper on 18th July. Consolidation of financial services firms and the opening up of Taiwanese financial products are likely to be included.

22 financial industry associations are collectively represented by the TSFR and the objective of the TSFR is to help the Taiwan government restructure and grow the financial services industry in Taiwan.

Fig 3. Taiex’s electronics index is up 20% since beginning of this year with trading volume up nearly 40%. Futures trading in Taiex’s electronics future are similarly trending upwards.

Prior to the meeting, the TFSR Chairman Lee Sush-der also commented that Taiwan’s equity market had benefitted from a significant reduction in settlement defaults and instances of insider trading.

Fig 1.Taiwan’s turnover and turnover velocity is ahead of last year, as foreign investor flock to Taiwan tech sector which is closely linked to growth in US and European market. Global investors have added US$ 9.6Bn in the country so far this year compared to US$ 2.7Bn for whole of 2013.



EQUITY FUTURES ETFS

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Fig 2. Taiwan ETFs demand still being driven by foreign investors, funds with electronics and semiconductor companies exposure gained most.

Taiwan

14


Source: Dealogic


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

Auto/Truck

Consumer

Industrials

M&M

TMT Jan-May 2014 Jun 2014



Source: Dealogic



Mar-14 1 26% 37% 59%

Apr-14 - - - -

May-14 2 29% 31% 28%

Jun-14 1 12% 0% 1%

Venue News

Relaxed day trading rules now in effect

Further to the previously announced relaxation of the day trading rules, sell-then-buy day trading has now started on the Taiwan Stock Exchange (“TWSE”). Key points include:

— Investors are now permitted to sell a stock and buy it back on the same day. (Buying then selling a stock on the same day was already allowed).

— The new rule is effective from 30th June.

— 200 selected Taiwanese stocks are eligible (being the constituents of the FTSE TWSE Taiwan 50 Index, the FTSE TWSE Taiwan-Mid-Cap 100 Index and the GreTai 50 Index).

— The day trading can be completed either before markets close or alternatively in after-hours trading.

— Brokers need to have access to sufficient inventories of the stocks to cover the event of investors selling more stock than they have and failing to repurchase on the same day.

— For this purpose brokers can utilise inventory from their own pool of investors or borrow the stocks from willing lenders.

— If investors are unable to complete the subsequent reversed purchase then they can change their trading type from sell order status to either short sale or borrow securities via the “Borrowed Securities Due to Day Trade Scheme”.

— If investors do not borrow securities through this scheme on trade date then the broker will arrange for a borrow on behalf of the investor on T+1 by commissioning securities finance enterprises to conduct competitive bid or negotiated SBL. (In the mean time, the broker must buy back the shares on behalf of the clients on T+1 as well, for returning the borrow on T+3).

— If the broker is unable to source sufficient stock borrow on T+1 then the TWSE or GreTai Securities Market (“GTSM”) will arrange a borrow on behalf of the investor through the settlement driven SBL system on T+2.

— Sell then buy day trading (and the associated Borrow Securities Due to Day Trade Scheme) will be suspended 5 business days ahead of registration closing dates for affected stocks in order to avoid dividend and rights assignment risks for investors who may fail to complete reversed purchase trades.

The FSC forecast that this new rule may increase daily stock turnover by between 3% and 5%.

See below link for the full TWSE press release:

http://www.twse.com.tw/en/about/press_room/tsec_news_detail.php?id=14472


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Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

6166.TW 39% 152,609,700 2.36 3645.TW 49% 88,502,600 2.43

2231.TW 24% 319,371,000 1.50 4106.TW 39% 123,249,900 3.48

3008.TW 23% 1,026,024,000 0.84 9944.TW 37% 76,820,510 1.51

3673.TW 21% 2,376,441,000 1.19 2910.TW 33% 565,565 1.57

2049.TW 19% 518,064,100 1.04 1533.TW 26% 285,709,400 1.89

2511.TW -8% 18,784,910 0.67 3454.TW -13% 68,061,490 0.77

1337.TW -9% 72,595,340 0.73 3059.TW -13% 101,900,100 0.77

2520.TW -11% 37,585,320 0.75 2062.TW -13% 88,954,460 1.18

5522.TW -13% 121,248,100 2.67 8101.TW -13% 36,172,300 0.80

2439.TW -16% 276,026,600 0.68 3003.TW -16% 56,655,100 0.60



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


%


Source: Dealogic



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Fig 5. Taiwan’s benchmark TWSE Index is currently trading at its 6-year high level following consistent gains all through this year

15


TAIFEX and EUREX create link

TAIEX options and futures are now available outside Taiwanese trading hours thanks to a new link between the Taiwan Futures Exchange (“TAIFEX”) and the Eurex Exchange. The linkage has been achieved by listing new derivative contracts on Eurex where the underlying is the corresponding contract on TAIFEX.

This provides international investors with the opportunity to trade TAIEX futures and option contracts within European and U.S. trading hours. Eurex described initial trading volumes as “promising”.

GTSM engages with Ireland

The GTSM joined the first Ireland-Taiwan Joint Business Council Meeting in late May. The session was organised by the Chinese International Economic Cooperation Association to allow both parties to exchange ideas on opportunities to develop financial services in Taiwan.

GTSM Chairman Soushan Wu also represented the Taiwan BioIndustry Organition when signing an MoU with PharmaChemical Ireland to promote biotech industry development within both countries.

GTSM introduce new index linked to labour market

The GTSM have introduced a new index called the GreTai Labor Employment 88 Index. The index is intended to enhance the transparency of companies who hire more local employees and encourage institutional investors to invest more heavily in them.

To be eligible for inclusion companies must pass certain deficit and employee contribution (operating profit / number of employees) tests. Then the companies are ranked based on the number of local employees in the previous year with the top 88 being selected for inclusion in the index.

The index constituents are refreshed annually in April while companies with severe reductions in employee numbers or labour rights issues are excluded.

Contact


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

http://www.gretai.org.tw/

http://www.eurexchange.com/

http://www.taipeitimes.com/

http://www.etf.com/

http://www.ignitesasia.com/

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

16

Global Market Structure Japan


Global Market Structure Japan Newsletter Issue 34, 2014



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Market Structure

Panel for Vitalisating Financial and Capital Markets issues follow up recommendations

The Financial Services Agency (“FSA”) and the Ministry of Finance commissioned an expert panel to provide strategic advice on financial and capital market policies. The panel’s original recommendations were published at the end of 2013. Since then the panel have continued their discussions culminating in the recently issued update paper called “Follow-up and Further Recommendations for Vitalising Financial and Capital Markets”.

The paper sets out specific recommendations under the following four broad policy areas:

1. Attract more medium to long term investment both locally and internationally. Recommendations include:

a. Strengthening corporate governance. b. Promotion of non-traditional funding options (e.g. asset-backed

lending).

2. Building medium to long term retail investment growth through various measures including:

a. Increasing the quality and quantity of asset management firms. b. Diversifying the range of available products that are suitable for

retail investors through innovation. c. Clarification of the fiduciary duties owed to retail investors by fund

managers.

3. Realising the growth potential of the Asia region by improving Asian market functions and upgrading the Japanese financial infrastructure. For example:

a. Support of the newly established Asian Financial Partnership Centre (“AFPAC”) of the FSA and continued promotion of the Asian Bond Markets Initiative (“ABMI”).

b. Enhanced cross-border settlement processes. c. Development of accounting professionals with a focus on

international co-operation and networking.

4. Developing a highly skilled financial workforce. With more specific targets including:

a. Fostering a better business and living environment for highly skilled financial professionals.

b. Improve financial awareness across the general public with widely available financial education.

c. More specialised finance and investment courses for graduates and undergraduates.

d. Enhanced measures to promote female professionals and diversity.

See following link for the full paper:http://www.fsa.go.jp/en/refer/councils/vitalizing/20140612/01.pdf

Fig 1. June turnover volumes picked up in Japan relative to past months on back of quarterly results. In overall market turnover, China is now ahead of Japan leading APAC’s equity market share.



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Fig 2. Similar trends seen across equity products in Japan. Slight increase in turnover over April as Japan reported highest jobs level in 22years and rest of the Asian markets gained. Shinzo Abe’s economic reforms announcement 3rd Arrow is expected to bring back the volumes in equities

Fig 4. Chi-X and Japannext trading market share unchanged in Japan at 2% and 8% respectively

Fig 3. Topix futures volume trading is down 14% since beginning of this year and 40% versus same period last year


%

TYO 0.46% JNX 0.29% CHJ 0.18% FKA

Fig 4: Market Share by Venue

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

100%

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

Japan

17


Source: Dealogic


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Mar-14 11 46% 38% 54%

Apr-14 5 36% 49% 122%

May-14 1 5% 0% -1%

Jun-14 8 54% 0% 100%

FSA to change follow-on offering rules

Currently the Financial Instruments and Exchange Act requires there to be seven days between launch and trade date for follow-on offerings. The FSA are planning to change this requirement to allow same-day pricing whilst also explicitly permitting pre-marketing.

