Is Asia-Pacific moving towards a harmonised financial market infrastructure?
It’s certainly a hot topic in our dialogue with public authorities. Historically, Asia-Pacific’s financial market infrastructures -- ie, the market infrastructures such as the exchanges and clearing systems that work together with the enabling legal and regulatory framework – have been seen as largely domestic environments within a fragmented landscape, and generally speaking, this is still the case. Each market is characterised by different financial market infrastructures, market practices, regulatory policies and economic priorities. Across the region, we have mature and sophisticated markets existing side by side with dynamic, young, emerging markets.
However, we do see some positive signs that the region as a whole is moving – albeit slowly – towards a more harmonised structure. A collective consensus is emerging that in order to attract international issuers and investors from within Asia and beyond, a more cohesive and common approach is needed from both the private and public sectors. But there are some key questions that need to be answered. What role will the public sector play? Will the emergence of a new currency be a catalyst for change? Which markets will we see move first as a leader towards a more harmonised approach?
You mentioned the possibility that public institutions could play a role. Can you elaborate?
When we compare Asia with the EU, which is considerably more progressive in terms of an established regional structure, financial markets in Asia do not have a regional regulatory body or legislative approach. So while Asia is not yet at the same level as the EU, two recent examples of public sector activities point to a potentially new approach where regionally coordinated or mandated public sector activities are becoming visible, although it is as yet premature to judge whether these initiatives will become a basis for an Asian financial regulator.
The first is the Chiang Mai Initiative Multilateralisation (CMIM) and the other is the Asean+3 Macroeconomic Research Office (AMRO). A multilateral currency swap arrangement involving the 10 Asean countries plus China, South Korea and Japan, the finance ministers, central bank governors and the Hong Kong Monetary Authority (HKMA), CMIM will allow participating central banks to draw on a regional pool of foreign exchange reserves to potentially help manage a future regional financial crisis.
In addition, AMRO, which is based in Singapore, is mandated with evaluating macro-economic stability from a regional perspective, a process which includes a significant focus on potential vulnerability within the Asian financial system. While not yet representative of a common financial market infrastructure in Asia, it could well be the first step.
Will the internationalisation of the renminbi help or hinder moves towards a harmonised structure?
It has certainly started people talking. Over the last year, we have seen a number of initiatives from the mainland aimed at pushing the renminbi onto a more international footing. From a greater acceptance of currency fluctuation, the expansion of the international trade settlement programme, the first stage of the mainland inter-bank bond market opening up and Hong Kong’s increasingly prominent role as the world’s most important offshore centre for the renminbi.
As companies and banks around the world continue to incorporate the renminbi into their operations, it is clear that China will play an increasingly important role in the process of global standards development, particularly in terms of the development of a regional and potentially international renminbi market.
Could the Asian Bond Market Initiative play a more important role?
When the Asian Bond Market Initiative (ABMI) first launched in 2003, it was very much a platform that was aimed at minimising the impact of future financial crises. Covering a broad range of public sector initiatives aimed at growing the local currency bond markets, a mandate which has seen considerable success, the ABMI recently unveiled a public-private partnership forum called the Asean+3 Bond Market Forum (ABMF), a platform which is exploring intra-regional coordination that would enhance the visibility of the markets and that could lead to some harmonisation across the clearing and settlement of bonds. It’s an important step – though an early step – in establishing a more efficient market infrastructure.
We’ve seen some high profile mergers and links proposed between stock exchanges around the world recently, including the SGX-ASX proposed merger. How will this help create a more standardised approach in Asia?
In order to increase market share and volumes, many exchanges around the world are looking to merge with like-minded partners in markets where it makes sense. Should some of these evolving exchange infrastructure proposals move forward in Asia, one likely impact could be the development of common listing standards and disclosure requirements to facilitate better cross-border activities between the respective exchanges. Linking infrastructure can be a catalyst for market practice harmonisation.
Thematically, this trend, should it continue, and contingent on the many approvals from regulators and legislators, will create a single point of access into these interlinked markets, positioning Asia as a significantly more harmonised region than it currently is.
What can Asia learn from markets like the EU?
One of the biggest lessons that Asia can take away from the development of the EU is that it is imperative we see collaboration between both the public and private sectors. At the heart of harmonisation must lie a commitment to innovation and a commitment to better efficiencies. Asia has a major opportunity to become an influencer in the global conversation towards harmonisation, but only once regional goals and ambitions are aligned.
