SIBOS in Osaka, November 1 – Despite its fragmented market, Asia aims
for harmonization and standardization of its bond markets via a slower but a
more open consensus approach.
The ASEAN+3 bond Market Forum
(ABMF), which comprises both policymakers and market participants, is engaging
policy-makers early and pursuing harmonization of regional markets incrementally.
This approach differs from the European experience when its banks tried to remove Giovannini’s 15
barriers to European clearing and settlement and faced a more intractable
barrier in public-sector reluctance to legislate.
The ABMF set up one sub-forum to
collect market information on issuance and transactions, and a second to
identify transaction flows with a view to increasing STP in the region. Next
will come a standard issuance document set, and expansion of the first
sub-forum’s scope to include payment and redemption procedures for government
and corporate bonds.
Yet the forum’s expected outcomes
remain relatively modest. “We’re starting with the easier issues first, then
we’ll take the next ones in sequence. We’re limiting the scope to small areas
for harmonization,” said Jason Lee, adviser to the office of regional economic
integration at the Asian Development bank.
“Unlike Europe, Asia has no
formal institution to lead harmonization. The bottom-up approach could make the
process slower than in Europe but it will be safer in terms of actual
implementation. A bottom-up approach is more comfortable for this region,” Lee
says.
Progress is slow not only because
it is being built by consensus but also because Asia is a significantly more
fragmented market. Asian markets didn’t start with a treaty, pointed out Mike
Tagai, managing director and industry issues executive for
Asia at J.P. Morgan.
“European countries are almost
standardized already. Here in Asia we have to start from scratch,” agreed Yuji
Sato, co-chair of the ABMF’s second sub-forum at JASDEC.
If harmonization results in
reduced over- all costs – possibly including lower custodian bank fees – it
will be the result of higher volumes. But the primary concern is to create a
more active bond market, said Sato, with increased harmonization and
standardization in the secondary market. In the process, connecting each market
gateway to ISO standards will enhance STP flows for cross-border transactions.
Asked about future targets for harmonization,
Lee described the obvious con- tenders – tax and FX controls – as “not
practical”. He pointed instead to measures aimed at enhancing liquidity in the
region, including how to increase use of collateral, improve the regional
settlement infrastructure and decide whether it makes sense to connect CSDs.
Given Douglas’s advice to
disengage politics from business, Lee reminded the audience that its priorities
would be based on guidance from ASEAN+3 governments concerned not only with
market inefficiencies but with the macro impact of regional transaction flows.
For both governments and
industry, one of the lessons from the European process is that it will take
time and perseverance.
“It feels strange to provide
advice from Europe when Europe is such a mess,” said Douglas. In Asia, as in Europe – where T2s will
address some of the barriers Giovannini originally identified – the process
will reflect the grief cycle: denial, through acceptance, to willingness to
move forward.
“When the issues are first
raised, everyone says that solving them will be too difficult. After a couple
of years, you start to get progress,” he said. “It will eventually get to a
stage where the market will accept it and move forward.”
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