The new rules would only be applicable to:

— Firms where the market capitalisation and the annual sales both exceed ¥100 billion.

— Sales of common stock, investment securities (e.g. REITs) and share acquisition rights.

The change is intended to make follow-on offerings more attractive to Japanese companies by allowing them to better gauge upfront investor appetite and by eliminating the downward share price risk inherent in the existing seven day period. Furthermore the amendment would more closely align the follow-on rules in Japan with those in other global financial hubs.

The FSA are expected to release further details in a public draft prior to the changes coming into effect later this year.

FSA to establish a new team to supervise asset management companies

The FSA are intending to create a new group to specifically supervise asset management companies in Japan. The move to bolster oversight of the asset management industry follows the 2012 AIJ Investment Advisors case where over ¥100 billion of pension money was lost and subsequently covered up.

Further announcements from the FSA are expected.

Japanese Pension Fund drives TOPIX increase

The Government Pension Investment Fund (“GPIF”) manages ¥128.6 trillion of assets (at the end of last year) on behalf of almost 70 million people in Japan making it the world’s largest pension fund. Historically the GPIF has invested conservatively with a 60% domestic bond allocation. However it is anticipated that the asset allocation guidelines will be amended during the third quarter of this year resulting in higher allocations for equity securities.

For example the current target allocation for Japanese and foreign stocks is 12% each however this is expected to increase to 17% each. The foreign bond allocation would also increase and a new allocation for infrastructure, private equity and real estate investments would be created. Offsetting these increases would be a decrease from 60% to 40% in the domestic bond allocation.


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Fig 6. Topix index gained ~5% in month of June as the country’s jobs availability improved and corporate tax reductions and deregulation announcement by Shinzo Abe are expected to support economic expansion.

Fig 5. Second round of tick reduction that will go live on July 22nd on all of Topix100 names is expected to bring tick sizes and spreads narrower for impacted stocks


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

4516.T 49% 371,563,700 2.02 6331.T 98% 1,458,871,000 4.81

8515.T 48% 11,038,470,000 2.00 4968.T 44% 22,485,870 2.45

8589.T 32% 124,466,100 1.37 7844.T 40% 480,040,600 1.42

4612.T 26% 534,785,500 1.16 6381.T 28% 17,778,110 1.60

5413.T 26% 242,338,000 1.15 2695.T 28% 53,791,890 1.09

2501.T -7% 255,382,300 1.32 4651.T -8% 427,882,600 1.06

3863.T -8% 383,085,500 1.19 2120.T -8% 28,996,210 0.59

3865.T -10% 87,128,380 0.96 6751.T -11% 39,328,950 1.02

3191.T -16% 114,711,200 0.35 5959.T -12% 79,270,550 1.77

3880.T -22% 282,514,200 3.17 6330.T -13% 129,025,600 1.52




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


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Source: Dealogic

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Fig 8. 8 new IPOs took place in June, most in the Electronics sector. May had 2 real estate sector IPO, Invesco Office of the two was a US$ 436Mn listing.

18


The switch could result in an additional equity security investment of ¥3.6 trillion and the expectation of this injection of funds has had a positive impact on the TOPIX. (The TOPIX rose 11% between 21st May and 1st July).

FAQ on the Financial Instruments and Exchange Act

The FSA have released a FAQ document on the Financial Instruments and Exchange Act (the main statute codifying securities law and regulating securities companies in Japan).

The full FAQ can be found in the following link:

http://www.fsa.go.jp/en/laws_regulations/faq_on_fiea.pdf

FSA release draft regulation consultation on margin requirements for non-centrally cleared OTC derivatives

The Basel Committee and the International Organisation of Securities Commissions (“IOSCO”) have agreed certain standards on margin requirements for non-centrally cleared OTC derivatives. The FSA are intending to implement the same standards in Japan by proposing changes to the Cabinet Office Ordinance under the Financial Instruments and Exchange Act and also to the Comprehensive Guidelines for Supervision.

The deadline for public comments is 4th August and the new regulations are expected to be implemented from 1st December.

Currently the draft amendments are available in Japanese under the following link:

http://www.fsa.go.jp/en/newsletter/weekly2014/104.html

The FSA and the Bank of Mongolia swap letters of cooperation

On 25th June the FSA exchanged letters of cooperation with the Bank of Mongolia. Under the terms of the arrangement the two parties will share their experience and expertise with the aim of developing their respective legal and regulatory frameworks.

Venue News

Phase II of the TOPIX100 tick size reductions go live

The Tokyo Stock Exchange (“TSE”) has implemented Phase II of it’s tick size reduction roll out with the inclusion of further stock price bands. From the start date of 22nd July, the TSE expect these reductions to result in both price improvement and reduced time to execution for market participants.

Price Tick Size

TOPIX100 Constituents Other Issues

Current Phase II (22-Jul-14)

Up to ¥1,000 ¥1 ¥0.1 ¥1

More than ¥1,000 up to ¥3,000

¥1 ¥0.5 ¥1

More than ¥3,000 up to ¥5,000

¥1 ¥0.5 ¥5

Phase I of the TOPIX100 tick size reduction project was completed in January. Deutsche Bank Analytics released a study considering the impact of the Phase I roll out and they plan to update that to consider Phase II once a reasonable sample set has been generated. To access the Phase I study click here:http://cbs.db.com/new/pdf/REALIZED_Impact_of_Tick_Size_Reductions.pdf

See the following link for the TSE website summary of the tick size reductions covering both the previous Phase I and the forthcoming Phase II:http://www.tse.or.jp/news/20/b7gje6000004313n-att/leaflet_english.pdf

Arrowhead Renewal to be launched in September 2015

In June the TSE announced further details for the project to renew Arrowhead (their cash market trading system). New trading rules and user testing are expected in early 2015 with the project ultimately due to go live on 24th September 2015.

The project consists of three main pillars:

1. Improve reliability – intended to address increased risks from electronic trading (including new hard limits, dummy symbols for testing and updated rules for sequential trade quotes).

2. Improve convenience – introduction of new functionality (for example kill switches and cancel on disconnect).

3. Improve capabilities – designed to achieve enhanced speed, stability and capacity to address large volumes from macro political / economic events, natural disasters etc.

See the following link for the full project details:

http://www.tse.or.jp/english/news/20/140606_a.html

SBI Japannext announce delay to expected system upgrade

In June Chuck Chon (SBI Japannext GTO) announced that the expected Proprietary Trading System (“PTS”) upgrade to 40G would be delayed after issues were identified during stress testing procedures. Trading will continue on the 10G system until the weaknesses have been addressed and further testing sessions have been successfully completed.

TSE report on appointment of outside directors

The TSE released a preliminary report showing that there has been a significant increase in TSE listed companies who appoint outside directors. As at June 2014 over 74% of the 1st Section companies had at least one outside director representing an almost 12% increase on August 2013.

The full report is available in the following link:

http://www.tse.or.jp/english/news/09/20140617_a.html

Contact


Sources:http://www.tse.or.jp/http://www.fsa.go.jp/http://www.bloomberg.comhttp://online.wsj.com/

http://asiaetrading.com/http://www.ifrasia.com/http://www.reuters.com/

19

Global Market Structure India


Global Market Structure India Newsletter Issue 34, 2014



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Market Structure

Highlights from the Indian Union Budget, 2014

The new Finance Minister of India, Mr. Arun Jaitley presented his maiden union budget on 10th July. Below are the key highlights:

— It is proposed to treat unlisted securities (including shares) as short-term capital assets if the holding period is less than 36 months (previously 12 months earlier). This will have an impact on tax liabilities for both resident and non-resident investors.

— The calculation for distributions dividend tax (“DDT”) has been adjusted. Previously, DDT was at 15% applied to the distribution, that is the amount paid to shareholders. As an example, if the payout was Rs85, the 15% would be applied to Rs85 or Rs 12.75. Post amendment, DDT will now be applied on the gross amount of dividend payable. So rather than paying 15% on the Rs 85, it will be grossed up by Rs 15 making the gross amount on which the DDT is calculated Rs 100. It has been estimated by Ernst and Young that this could result in an increase of around 3% depending on the size of the payout.

— A provision to tax forfeited advances for transfer of capital assets has been introduced, whereby there will be a tax liability in cases where monies are received as an advance or otherwise in the course of negotiations for transfer of capital assets but the transaction does not fructify or is forfeited.

— The FDI limit for the insurance sector is proposed to be raised to 49% from 26% with full Indian management and control through the FIPB route.

— Incentives have been proposed for Real Estate Investment Trusts (REITS) including complete pass through for the purpose of taxation. A modified REITS type structure for infrastructure projects has also been proposed as the Infrastructure Investment Trusts (INVITS).

