Esmond Lee
Hong Kong Monetary Authority
7 April 2011
The Asian Banker Summit 2011The future of post-trade infrastructure in
Asian bond markets
The Pan-Asian CSD Alliance
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Less than efficient cross-border activities
Less than efficient asset servicing
Fragmented markets
Multiple access points
Varied market practices
Asian CSDs share similar disadvantages…Asian CSDs share similar disadvantages…
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The Pan-Asian CSD Alliance A Task Force formed by a group of central banks and CSDs in the region
Vision: to gradually improve the post-trade infrastructure for bond clearing and settlement in the region
Issued a White Paper in June 2010, outlining:
Concept of a Common Platform Model (CPM)
Launch of the Pilot Platform
CPM offers Pilot Platform
• Better cross-border access to local Asian bonds
• Greater issuance of local bonds
• Improved automated process to manage operational risk
• Access to a larger pool of collateral
• Reduced costs for post-trade execution
• A tactical solution to deliver early benefits of the CPM
• Delivers main functionalities of the CPM
• Uses existing systems and links and requires minimal efforts to start
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White Paper proposal: CPM implementation strategy
• Starting with improvements to interoperability and cross-border access through investor CSD1, leveraging existing (I)CSD links (Pilot Platform)
• Gradually improving local market practices, local CSD processes and cross-border links
• Working together to allow some convergence of developments across markets, leading to harmonisation of processes and a gradual introduction of common systems
Note 1: An investor CSD is the local CSD, or any other local entity other than CSDs, that has the right and the capacity to offer settlement and asset servicing on foreign securities to local financial institutions.
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Common Platform Model
New functions provided by the Common Platform
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• Addresses the need for access, harmonisation, and standardisation
• Provides a common infrastructure platform for cross-border access, asset servicing processing, and clearing and settlement
• Individual participating CSDs are able to retain autonomy in terms of legal entity, finance, business development and customer relations
However, a common infrastructure platform will take time to develop……
Common Platform ModelCommon Platform Model
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Pilot Platform
New functions provided by the Pilot Platform
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Pilot Platform functionalities and benefitsCPM objective Pilot Platform functionalities Benefits for
participating economies
Increase choice for cross-border access
Access to Asian and non-Asian debt securities through the investor’s local CSD acting as investor CSD
More choice for local investors to access foreign markets
Increase issuance of local bonds
Increase issuance of local bonds in the Asian time zone, in local as well as foreign currencies, leveraging foreign currency RTGS systems in the region
Increased flexibility for local issuers (governments and corporates) to raise funds
Improve securities information
Extend the coverage of existing databases to include more local securities
Promote local securities to foreign investors
Improve interoperability
Use and improve existing ICSD-CSD and CSD-CSD links
Increase activity in local bonds
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Evolution towards the Common Platform Model
Pilot Platform can leverage local developments ahead of common systems
Improvements to the Pilot Platform should lead to common developments
Local developments
Harmonisation
Common Developments
PILOT
PLATFORM
Gradual removal of barriers
IMPROVEMENTS TO THE PILOT PLATFORM
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Progress
The 5th Task Force Meeting was held in Hong Kong in November 2010
Two experience-sharing workshops were held to discuss the necessary preparation and proposed setup of the Pilot Platform:
between the three early movers (i.e. the HKMA, Bank Negara Malaysia (BNM) and Euroclear) in Hong Kong in October 2010
between the three early movers and interested parties from Indonesia (e.g. Ministry of Finance, Central Bank, CSD and Central Counterparty (CCP)) in Hong Kong in March 2011
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• Prepare for the launch of the Pilot Platform in mid 2011
• Deliberate on add-on services to be provided after the launch of the Pilot Platform.
– focus on areas with noticeable deficiencies under current market practices. Potential areas to consider include: corporate action servicing cross-border collateral management
– further research and feasibility studies will be conducted.
Way forward
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Example: Existing corporate action servicing in Asia
Major deficiencies:
• Paying agents do not have a/c positions of bond holders and thus require Asian CSD to provide such information
• Lack of standardized distribution channels for bond issuers to disseminate corporate information to bond holders
• Lack of standardized format used in the communication between individual paying agents and bond holders, e.g. some may be done by fax and some by email
Asian CSD
A/c positions
Paying Agents
(acting on behalf of bond issuers)
Notice of corporate actions (proprietary channels and
formats)
Instructions (e.g. for voting or exercising option etc)
(proprietary channels and formats)
Asian CSD members
(acting on behalf of bond holders)Request for
a/c positions
Settlement instructions arising from corporate actions
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• Corporate action servicing– to enhance market efficiency in processing corporate actions
– to develop standards of communication amongst paying agents, Asian CSDs and their members and to set up a platform linked with Asian CSD’s systems so as to streamline / automate some of the processes
• Cross-border collateral management– to help banks manage their liquidity more effectively by better utilising
foreign securities lodged with ICSDs or overseas CSDs
– to establish message link between ICSD and domestic RTGS systems and to agree on a message exchange protocol so that securities transfer and fund transfer can be settled in a coordinated manner
Potential add-on services to the Pilot Platform
The Pilot Platform will be launched in mid 2011 as scheduled. Work has started to deliberate on the possible add-on services to be provided by the Pilot Platform.
Thank you