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GFMA SMARTBRIEF

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How ASIFMA Has Advanced Asia’s Capital Markets

ASIFMA plays a key role in the development of the region’s financial markets.
Recent successes include:

China

Opening of China interbank bond market (CIBM)

  • Advocated for the opening up of the CIBM to foreign investors, which resulted in the launch of CIBM Direct access in 2016 and Bond Connect in 2017.
  • Convinced PBOC of the importance of allowing foreign investors in the CIBM to hedge FX risk onshore, which they have been allowed to do since February 2017 and was extended to R/QFIIs in June 2018.
  • Advocated for full implementation of DvP settlement of all bond transactions executed under Bond Connect, which was achieved in August 2018.
  • Succeeded in getting block trading introduced on the Bond Connect trading platform in August 2018.
  • Convinced SAT, PBOC and MOF to temporarily exempt withholding tax on coupon interest derived by foreign institutional investors and VAT for a period of three years from 7 November 2018.
  • Secured the introduction of repos under Bond Connect, which was announced in October 2018.

Mainland-Hong Kong Stock Connect

  • Collaborated with MSCI on market advocacy to highlight areas of improvement for further A-shares weighting increases in the MSCI EM Index. It was announced that weighting would be quadrupled to 20% from 5% in 3 tranches on 28 February 2019.
  • Persuaded SSE and SZSE to refine their trading suspension policies
  • Advocated successfully for the Stock Connect Northbound Investor ID to be at either the fund manager or fund level and for the use of the Legal Entity Identifier (LEI) for institutional or corporate clients.
  • Convinced SSE and SZSE to end their practices of ‘window guidance’ as a way of regulating the market in November 2018.
  • Succeeded in getting the Northbound Trading daily quota increased from RMB 13 billion to RMB 52 billion in time for MSCI A share inclusion in May 2018.
  • Successfully coordinated with HKMA and HKEX to ensure sufficient CNH liquidity provisions were in place on MSCI rebalancing dates.
  • Convinced HKEX of the importance of real time DvP which was finally introduced in November 2017.
  • Succeeded in getting exemption from PRC capital gains tax for share transactions under Stock Connect as well as under QFII/RQFII from the launch of Stock Connect.
  • Persuaded HKEX to agree on a rebate of settlement instruction charges for pre-delivery of shares under the Stock Connect if those shares were not sold.
  • Convinced SSE to follow the SZSE model for closing auction mechanism and subsequently add a second day of production testing prior to go-live.

R/QFII

  • Successfully lobbied for the removal in June 2018 of the 20% monthly repatriation cap for QFIIs and the 3-month lock up period for both QFIIs and RQFIIs.
  • Convinced CSRC to allow R/QFIIs to conduct FX derivatives transactions onshore for hedging purposes.
  • Successfully influenced CSDC away from mandating the Broker Settlement Model for new investors in Q2 2019.

  Operating in China

  • Successfully advocated for wholly foreign-owned private fund management companies (PFM WFOEs) to be allowed to provide investment advisory services to third parties starting from April 2019.
  • Convinced CSRC to allow PFM WFOEs to invest through southbound Stock Connect and to convert directly into an FMC without having to set up new FMC.
  • Persuaded CSRC to allow foreign shareholders to apply one control one participation policy to foreign owned asset and/or fund management entities.