The FM also said that any legislation with retroactive provisions would be considered very seriously in terms of its impact to the country’s economy and investment environment.

Details of the budget are available here:http://indiabudget.nic.in/budget.asp

http://indiabudget.nic.in/ub2014-15/bh/bh1.pdf

FPI regime commences; SEBI issues further guidelines and clarifications

The Foreign Portfolio Investor (“FPI”) regime which seeks to consolidate all routes of foreign investments into the country has come into effect since 1st June 2014. SEBI approved Designated Depository Participants (“DDPs”) have already commenced granting registration to new FPIs and migration of older FIIs into FPIs.

SEBI has also released further clarifications and guidelines related to the operationalisation of the FPI regime as on next page.



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Fig 1. New government came to power in month of May and Indian economy is soaring with optimism. Equities turnover has doubled over the same period compared to 2 years.

Fig 2. ETFs and Futures trading volumes picked up in month of June following appointment of new RBI governor Raghuram Rajan (former economist at IMF). ETF trading is up 30% YoY and futures volumes up over 50% yoy.

Fig 3.SGX Nifty Index futures achieved record breaking volumes for the month of May following results on Election Day (May 28). Monthly total volumes reached an all-time high of 1.79Mn contracts and US$25Bn in notional value.

Fig 4. BSE market shared gained 1% over NSE as volumes surged at both venues in May June period.


%

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20


Guidelines on Risk management framework for Foreign Portfolio Investors

SEBI has provided the below guidelines to stock exchanges and clearing corporations with regard to trading and risk management of FPI trades.

— Margining of FPI trades in the Cash Market

— The trades of FPIs in Category I, II & III shall be margined on a T+1 basis.

— Trades of FPIs who are Corporate bodies, Individuals or Family offices shall be margined on an upfront basis as per the existing margining framework for the non-institutional trades.

— Position limits for FPIs in the Equity Derivatives Segment

— Category I & II FPIs shall have position limits as presently available to FIIs. Category III FPIs shall have position limits as applicable to the clients.

— Allocation of FPI trades

— Entities trading on behalf of FPIs shall provide all details of those FPIs to the stock brokers.

— The stock broker further provides the stock exchanges with the details of such related FPIs.

— Stock exchanges need to implement a suitable mechanism to ensure that allocation of trade by a FPI is permitted only within such related FPIs.

— Custodians / DDPs to provide details of all FPIs including the categorisation of FPIs to Stock exchanges to enable them to implement these provisions.

SEBI has allowed FPIs to invest in non-convertible/redeemable preference shares or debentures issued by Indian companies and listed on recognised stock exchanges in India on a repatriation basis. FPIs will also be allowed to participate in the currency derivatives segment of recognised exchanges subject to certain conditions.

The SEBI circulars are available here - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1400154572524.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1403003705859.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1403267985398.pdf

Source:http://www.business-standard.com/article/news-cm/sebi-allows-investments-by-fpis-in-non-convertible-redeemable-preference-shares-or-debentures-of-indian-companies-114061900497_1.html

http://www.business-standard.com/article/pti-stories/sebi-comes-out-with-risk-management-norms-for-fpis-114051501375_1.html

SEBI brings in multiple reforms to boost Primary Markets

SEBI after its board meeting on 19th June announced a number of reforms as outlined below in a bid to spool up and revitalise the ailing Primary Market.

— Minimum public shareholding for Public Sector Undertakings (“PSUs”)

— SEBI has proposed to increase the minimum public shareholding requirements for PSUs to 25% to make the rules consistent across the market. Earlier, the requirement for PSUs was 10%.

— SEBI has recommended to the Ministry of Finance to amend the Securities Contracts (Regulation) Rules appropriately in order to implement the new rule.

— PSUs will be given a time period of three years to comply with the requirements.


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Fig 6. India’s two benchmark indices Nifty Index and Sensex Index are both at an all time high since post election rally in May.

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Fig 8. Few small new listings took place in India in months of May-June. Finance sector was the common denominator in 2 of the 5 new listings.

Fig 5. During the period of highest volatility leading up to Election Results, equity spreads widened and trade sizes were larger than usual.

Fig 7. Bharti Airtel, dropped 7% as Credit Suisse downgraded the stock over strong upcoming competition from Reliance’s 4G services product Reliance Jio Infocomm due to be launched later this year.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

TCS.NS 15% 870,821,300 0.86 GAIL.NS 19% 377,472,500 1.47

SUN.NS 15% 504,911,400 0.89 ASPN.NS 17% 236,202,400 1.38

HDFC.NS 11% 1,252,552,000 1.18 BAJA.NS 17% 256,206,200 1.18

WIPR.NS 9% 330,634,500 0.94 TEML.NS 14% 525,136,300 0.83

INFY.NS 9% 1,412,438,000 1.11 PGRD.NS 11% 447,499,600 1.39

ICBK.NS -2% 1,361,022,000 0.79 NMDC.NS 4% 232,359,000 1.11

ITC.NS -2% 999,409,100 1.26 AXBK.NS 2% 719,516,000 0.61

NTPC.NS -2% 557,060,500 0.96 BHEL.NS 1% 629,746,100 1.16

RELI.NS -6% 1,325,811,000 0.99 KTKM.NS 0% 249,396,500 0.97

BRTI.NS -7% 669,763,300 1.03 MAHM.NS -7% 389,506,900 0.84



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21


— The Indian Government currently holds more than 75% stake in about 30 PSUs. This initiative will enable the government to raise up to INR 50K crore at current valuations if the stake in all those PSUs is reduced to below 75%.

— Minimum offer to public criteria during IPOs

— The requirements pertaining to minimum offer to public have been rationalised and made consistent irrespective of post issue capitalisation. This will help mid-size companies (with post listing capitalisation of <4000 crore) looking to raise funds.

— The new rules specify the requirement to be 25% of the post issue market capitalisation or INR 400 Crore, whichever is lesser. Earlier the requirement was 25% for companies with capitalisation < 4000 crore and 10% for those having capitalisation >= 4000 crore.

— In case the dilution remains less than 25% at the time of IPO, minimum public shareholding of 25% needs to be achieved within three years of listing.

— Expansion of framework for Offer for Sale (“OFS”) through stock exchange mechanism

— The list of companies eligible to use OFS route has been expanded to top 200 companies (from top 100 earlier) based on their market capitalisation.

— Even non-promoter shareholders having stakes greater than 10% will be eligible to utilise the OFS route to offload their stake.

— A minimum 10% of the issue size needs to be reserved for retail investors. Issuers can also offer applicable discounts to retail investors which is expected to improve retail participation.

— Increase in investment ceiling for anchor investors

— The investment limit for anchor investors has been doubled to 60% of the Institutional investments bucket from 30% earlier. (The institutional bucket is 50% of the overall IPO size, therefore limit for anchor investors has been raised to 30% of the overall IPO effectively from 15% earlier)

— Pricing mechanism for preferential issues

— The regulator has also directed that the pricing of shares for preferential issues and qualified institutional placements (“QIPs”) should be based on VWAP instead of closing prices.

The SEBI press release can be accessed here: http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/28252_t.html

Source:http://zeenews.india.com/business/news/economy/sebi-proposal-can-help-govt-get-rs-50k-cr-via-psu-stake-sale_100818.html

http://www.thehindubusinessline.com/markets/sebi-unveils-measures-to-revitalise-primary-market/article6129803.ece

SEBI to share KYC details with other financial regulators and banks

SEBI has directed the KRAs (KYC Registration Agencies) to share the KYC information available with them with financial institutions regulated by other regulators as well. This initiative will pave the way to have a common KYC framework across the financial sector and hugely benefit end users as they will not have to furnish the KYC details multiple times when dealing with entities regulated by different regulators.

SEBI has also directed the DDPs to share KYC details of FPIs with banks provided they have authorisation from the respective FPI. Both the DDP and the recipient bank will also need to maintain records of all such exchanges.

Source:

http://www.thehindubusinessline.com/markets/sebi-board-approves-sharing-kyc-details-with-fin-regulators/article6130154.ece

http://www.business-standard.com/article/pti-stories/sebi-asks-depository-participants-to-share-fpi-info-with-banks-114061600855_1.html

SEBI revises Securities Lending and Borrowing framework

SEBI announced several revisions to the Securities Lending and Borrowing (“SLB”) framework easing the existing short selling norms. Under the new rules, Clearing Members will not be required to enter into agreement with clients for trading in the SLB segment. Only the Authorised Intermediaries (“AIs”) will be required to execute an agreement with Clearing Members for the purpose of facilitating lending and borrowing of securities. In addition, the agreement

— Shall specify the rights, responsibilities and obligations of the parties to the agreement.

— Shall include the basic conditions for lending and borrowing of securities as prescribed under SLB framework.

