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Enhancing Post-Trade Infrastructure in Asian Bond Markets

Explore the Pan-Asian CSD Alliance's strategies to improve post-trade infrastructure with a Common Platform Model for efficient asset servicing and market harmonization.

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Enhancing Post-Trade Infrastructure in Asian Bond Markets

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  1. The Asian Banker Summit 2011 The future of post-trade infrastructure in Asian bond markets The Pan-Asian CSD Alliance Esmond Lee Hong Kong Monetary Authority 7 April 2011

  2. Asian CSDs share similar disadvantages… • Less than efficient cross-border activities • Less than efficient asset servicing • Fragmented markets • Multiple access points • Varied market practices

  3. 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

  4. 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 thanCSDs, that has the right and the capacity to offer settlement and asset servicing on foreign securities to local financial institutions.

  5. Common Platform Model New functions provided by the Common Platform

  6. Common Platform Model • 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……

  7. Pilot Platform New functions provided by the Pilot Platform

  8. Pilot Platform functionalities and benefits

  9. Evolution towards the Common Platform Model PILOT PLATFORM Common Developments IMPROVEMENTS TO THE PILOT PLATFORM Local developments Harmonisation Gradual removal of barriers • Pilot Platform can leverage local developments ahead of common systems • Improvements to the Pilot Platform should lead to common developments 8

  10. 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

  11. Way forward • 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.

  12. Notice of corporate actions (proprietary channels and formats) A/c positions Asian CSD members Paying Agents Asian CSD (acting on behalf of bond holders) (acting on behalf of bond issuers) Request for a/c positions Instructions (e.g. for voting or exercising option etc) (proprietary channels and formats) Settlement instructions arising from corporate actions 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

  13. Potential add-on services to the Pilot Platform • 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 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.

  14. Thank you

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