Securities market reform stuck in purgatory

Panelists discuss the present state of securities market reform and the challenges ahead.
Securities market reform may be in different stages in different parts of the globe, but for the majority of market participants, the same pain and challenges are being experienced everywhere. A focus session at Sibos 2006 in Sydney set out to determine whether global securities market reform was in heaven, hell or purgatory. And according to the five panelists, the consensus is purgatory.

Moderator Charles Cock, global head of sales and relationship management at BNP Paribas Securities Services, set out some of the reforms that are currently gripping the securities market including G30, target-2, MIFID and code of conduct. The panelists, who mostly hailed from Europe but offered some Asian perspectives, were then asked for their opinions on global securities market reform and identified the main winners and losers in this field.

Globally, all panelists agreed that security market reform was entering a stage of unprecedented momentum. In Canada, the countryÆs financial infrastructure is merging all of its markets under a single regulatory platform, while in certain Latin American markets, a number of regulatory regimes are banding together to improve corporate governance.

ôThe goal of financial market reform is driven by good intentions: to deliver transparency, improve corporate governance, give fair prices to retail investors and lower risk,ö says Neeraj Sahai, senior managing director, global head of securities and fund services, global transaction services at Citigroup. ôHowever, there are issues in market reform such as limited cooperation between exchanges, the risk of systems choking and the challenge of who will bear the cost for further reforms.ö

These concerns were echoed by the Europe-based panelists in the focus group session in Sydney. They too acknowledged that differences in market infrastructure have presented both opportunities and challenges, with issues such as service quality, high fees and demands for higher safety in securities markets increasingly coming to the fore. In addition, they also pointed out that a post-trading infrastructure has led to more competition between exchanges and head-to-head battles with trading firms for efficiencies.

Closer to home, some of the panelists believed that market reform in Asia would follow a different path to other global markets, particularly due to the fragmented nature of the regionÆs infrastructure and economies and the unclear cooperation agendas of the exchanges.

ôIt is wrong to treat Asia as a homogenous zone and with various stages of evolution from the nascent market of Vietnam at one end to an open financial market in Hong Kong at the other end, it is very difficult to chart the progress of cooperative market reform in this region,ö says Neil Daswani global head of securities services at Standard Chartered. ôReforms in Europe such as target-2 for securities and MIFID are very Euro-centric, but Asian markets are not turning a blind eye. These reforms are forming a framework to draw from in the future.ö

Daswani says there are plenty of market reforms happening at a domestic level in Asia. He says SingaporeÆs SGX Prime, which is based on ISO 15022 industry message standards, will have global relevance - as have G30 initiatives been relevant to regional securities markets and the linkages built in markets such as Hong Kong, Japan and Singapore.

However, the major difference between Asia and Europe is the stage of integration. Whereas Europe is working on integrated settlement systems for central depositories, Asia is clearly behind in terms of national cooperation and single systems.

In particular, the panelists debated what a proposed single ASEAN platform would mean for Asia and concluded that although there is scope for integration of securities markets, the merging process would be extremely difficult. The same argument was also put forth regarding the creation of an Asian international bond market. Although it is undoubtedly a strong idea, such a proposal would be caught up in legal problems.

In summary, the panel concluded that securities market reforms are not without challenges and that for Asia to follow in Europe's footsteps would be a long and challenging journey.
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