— Shall lay out the exact role of AIs/CMs vis-à-vis the clients in the agreement.

Also, the AIs shall ensure that there shall not be any direct agreement between the lender and the borrower.

The SEBI release can be accessed here: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1401793069171.pdf

Source:http://www.mydigitalfc.com/news/sebi-eases-short-selling-norms-123

SEBI moves to regulate Research Analysts

In a bid to safeguard investors from any manipulation by research entities and to bring in enhanced transparency in their activities, SEBI board has approved the draft regulations for the Research sector after consultations with market participants and feedback received from public. Below are the major requirements under the new regulations.

— All individual research analysts and entities engaging in issuing research reports/analyses or making recommendations on securities or IPOs (brokerage houses, merchant bankers, proxy advisors etc) will be required to register with SEBI.

— SEBI has specified minimum qualification requirements relating to experience, qualification, certification and capital adequacy in order to be able to register as a research analyst.

— Complete disclosures including financial interests and receipt of compensation have to be included in all research reports and made in all public appearances by research analysts in order to provide complete transparency on any conflicts of interest.

Source: Dealogic



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22


— Limitations on publication of research reports and restrictions on public appearances have been prescribed.

— Limitations on trading by research analysts and restrictions on their compensation have also been prescribed.

— Guidelines for code of conduct, general responsibility and maintenance of records are clarified.

— Investment Advisers, Credit Rating Agencies, Portfolio Managers, Asset Management Companies, fund managers of Alternative Investment Funds or Venture Capital Funds have been exempted from the requirements.

— Internal communications that are not given to current or prospective clients and periodic reports or other communications prepared for unit holders of Mutual Fund or Alternative Investment Fund or clients of Portfolio Managers and Investment Advisers are not included in the definition of research report.

These regulations will come into force on the 19th day from the date of their publication in the Official Gazette.

The SEBI circular can be accessed here: http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/28252_t.html

Source:http://www.business-standard.com/article/markets/sebi-approves-norms-for-research-analysts-114061900628_1.html

SEBI revises guidelines for Alternative Investment Funds

SEBI has released revised guidelines for Alternative Investment Funds (“AIFs”) in order to increase transparency and improve governance. Following are the major revisions.

— AIFs will need to add a disclosure on all applicable fees and charges along with a tabular example as an annexure to the placement memorandum.

— AIFs will need to disclose the “disciplinary history” of the fund, its sponsor, manager, directors, partners, promoters and associates in the placement memorandum.

— Details should include pending and past legal cases (where the person has been found guilty), criminal or civil prosecution, disputes and non-payment of statutory dues.

— Summarised reports will be acceptable for operational actions such as administrative warnings/deficiency letters etc, however AIFs will be required to furnish complete details within 30 days of receiving any requests for details from investors.

— Existing AIFs should send the “disciplinary history” to their investors within 30 days of this circular. A copy shall also be filed with SEBI at least 7 days prior to sending the same to the investors.

— Any changes to the placement memorandum must be communicated to all existing/committed investors within 7 days and also notified to SEBI.

— Investors should be provided with an “exit route” in cases where there is a dissent related to any material changes to the placement memorandum and all expenses for the entire process shall be borne by the manager/sponsor.

— Criterion for Category III AIFs (trading with a view to generate short term returns) to report their end-of-day leverage to the custodian has been relaxed and the timeline for submissions has been extended to end of next working day.

— All redemption requests should now be reported to SEBI within two days of receiving such requests.

— An AIF shall not invest in units of another AIF unless it is fund of AIFs.

The SEBI release can be accessed here - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1403173065618.pdf

Source:http://www.thehindu.com/business/markets/sebi-revises-guidelines-for-alternative-investment-funds/article6133349.ece

SEBI revises fees for all market participants and intermediaries

SEBI has announced revised fee structure applicable to market intermediaries across all categories. The new structure comes into effect immediately.

— Annual regulatory fee for exchanges with turnover < INR 10 lakh crore is fixed at INR 1 crore. For exchanges having turnover > INR 10 lakh crore, the fees will be INR 1 crore plus 0.00006% on turnover in excess of INR 10 lakh crore with a maximum cap at INR 20 crore.

— For mutual funds the annual fees is revised to 0.0015% of the average assets under management (AAUM) of up to Rs 10,000 crore and 0.0010% of AAUM thereafter. Minimum and maximum caps of INR 2.5 lakh and INR 1 crore respectively are applicable.

— For filing of rights issue documents, the fee is revised to INR 50,000 for issue size of up to Rs 10 crore, and 0.05 % of the issue size for issues over Rs 10 crore.

— Stock brokers would be charged a fee of Rs 20 per one crore of turnover.

The SEBI release can be accessed here - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1400841851911.pdf

Source:http://www.business-standard.com/article/pti-stories/sebi-revises-fee-for-market-intermediaries-114052301432_1.html

Venue Updates

P-Note investments at 6-year high, indices reach all-time highs

Foreign portfolio investment into Indian securities through participatory notes (“P-notes”) reached its highest levels in 6 years during May this year when the total investments through this route reached Rs 2.12 lakh crore (over US$35 billion).

Riding on the wave of optimism after the results of the general elections were declared and Bhartiya Janta Party (“BJP”) came into power with absolute majority, FII inflows into the local markets surged which lead the benchmark indices BSE Sensex and NSE Nifty to breach their previous highs. On 2nd July, the NSE Nifty reached a closing high of 7,725.1 while the BSE S&P Sensex closed a record high of 25,841.2 buoyed by hope on incentives expected in the new government’s first budget.

Source:http://www.financialexpress.com/news/P-Notes-investment-hits-6-yr-high-at--35-bn-in-May/1265082

http://www.deccanchronicle.com/140702/business-market/article/indian-stocks-hit-new-high-hopes-budget-reforms

http://stream.wsj.com/story/markets/SS-2-5/SS-2-569192/

BSE targeting HFT firms after tech upgrade

The Bombay Stock Exchange (“BSE”) which upgraded its trading platform for equities and derivatives with the technology solutions provided by Eurex, is now looking to enroll several HFT and proprietary trading firms to participate in the Indian markets using BSE’s upgraded market connectivity software.

23


The fact that the regulator SEBI has eased certain regulations related to registration of foreign investors before participating in the local markets also makes it easier to approach and convince these investors.

“Previously, foreign institutional investors including HFT firms had to register directly with SEBI, which took a long time and made many of them trade on Indian products in other markets like Singapore and Dubai. The regulatory change at the start of June establishes a foreign portfolio investor regime that allows FIIs, Individuals, family offices and HFT firms to register via their custodians, which will be a game changer.” Ashish Chauhan, BSE CEO said.

Source:http://www.efinancialnews.com/story/2014-07-01/bombay-stock-exchange-targets-high-frequency-trading-after-tech-revamp?mod=home-topmod=home-top&ea9c8a2de0ee111045601ab04d673622

BSE hit by another technical glitch

On 11th June, the BSE experienced a technical issue in its calculation engine which resulted in all real-time data feeds from the bourse to market participants to go blank for nearly an hour. Although it did not halt the trading, investors had to rely on prices from NSE during the outage. A similar issue had appeared in April as well.

Source:

http://timesofindia.indiatimes.com/business/india-business/Technical-glitch-hits-Bombay-Stock-Exchange/articleshow/36383143.cms

NSE, BSE to transfer more stocks to restricted categories

The National Stock Exchange (“NSE”) and BSE through a series of notifications have notified the lists of stocks that have been transferred to the restricted (Trade-to-Trade) category where speculative trading is not allowed and delivery of the shares is mandatory. The action has been taken after these stocks were identified in surveillance reviews conducted by the bourses as per directions from SEBI. NSE has moved a total of 234 scrips to the ‘T’ category while BSE has transferred 298.

Source:

http://www.business-standard.com/article/pti-stories/bse-nse-to-shift-scrips-of-85-cos-to-restricted-trade-from-fri-114061600913_1.html

http://articles.economictimes.indiatimes.com/2014-06-10/news/50478710_1_nse-restricted-trade-segment-mumbai

http://www.moneylife.in/article/bse-nse-to-move-over-213-scrips-to-restricted-t-group/37620.html

F&O turnover at BSE surges past NSE

On 24th June, volumes on the BSE overtook rival NSE for the first time with a record derivatives turnover of INR 3.36 lakh crore compared to NSE’s INR 3.29 lakh crore. Overall, total market turnover of BSE and NSE combined topped Rs. 6.67 lakh crore to mark a new record in the derivatives segment. The BSE derivatives segment experienced a sudden spike in trade volume of three Sensex option contracts which lead to the record turnover.