Hong Kong

  • Persuaded HKEX to expand the Closing Auction Session to cover all equities and funds by October 2019.
  • Successfully assist HK Listed Structured Products Issuers with the negotiation and redesign of key product parameters, facilitating the launch of Inline Warrants in July 2019.
  • Persuaded HKEX to allow for a broader set of entitlement ratios for warrants/CBBCs and to no longer require the hard copy submission of Launch Announcements/Supplemental Listing Documents in March 2019.
  • Persuaded Hong Kong Monetary Authority (HKMA) to delay the implementation of the Interest Rate Risk in the Banking Book (IRRBB) by one year to 1 January 2019.
  • Convinced HKMA to exempt AI’s incorporated outside Hong Kong from the new local IRRBB framework.
  • Successfully advocated for the exclusion of foreign branches from any internal and external loss-absorbing capacity (LAC) requirements, adoption of a staggered approach for LAC issuance and to allow an AI’s holdings of other LAC liabilities issued by another resolution group within the same banking group (except for reciprocal cross-holdings) to be deducted from the AI’s other LAC resources.
  • Convinced SFC that temporary surges in an authorized fund’s derivative exposure above 50% of its NAV will not automatically make the fund a derivatives fund.
  • Succeeded in securing a three-month extension from the SFC of the effective date of the Implementation of the Guidelines on Online Distribution and Advisory Platforms and Offline Requirements for Complex Products from 6 April to 6 July 2019.
  • Persuaded HKMA to delay the implementation of Distribution of Debt Instruments with Loss Absorption Features and Related Products from 6 April to 6 July 2019, and further to 6 September 2019 and to 31 December 2019 for in-scope collective investment scheme.
  • Convinced HKMA to grant exemptions for PIs and exempt RIs dealing with Institutional PIs and Corporate PIs from the enhanced investor protection measures in the circular Distribution of Debt Instruments with Loss Absorption Features and Related Products.
  • Convinced SFC to require disclosure of trailer fees by distributors rather than fund managers in 2017.
  • Convinced HKMA in 2016 to exempt FX securities conversion transactions from the margin requirements in Hong Kong.

Singapore:

  • Successfully lobbied SGX to delay the implementation of its Post-Trade System Phase 2 system from its original target implementation date of September 2017 to November 2017.
  • Persuaded SGX to cap the sub-account maintenance fees at SGD 50,000 per account per year instead of a fee based on AUM.
  • Successfully persuaded SGX to delay the implementation of PTS2 from 3 December to 10 December, given its proximity to the November MSCI rebalance day. PTS2 has since been implemented smoothly.
  • Recommended SGX to introduce the ability to Trade at Close (TAC) on 3 June 2019 without impacting current trading hours. TAC will provision for 10-minute continuous trading session post-regular market hours.

South Korea

  • Convinced the Korean Ministry of Strategy and Finance in January 2018 to retract their proposal to reduce the shareholding ownership threshold at which capital gains tax will be triggered for foreign investors from 25% to 5%.

India

  • Persuaded SEBI in August 2018 to extend the deadline to comply with the new KYC requirements for Foreign Portfolio Investors (FPIs) and drop most of the investment and control restrictions on non-resident Indians and OCI card holders.
  • Successfully advocated against SEBI’s proposal in 2018 to move from the current post-trade to a pre-trade allocation model for cash equities.
  • Successfully advocated for the interoperability among clearing corporations (CCPs) which means trades can be cleared at any CCP, irrespective of the stock exchange on which the trade is executed.
  • Convinced the Indian government in 2017 to dis-apply its indirect transfer tax on FPIs and withdraw in 2016 its highly controversial Minimum Alternate Tax on foreign investors with no place of business in India.
  • Persuaded SEBI to exempt appropriately regulated public retail funds from clubbing of investment limits based on common control.
  • Convinced SEBI to remove the 20% single corporate exposure limit for investments by FPIs in corporate debt.
  • Convinced RBI to exclude OTC Derivatives exposures from the scope of the Large Exposure Framework until 1 April 2020.

Malaysia

  • Persuaded the Malaysian authorities to drop their proposed new reporting requirements for foreign ultimate beneficial owners (UBOs) which were very onerous.
  • Succeeded in delaying Bank Negara Malaysia’s implementation of segregated account trading of Malaysian bonds from September 2018 to April 2019.
  • Successfully collaborated with Bursa Malaysia on the Implementation of T+2 including; Postponement of the go-live date of T+2 implementation; Postponement of the T+2 batch processing cut-off time from 11am to 11:30am; Reinstating the Manual Buy-In Process for T+2.

Other

  • Successfully advocated for a two-year extension of the EU BMR for third-country benchmarks until 31 Dec 2021 as part of the Low Carbon benchmarks trilogue.
  • Convinced FSB and IOSCO, together with GFMA, to take steps to ensure fragmentation issues continue to be addressed.

(As of 24 July 2019)