Source:http://profit.ndtv.com/news/market/article-bse-overtakes-nse-with-higher-f-o-turnover-571770

http://www.mydigitalfc.com/news/bse-overtakes-nse-higher-fo-turnover-sudden-spike-388

BSE – USE merger to be completed within 9 months

The boards of the BSE and the United Stock Exchange (USE) have approved BSE’s proposal to acquire USE through a share-swap deal, whereby for every 385 shares held in USE a shareholder would get one share of BSE. The merger is expected to be completed in the next 9 months during which regulatory approvals and approval of shareholders of both bourses will also be sought.

Source:http://articles.economictimes.indiatimes.com/2014-06-15/news/50598262_1_united-stock-exchange-bse-chairman-jaypee-capital-services

http://www.livemint.com/Money/5PK22VGFCXnvkAWDtuTAeI/BSE-USE-boards-approve-merger.html

Contact


24

Global Market Structure South Korea


Global Market Structure South Korea Newsletter Issue 34, 2014

Market Structure

FSC release plans to boost slowing derivatives trading

Last month, the Financial Services Commission (“FSC”) released a road map for developing the country’s derivatives market amidst declining volumes. The road map sees the exchange-traded derivatives (“ETD”) market becoming a market for professional investors and the derivatives-linked securities (“DLS”) market becoming the market for retail investors. A range of new products including equity volatility futures, sector index futures and the overnight trading of US dollar futures are expected to be launched by the end of 2014. The FSC’s plans aim to increase the autonomy of the local derivatives market and lure more investors.

However, market participants still have concerns that barriers such as cost may inhibit growth such as the tax on exchange traded notes (“ETNs”). Currently, for domestic equity underlyings, trading is tax-free, but for foreign stocks the whole gain is treated as dividend income. Since ETFs and ETNs cover the same underlying product, there is little motivation for investors to trade ETNs over ETFs.

There are also regulatory entry barriers for retail investors to trade in derivatives market. In order to overcome that, the FSC plans to introduce a qualified retail investor scheme which has two stages. The first stage allows retail investors to trade simple futures products at a smaller margin with a reduced investor education requirement and mock trading hours. Upon passing to the second stage, retail investors will be able to trade complex futures and options products, such as V-Kospi 200 futures that allow investors to trade volatility which are due to be launched before the end of 2014.

Other plans for include introduction of new derivatives products like V-Kospi futures, sector index futures and night time trading of US dollar futures. Though timelines of these products are not confirmed these products are intended to provide investors a variety of instruments to hedge. The Korea Exchange (“KRX”) will be given the ability to decide on the number of listed derivatives products and their prices, which currently are controlled by financial authorities. According to the FSC, only 15 derivatives products are being traded on the main bourse in Korea compared with 1,303 products in the United States and 100 in Japan.

Refer to FSC release article for more details

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

South Korea meets international standards of Anti-money laundering

The Financial Action Task Force (“FATF”), an international body that sets standards on anti-money laundering assessed South Korea as having passed the evaluation of 16 key categories showing that the country is enforcing legal and financial procedures and systems compatible to international standards.

South Korea had missed nine categories out of the 16 in its last examination conducted in 2009.

South Korea has also been appointed as the chair country of the FATF in February and will hold the chairmanship for one year from July.



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Fig 3. Average trade sizes which are already quite small in Korea continue to shrink further amidst declining volumes. Down 20% yoy.


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Fig 4. KOSPI Index was led up with a gain in emerging market stocks as Indian elections brought optimism and foreign inflow.



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South Korea and China sign agreements to promote and expand commerce and trade

In order to foster the growth in financial markets of the two countries, the KRX and Bank of China plan to develop RMB based financial products. South Korean Park Geun-hye and her Chinese counterpart, Xi Jinping, agreed to launch a two-way foreign exchange market that can fuel trade and reduce losses caused by using the U.S. dollar as the medium of trade.

Several South Korean and Chinese businesses and institutions signed agreements aimed at expanding commerce and trade. POSCO, the world’s fourth-largest steelmaker, signed a memorandum of understanding (“MOU”) with China’s Chongqing Iron & Steel Co. on building a steel mill in China.

RMB 80 billion made available for Korean domiciled RQFII funds

Chinese authorities have issued an RMB 80 billion (US$12.9 billion) quota to South Korea under the renminbi qualified foreign institutional investor (“RQFII”) scheme.

Both countries’ central banks have agreed to designate clearing banks making the won directly exchangeable for the renminbi in Shanghai following the MOU signed earlier this month.

FSC plans to relax regulation overseas investment caps for domestic securities houses

To allow local houses flexibility and expand into overseas markets, the FSC plans to remove the overseas investment cap for securities companies that meet the capital adequacy ratio of 200%.

Current rules limit overseas investment by local securities firms to 40% of their net worth. The commission would not only lift the 40% restriction, but would also allow the parent to act as financial guarantee for their overseas subsidiaries and permit cross-funding among indirectly owned units across countries, FSC chairman William Tseng said.

Venue News

Chinese investors pour into Korean stock market as regulations ease

Over first six months of 2014, Chinese investment added up to 1.42 trillion won (US$1.38Bn) into South Korean stock market. Chinese investments are backed by ample liquidity and eased offshore investment regulations. Chinese investors are now the largest foreign net buyers of local Korean shares.

MarkitSERV now live in Korea for Interest Rate Swaps clearing

Markit’s first global electronic trade processing service for over-the-counter derivatives, MarkitSERV, is now connected to the KRX. The exchange started clearing interest rates swaps in March 2014, with mandatory clearing of interest rate swaps denominated in Korean won (KRW) beginning June 30th.

MarkitSERV’s connectivity to KRX will allow partner banks with the ability to connect to a global network of counterparties, clearinghouses, trade repositories and other market infrastructure. MarkitSERV platform also connects to derivatives clearing services run by the Australian Securities Exchange (“ASX”), Hong Kong Exchanges and Clearing Limited (“HKEx”), Japan Securities Clearing Corporation (“JSCC”) and the Singapore Exchange (“SGX”).

Relaxed IPO listing rules became effective from 30th June

The FSC and KRX had together unveiled a plan in April to ease regulation on filing and disclosing corporate financial information to remove hurdles to stock listing in Korea.

Under the relaxed rules capital requirement for a company hoping to be listed on the KOSDAQ will be cut to 1 billion won (US$977,000) from the current 1.5 billion won, and the lock-up period for the largest shareholder of a firm that debuts on the secondary KOSDAQ market will be cut to six months from the current 12 months.

The KRX hopes to see a growth in IPOs as relaxed rules give them a chance to raise money by issuing debt or equity with lower thresholds which should help expand their business by attracting investments.


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Fig 5. Screen maker LG Display was the biggest gainer on talks of supplying Panasanic Corp with TV panels.


Stock Price Return

Volume traded (US$)

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Stock Price Return

Volume traded (US$)

20D/ 100D ADT

034220.KS 18% 950,343,200 1.15 003300.KS 21% 33,454,010 0.84

047050.KS 15% 225,510,700 1.24 161890.KS 19% 156,173,200 1.47

011170.KS 13% 564,088,400 0.96 007310.KS 17% 25,431,330 0.89

011070.KS 13% 343,072,000 1.02 003410.KS 16% 27,685,710 1.19

029780.KS 12% 167,770,400 1.47 001430.KS 14% 101,309,300 1.62

138930.KS -7% 230,525,400 1.42 010520.KS -5% 114,210,900 0.57

009150.KS -8% 505,346,800 1.04 012450.KS -6% 169,255,200 0.89

005930.KS -9% 6,779,901,000 1.20 007860.KS -6% 95,187,310 0.92

005830.KS -10% 188,765,200 1.55 004370.KS -8% 57,214,250 0.63

051900.KS -13% 732,472,800 1.51 010620.KS -9% 255,472,700 0.83


Source: Dealogic



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KRX plans to launch an index to draw attention to its venture based Korea New Exchange (KONEX)

KRX plans to launch an index for the venture-focused KONEX exchange in July, paving the way for the newly established market to draw more attention from investors and develop related financial products.

KONEX was launched last year on 1st July to provide an easier market for business start-ups and venture firms to raise funds via stock sales instead of having to borrow from banks. 52 firms are now listed on KONEX compared to 21 when it started, doubling exchange’s market capitalization to 1Tnwon (US$979 million) from 469 billion won.

Similar to KOSPI and Kosdaq indexes, the KONEX index will be calculated based on market capitalization, according to the officials.

20 years of Kospi200 Index

Korea’s benchmark index Korea Composite Stock Price Index 200 completed 20 years last month.

Sources:english.yonhapnews.co.krwww.koreatimes.co.krnwww.koreaherald.comwww.globalpost.com

www.ignitesasia.comwww.moneymanagement.com.auwww.risk.netwww.tradersmagazine.com

Contact


27

Global Market Structure Australia


Global Market Structure Australia Newsletter Issue 34, 2014



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ASIC regulatory data requirements go live

The previously reported new regulatory data requirements that the Australian Securities and Investments Commission (“ASIC”) introduced went live on 28th July. From that date onwards, market participants are required to provide to market operators a number of data fields including:

— Execution venue (required for off-order book transactions).

— Capacity of participant (note that hedging swap trades is considered to be ‘principal’).

— Origin of order.

— Intermediary ID (relevant for firms holding an Australian Financial Services license).

— Directed wholesale indicator.

Details of these previously announced requirements (including FAQs) are available in the following ASIC market supervision update:http://www.asic.gov.au/asic/asic.nsf/byheadline/ASIC-Market-Supervision-Update-Issue-44?openDocument

Budget and headcount cuts at ASIC

ASIC funding is being cut by A$120 million over the next 5 years by the Government with an initial A$44 million reduction for 2014/2015 (representing approximately 12%). Similarly headcount for 2014/2015 is expected to fall by 12% from 1,782 to 1,573. ASIC are likely to continue discussions on moving towards a ‘user pays’ funding model whereby costs are recovered from parties who either engage in regulated activities or who benefit from the well-regulated market.

The functions of ASIC continue to be subject to review. The National Commission of Audit has already recommended that ASIC’s registry functions, financial literacy functions and consumer protection functions either cease or be transferred to other organisations. Potentially overlapping functions between ASIC and the Australian Competition and Consumer Commission (“ACCC”) and the Australian Prudential Regulation Authority (“APRA”) are also being considered with inquiry reports expected later this year.

The Government stated that: “ASIC will adjust its priorities to ensure it continues to meet its statutory objectives”.

ASIC release report on Regulating Complex Products

In January of this year ASIC sought feedback on Report 384 ‘Regulating complex products’. That feedback has since been collated and reviewed and in July the ASIC released their response in Report 400 ‘Responses to feedback on REP 384 Regulating complex products’.

The report focuses only on the key issues highlighted in the original responses including:

— Definition of complex products – ASIC intend to continue using a flexible approach with consideration given to ‘relative complexity’ (being an assessment of complexity in the context of how complex the investors perceive the product to be). The report highlights concern that higher risk exists when complex products are perceived by investors to be simple.

— Product development – ASIC looking to the industry to enhance development standards for complex products rather than issuing


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Fig 1. Australian equities trading turnover during H1 2014 reached US$482Bn, down 8.6% from same period last year.Full year average - 2014: 67%, 2013: 93%, 2012: 113%



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guidance themselves.

— Product distribution – similar to product development, ASIC looking to the industry to lead the development of distribution standards for complex products though they do note other options to reduce risk include: the provision of pre-sale advice, enforcing certain distribution channels or marketing types, and requiring suitability testing.

— Disclosures – ASIC to continue with their risk based approach to complex product disclosure surveillance. Suggestions that presentation could be improved by changing the scale and format of the information provided and also by utilising new media.

— Advertising – ASIC acknowledge that investors can be heavily influenced by advertising but at this time do not intend to revise the existing guidance which includes the Regulatory Guide 234 – Advertising financial products and services (including credit): Good practice guidance.

— Access to independent information – ASIC will continue to promote their MoneySmart website as a means of providing investors with independent information on complex products.

— Financial advice – ASIC are not currently changing their risk based approach to the surveillance of advice but they are interested in the potential voluntary development of investor self-assessment tools by the complex product issuers.

— Post-sale information – ASIC are looking to the industry to develop standards relating to the provision of ongoing complex product information to investors.

Report 400 is available in full here:http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep400-published-11-July-2014.pdf/$file/rep400-published-11-July-2014.pdf

Fee and cost disclosure inconsistencies identified by ASIC

On 8th July ASIC published Report 398 ‘Fee and cost disclosure: Superannuation and managed investment products’. The intention was to identify instances where underreporting of fees and costs could occur in the superannuation and managed investment industry. Key components of the report include:

— Details on where inconsistent and incorrect disclosures do occur. For example:

— Non-disclosure of fees and costs relating to investments in underlying investment vehicles;

— Incorrectly disclosing fees net of tax;

— Inconsistent disclosure of performance fees.

— Statement of ASIC’s view on these disclosure issues.

— Details of further work ASIC will perform in this space.

ASIC commissioner Greg Tanzer said, “It is crucial for super and managed fund issuers to disclose fees and costs on a consistent and comparable basis in order for consumers to make meaningful comparisons between products”.

To review Report 398 in full see here:http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep398-published-8-July-2014.pdf/$file/rep398-published-8-July-2014.pdf

Australian Government invite comments on Tax Treaty Negotiation Program

The Australian Government are inviting interested parties to comment on their tax treaty negotiation program. They are specifically interested to hear:

— Suggestions of which countries should be prioritised for tax treaty negotiations or updates.

— Suggestions of key objectives for these negotiations.

Information on how to submit comments (including a link to details of Australia’s existing tax treaties) are available here:http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2014/Australias-Tax-Treaty-Negotiation-Program



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Fig 5. ASX Index reached its 5-year high level in the month of May this year, up 16% YoY.


Stock Price Return

Volume traded (US$)

20D/ 100D ADT

Stock Price Return

Volume traded (US$)

20D/ 100D ADT

WOR.AX 8% 358,020,700 1.01 EGP.AX 10% 367,529,900 1.11

NCM.AX 8% 831,717,900 0.82 SKT.AX 7% 52,062,290 0.70

TTS.AX 7% 266,376,200 1.23 ALZ.AX 6% 848,148,200 1.99

IPL.AX 4% 336,752,600 0.99 CSR.AX 5% 131,938,900 0.66

CGF.AX 4% 258,638,600 0.90 IOF.AX 4% 131,891,300 1.03

TPM.AX -7% 217,460,500 0.85 FXJ.AX -11% 222,132,400 0.83

WOW.AX -7% 1,982,716,000 1.04 MND.AX -13% 131,249,300 1.03

AWC.AX -8% 302,931,400 0.76 VED.AX -13% 52,660,290 0.69

SEK.AX -8% 472,084,600 0.85 MFG.AX -13% 114,062,800 1.05

FLT.AX -12% 615,996,600 1.57 DOW.AX -16% 339,578,300 1.75




Source: Dealogic



Mar-14 3 23% 22% 27%

Apr-14 2 20% 32% 76%

May-14 8 5% 132% 7%

Jun-14 6 -2% 0% 3%

29


Venue News

ASX trading changes go live

On 14th July a number of enhancements to ASX Trade went live. The changes included the following items:

— Non mid-tick prices available in Centre Point. (Note that trades will require at least half a tick of price improvement to the NBBO).

— Single fill minimum acceptable quantity (“MAQ”) available in Centre Point.

— ASX OUCH supports access to AXS Centre Point and ASX Sweep.

— Price field precision increased to two decimal places in Centre Point.

— ASX supports ASIC’s real time short selling reporting requirements (with flexibility to combine short and long sells in a single market order).

See the following ASX notice for further details:https://www.asxonline.com/intradoc-cgi/groups/trading_and_market_information/documents/communications/asx_039978.pdf

Chi-X sets new records in market share and hidden liquidity, suffers trading outage

On 9th July Chi-X Australia’s daily total market share was 29.86% beating their previous record of 29.57% which was set on 18th June. Chi-X Australia also set a new record for hidden liquidity daily value traded in July. The new record of A$174 million was set on 18th July (exceeding their previous daily record of A$131 million by a significant margin).

Trading was stopped at Chi-X Australia on 16th June due to a technical issue. Trading ceased at 11:08am and remained out until the following trading day.

Shortening the Equities Settlement Cycle Consultation Paper feedback published by ASX

The feedback period for the ASX’s consultation paper ‘Shortening the Settlement Cycle in Australia: Transitioning to T+2 for Cash Equities’ closed in April. In May the ASX published the non-confidential responses on their website. All feedback will be considered by the ASX advisory forum with further announcements expected.

Generally the publically published respondents were supportive of the proposed transition from a T+3 equity settlement cycle to T+2 with most noting several key benefits including:

— Reduction in counterparty risk and overall systemic risk.

— Increased harmonisation with other global equity markets.

— Reduced cash market margin and liquid capital requirements.

— Post trade cost efficiencies.

To review the full published feedback see the ASX public consultation release dated 15th May here:

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

ASX submit their input to the Government’s Competition Policy Review

In June the ASX submitted their comments to the Government’s Competition Policy Review. Titled ‘Driving efficiency in competitive settings for the Australian economy’ the paper highlights several areas of suggested focus including:

— Stressing the importance of competition policy as a driver of an efficient economy.

— Refocusing of competition approach to reflect increasing globalisation and advancements of technology and regulation.

— Balancing the need to support Australian firms who compete globally with the need to protect consumers and small businesses.

— Shift of emphasis from competition within Australia to competitiveness of Australia on the world stage including the possibility that a higher degree of market concentration might be appropriate for a relatively small country such as Australia.

— Support for self-regulation as a mechanism for driving competitive-type behaviours (particularly in more concentrated markets).

The ASX’s full submission is available here:http://www.asx.com.au/documents/public-consultations/Competition_Policy_Review.pdf

Derivatives Account Segregation and Portability Consultation Paper released

On 14th July the ASX released a consultation paper called ‘Derivatives Account Segregation and Portability – Enhanced Client Protection Structures’. The objective is to increase collateral protection for clients by enhancing the Client Clearing Service account structure that the ASX uses for its ASX 24 Exchange Traded Derivatives and OTC Interest Rate Derivatives.

This paper seeks feedback on a number of proposed treatments designed to increase protection of excess collateral posted by clearing participants. Towards the end of this year, after feedback to this paper has been considered, it is expected that the ASX will release a second consultation paper detailing the proposed account structure and the related rules framework.

The deadline for feedback submissions from interested parties is 22nd August. The full consultation paper (including details of how to respond) is available here:http://www.asx.com.au/documents/public-consultations/Derivatives_Account_Segregation_and_Portability_-_Enhanced_Client_Protection_Structures_rev1.pdf

Personnel News

Wayne Byres appointed as chairman of APRA

In July Wayne Byres took over as chairman of the Australian Prudential Regulation Authority (“APRA”) having previously served as APRA’s executive general manager of supervision and secretary general to the Basel Committee on Banking Supervision.

Mr Byres made his opening statement as chairman in a presentation to the House of Representatives Standing Committee on Economics. In his speech he confirmed that APRA would continue with their approach of combining both supervision and enforcement but with more emphasis on pre-emptive supervision rather than reactive enforcement: “Our observation is that the supervision-led approach seemed to be a common feature of jurisdictions that emerged relatively unscathed from the financial crisis. The APRA members therefore see little reason to change that philosophy, and it is very consistent with the government’s recent statement of ex pectations for APRA”.

Contact


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

http://www.asxonline.com/

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

http://www.treasury.gov.au/

http://www.apra.gov.au/

http://www.complinet.com/

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

http://www.theadvisor.com.au/

http://www.herbertsmithfreehills.com/

http://www.bloomberg.com/

30

Global Market Structure Thailand


Global Market Structure Thailand Newsletter Issue 34, 2014

Market Structure

ASEAN Exchanges introduce three ASEAN Indices

The ASEAN Exchanges announced the introduction of three new tradable ASEAN indices to expand the FTSE ASEAN Index Series (the FTSE ASEAN All-Share Index, FTSE ASEAN Stars Index and FTSE ASEAN All Share Ex-Developed Index) which cover the growing ASEAN equity markets more extensively. The expanded suite of indices include constituents from Vietnam and create a larger universe of stocks for all ASEAN markets.

— FTSE ASEAN All-Share Index. Representing the performance of large, mid and small cap ASEAN companies, the index consists of constituents of the FTSE ASEAN Indonesia All-Share Index, the FTSE ASEAN Philippines All-Share Index, the FTSE ASEAN Vietnam All-Share Index, the FTSE Bursa Malaysia EMAS Index, the FTSE SET All-Share Index and the FTSE ST All-Share Index.

— FTSE ASEAN Stars Index. Comprises the 30 most exciting companies of each ASEAN country as ranked by investability in terms of market capitalisation and liquidity, with the exception of Vietnam where 15 companies are selected from the Ho Chi Minh and Hanoi Stock Exchanges respectively.

— FTSE ASEAN All-Share Ex-Developed Index. Represents the performance of all the ex Developed countries in the FTSE ASEAN All-Share Index. The index consists of the constituents of the FTSE Bursa Malaysia EMAS Index, FTSE ASEAN Indonesia All-Share Index, the FTSE ASEAN Philippines All-Share Index, the FTSE SET All-Share Index and the FTSE ASEAN Vietnam All-Share Index.

Thailand enters into regulatory cooperation pact with Cambodia

The Securities and Exchange Commission of Thailand (“SEC”) and the Securities and Exchange Commission of Cambodia have signed a memorandum of understanding (“MoU”) bolstering regulatory cooperation between the neighbouring markets. The two countries will be sharing information on daily trends, trades and general market information according to the agreement.

Thailand looks to beef up foreign investments by local companies

The SEC has proposed to the Bank of Thailand to increase the limit of securities investment abroad from the present US$50 billion to at least US$100billion. The central bank has also been requested to grant foreign exchange licences to local securities companies in order to increase their competitiveness.

Local investors have been increasingly allocating a higher portion of their portfolios to foreign markets amid the ongoing political unrest and instability in the local markets.

“We have to prepare lifting the global investment amount after seeing demand increasing since last year and expect the new ceiling will be approved by the second half of this year as investors take this opportunity to reap higher returns and manage risks.” Charuphan Intararoong, executive director for intermediary supervision and development, SEC said.

—

Source: Dealogic


IPO

Vo

lum

e (U

S$

m)


M

arke

t C

ap (

US

$ t

rilli

on

)

14.5

15

15.5

16

16.5

17

17.5

0

100

200

300

400

500

600


Fig 1. Thailand stocks, ETFs and Futures flourish under new military government. Currency is strengthening as peace returns and GDP is up 1% as of Q2 2014. Foreign investment is expected to grow in coming months.

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


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

Auto/Truck


Consumer

FIG

Industrials




Source: Dealogic



Mar-14 - - - -

Apr-14 4 34% 63% 67%

May-14 1 180% 0% 116%

Jun-14 4 79% 0% 71%



EQUITY FUTURES ETFS

ETFs

(U

S$

Mill

ion

s)

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

0.0

0.2

0.4

0.6

0.8

1.0

$0.0

$0.5

$1.0

$1.5

$2.0

$3.0


Thailand

31

Global Market Structure Thailand

Venue News

SET considering to levy a capital gains tax

The Stock Exchange of Thailand (“SET”) may levy a capital gains tax of 5% on short term investments (positions held for less than 6 months or a year). A study is currently being undertaken to ascertain the feasibility of the levy. However, SET chairman Sathit Limpongpan is not in favor of implementing the tax at the moment and said that “A capital gains tax should not be implemented while Thailand was restoring investor confidence.”

SET signs MoU with Cambodia Stock Exchange

The SET signed a memorandum of understanding MoU with Cambodia Stock Exchange (“CSX”) to jointly to promote development of capital market in Cambodia and Thailand. SET will extend its help in the areas of human resource training, professional training, information sharing and promoting capital market business opportunities between the two exchanges under the agreement.

“The MoU between SET and CSX is a good starting point for our concrete collaboration on capital market development between two countries. We look forward to the continued development of the fruitful relationship with CSX.” said SET President Charamporn Jotikasthira.

Contact


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

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

32

Global Market Structure SIngapore


Global Market Structure Singapore Newsletter Issue 34, 2014



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0.0

0.5

1.0

1.5

2.0

2.5

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2


Market Structure

Monetary Authority of Singapore proposes more safeguards for investors

The Monetary Authority of Singapore (“MAS”) has released a public consultation proposing an enhanced framework of regulations for safeguarding investors investing in non-conventional and OTC products. Major proposals include

— Extending the regulatory safeguards currently available to retail investors to the investors in non-conventional investment products (which have features similar to the regulated capital market products)

— Requiring all investment products (including non-conventional products) to be rated for complexity and risks, and for these ratings to be disclosed to the investors

— Providing an option to the Accredited Investors (AIs) enabling them to avail the complete range of safeguards applicable to retail investors

— Regulating the schemes which have elements of a regulated collective investment scheme but do not pool investors’ contributions under the umbrella of ‘Collective Investment Scheme Regulations’

The consultation will be open until 1st September and can be accessed here - http://www.mas.gov.sg/news-and-publications/media-releases/2014/mas-proposes-stronger-safeguards-for-investors.aspx

http://www.mas.gov.sg/news-and-publications/consultation-paper/2014/consultation-on-proposals-to-enhance-regulatory-safeguards-for-investors-in-the-capital-markets.aspx

Venue News

Singapore Exchange looking to reduce board lot sizes from 29th September

The Singapore Exchange (“SGX”) is planning to implement the reduction in board lot sizes for all counters trading above SG$0.50 from 29th September subject to acquiring all regulatory approvals

— All stocks trading above SG$0.50 as at end of June will be in scope for the board lot reduction

— The board lot size for such stocks will be reduced to 100 from 1000 currently

— Around 250 stock will be migrated to the new smaller board lot size

— All markets participants should update their respective trading and order management applications to be able to display the applicable order lot size for all scrips

— All pending long dated orders will be purged by SGX automatically before launch, therefore all trading members should review their long dated orders and purge accordingly

Source: Dealogic



IPO

Vo

lum

e (U

S$

m)


Mar

ket

Cap

(U

S$

tri

llio

n)

3

3.02

3.04

3.06

3.08

3.1

3.12

0

50

100

150

200

250

300

350

400

450


Fig 2. Singapore IPO market is down 72% in first half of this year compared to last year reflecting subdued growth in equities market.

US$ 302Mn raised in IPOs in month of June this year. Biggest IPO so far has been PACC Offshore Service Holdings that took place earlier in the year.

Fig 1. Singapore Equities turnover is down 17% YoY while Futures and ETFs trading volumes are down 25% YoY

Source: Dealogic


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

Auto/Truck

Consumer

Healthcare

Oil & Gas

REGAL


Source: Dealogic


Source: Dealogic



Apr-14 2 11% 22% 39%

May-14 - - - -

Jun-14 3 -1% 0% -1%

Singapore

33

Global Market Structure SIngapore

Contact


Sources: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

Singapore proposes relaxations in Secondary Listing norms

The Singapore Exchange (“SGX”) has proposed the following changes to the regulatory framework for secondary listed companies on the exchange.

— Clarifications on the regulatory oversight SGX has on secondary listings and the extent to which it will rely on the regulator of the company’s home exchange (primary listing).

— Clarifications on methodology applied for regulatory review of secondary listing applicants.

— Classification of a secondary listing applicant into either a company from a Developed market or from a Developing market based on classification by both MSCI and FTSE.

— No additional continuing listing obligations for companies having primary listing in a developed market.

— Certain additional continuing listing obligations may be imposed to enhance shareholder protection and corporate governance standards for companies having primary listing in a developing market.

— Make it easier for investors to identify primary and secondary listings by enhancing the information available on the stock exchange.

The consultation paper is available here:http://www.sgx.com/wps/wcm/connect/sgx_en/home/higlights/news_releases/sgx-proposes-regulatory-framework-for-secondary-listings

June 2014 SGX performance snapshot

SGX reported that its securities trading continued to decline in June. Major highlights below:

— Total value of securities traded was $20.5 billion, down 37% compared to last year.

— Turnover for Chinese-listed companies on SGX however increased 18% year-on-year to $1.5 billion.

— Securities daily average value declined to $978 million down 40% year-on-year

— Derivatives volume declined 20% year-on-year to 8.6 million contracts.

— Open interest at end-June remained flat year-on-year at 3.2 million contracts.

— China A50 futures volume rose 32% to 2.3 million contracts.

— MSCI Taiwan futures trading fell 2% to 1.5 million contracts.

— Nikkei 225 futures volumes fell 54% to 2.1 million contracts.

— Indian Nifty futures trading increased 6% to 1.6 million contracts.

SGX to implement new financial reporting standard

The SGX and the Singapore Accounting Standards Council (“ASC”) released a joint statement on 29th May requiring the listed companies to implement the new financial reporting framework for their respective annual reporting requirements latest by 1st January 2018. The new financial reporting framework is identical to the International Financial Reporting Standards (“IFRS”).

“Singapore has long been an advocate of a single global financial reporting language. Taking the final leap towards full convergence with IFRS for our capital market is a decisive step towards cementing Singapore’s standing as a trusted international financial and business centre,” said ASC Chairman Mr Michael Lim.

SGX developing a collateral facility in partnership with Clearstream

SGX and Clearstream (a subsidiary of Deutsche Börse) have partnered to develop a collateral facility for Singapore based institutional investors which will allow stocks and bonds held at SGX’s CDP securities depository as collateral for their trades. This will reduce their dependency on using cash as collateral. The system is expected to be ready in 1 to 1.5 years and is expected to boost liquidity in the financial markets.

“The system really looks at the mobilisation of assets that are currently under utilised or not utilised at all in the Singapore market.” Nico Torchetti, Senior Vice President and Head of Post-trade Services at SGX, said.

34

Global Market Structure Philippines


Global Market Structure Philippines Newsletter Issue 34, 2014

Market Structure

Philippines tightens Corporate Governance norms

The Securities and Exchange Commission in Philippines has tightened certain corporate governance norms aiming to boost transparency around businesses.

— All listed companies are now required to post all their disclosures on their websites.

— The regulator has also proposed a website template for listed companies which should be considered as a minimum requirement while designing the web portals.

— Listed companies have also been directed to post all their periodic report within the stipulated timelines.

— Detailed guidelines have also been issued for listed companies to meet new tax rules requiring regular reporting of information on employees and payees.

Venue News

PSE reaches record levels

The Philippine Stock Exchange (“PSE”) on 4th July reached the 6962.2 mark, its highest levels for the year driven by strong foreign buying in the local markets. Philippine foreign portfolio investments registered a net inflow of US$545.08 million in May after 4 months continuous of net outflows.

PSE ties up with NASDAQ OMX tech

The PSE has entered into an agreement with NASDAQ OMX whereby NASDAQ OMX will help in implementation of its trading technology X-stream Trading at PSE. The new platform is expected to be rolled out in mid 2015.

“We are delighted to partner with NASDAQ OMX for this important undertaking. As the operator of the stock market, we need to ensure that we continue to provide the best and most responsive technology for all our stakeholders and we believe the solution provided by NASDAQ OMX is consistent with this objective.” said Hans B. Sicat, PSE President and CEO.

PSE on track to raise P200bn through IPOs

The PSE announced that it has already raised P75bn through issuances in the local markets and is well on track to meet its year-end target of P200bn.

“The second half of the year would see more companies raising capital, hitching a ride on the country’s growing economy. There is tremendous liquidity here at home and this would help boost the stock market’s performance.” PSE President and CEO Hans Sicat said.

PSE board reelected

The PSE announced that its entire board was reelected for a 4th term and assured that continuity will be preserved in the bourse’s strategy as it upgrades its technology in preparation to join the ASEAN Trading Link.



EQUITY FUTURES ETFS

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. Philippines stock exchange index reached its peak since 11months in month of June, as Philippines peso finished its best quarter since 2010.

35

Global Market Structure Indonesia


Global Market Structure Indonesia Newsletter Issue 34, 2014

Market Structure

OJK tightens share buyback norms

OJK, the local Financial Services Authority in Indonesia, has announced the termination of policies governing the share buyback mechanism that were announced last year due to weak economic conditions. The policies were eased to allow the listed companies to conduct buyback offers without the regulator’s approval in cases of large market fluctuations after the Jakarta Composite Index fell 23.91% in the space of three months. All buyback offers going forward will therefore require the regulator’s pre-approval.

“The regional and national economic condition points to growth and more positive development trends. Indonesia needs more companies listing their shares on the local bourse in order to make the stock market more liquid and attract even more funds from foreign investors.” OJK said in a statement.

Venue News

Indonesian stocks rise to 11 month high levels

The Indonesian Jakarta Composite Index rose 0.7% to hit its highest in the past 11 months on 16th May as it closed on 5031.6.

Sources: http://business.inquirer.net

http://www.marketwatch.com

http://www.bangkokpost.com

http://www.thejakartapost.com



EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

Fu

ture

s (U

S$

Mill

ion

s)

0

5

10

15

20

$0.0

$0.2

$0.4

$0.6

$0.8


Contact


Indonesia

Fig 1. Indonesia futures market rallied over presidential candidate speculation and trading momentum continues post results.

36

Global Market Structure Malaysia


Global Market Structure Malaysia Newsletter Issue 34, 2014

Market Structure

SC releases updated list of Shariah compliant securities

The Securities Commission, Malaysia (“SC”) has released an updated list of securities compliant with Shariah principles which has been approved by its Shariah Advisory Council. The updated list consists of a total of 665 Shariah-compliant securities (from a total of 905 listings) and came into effect on 30th May 2014. 28 stocks have been added to the list while 9 have been removed from the earlier list.

Venue News

Bursa Malaysia scales a new life-time high

Bursa Malaysia reached its all time high levels of 1892.3 on 24th June buoyed by encouraging manufacturing data from China, Japan, and the United States that pointed to a recovery in global economic growth. The last high was achieved on 19th May when the growth in economy in the first quarter of the year was announced by the central bank. Malaysia registered a strong growth of 6.2% in the Q1 2014 compared with 5.1% registered in the fourth quarter of 2013, driven by a stronger expansion in domestic demand and a turnaround in net exports.

Sources:

http://www.freemalaysiatoday.comhttp://www.nst.com.myhttp://www.arabianbusiness.com

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. Malaysia’s benchmark index has had the world’s longest bull run in equities. Index has gained 0.8% this year, but is up overall 127% since 2008.

On YTD basis foreign investors have been net sellers of Malaysian stocks this year which could be an indicator of an upcoming trend reversal.

Source: Dealogic


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

Auto/Truck


Consumer

Industrials




EQUITY FUTURES ETFS

Eq

uit

ies

& F

utu

res

(US

$B

illio

ns)

ETFs

(U

S$

Mill

ion

s)

0

0.1

0.2

0.3

0.4

0.5

$0.0

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

$0.7


Contact


Malaysia

37



Global Market Structure Newsletter Issue 34, 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

38


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