Promoting market development

The Asia Securities Industry & Financial Markets Association outlines the key findings of its most recent market research and looks at the progress made in key areas from KYC/AML and sustainability to the potential implications of the EU Benchmarks Regulation’s third-country regime.

The Asia Securities Industry & Financial Markets Association (ASIFMA) 2022-23 Asia-Pacific capital markets survey indicated a continued optimistic perception of APAC markets, reflected in the fact that a majority of participants intended to expand their business presence in the region.

The ease of operating in APAC capital markets has largely been stable. However, exceptions were noted, including Hong Kong - where participants viewed the regulatory environment as improving and easier to operate but viewed the operating environment as challenging - and mainland China, which was seen as having a more challenging operating and regulatory environment.

Singapore, Australia and Japan markets scored the highest across the three factors (market

We are now launching the 2023 repo survey that we are planning to leverage to promote the opening of the domestic repo markets by incorporating sets of onshore data from some of the key regional markets

Philippe Dirckx, managing director and head of fixed income, ASIFMA

development, regulatory and operating environments), with participants citing workforce skills as the key attraction under operating environment, trading and exchange infrastructure under market development, and predictable and transparent regulatory policy under regulatory environment.

Mainland China and Singapore were identified as the most prominent target markets for expansion, mainly due to the former’s growing customer and wealth base and the latter’s political environment and predictable and transparent regulatory policy.

Participants ranked international financial centres (Hong Kong, Singapore) and mature markets such as Australia and Japan as the leading markets to conduct sustainable finance business.

Repo survey

Also in December 2022, the latest survey of the Asia-Pacific repo market was published. In broad terms, across the APAC nonJapan region the survey reported $310.9bn (£246bn) in outstanding value and an average daily turnover of $3bn, compared with $242.4bn and almost $33bn per day in 2021.Average deal size was around $47mn, compared with $56mn in the last survey.

The survey revealed that the bulk of business in the non-Japan repo market share of reported repos was still executed directly between parties by telephone and electronic messaging. However, voice brokers and, to a lesser extent, automatic electronic trading systems, increased their share. There was also a recovery in the share of CCP-clearing.

There was a distinct change in the geographical nature of business, with a decline in cross-border business between APAC and Europe relative to cross-border business within APAC. This theme was also

John Ball, managing director - global FX division Asia Pacific, GFMA

reflected in major shifts in shares away from transactions with counterparties in Europe, the US and major Asian markets in favour of ‘other APAC’ and Australian counterparties.

European securities and US Treasuries also lost ground in favour of Japanese securities and international bonds. Overall, government securities became the largest class of collateral.

Philippe Dirckx, managing director and head of fixed income says the association was encouraged by the findings of the repo market survey. “It provided the picture of a healthy market with a growing number of participants,” he adds. “We are now launching the 2023 survey that we are planning to leverage to promote the opening of the domestic repo markets by incorporating sets of onshore data from some of the key regional markets.”

KYC/AML update

ASIFMA decided to update its best practices for KYC/AML earlier this year. Laurence Van der Loo, executive director and head of technology and operations explains that this was done to make sure the best practices remained up to date and fit for purpose. “The updates reflect and take into account the changes made to the KYC/AML guidelines applicable to Hong Kong and Singapore since 2017 as well as recent market practices such as remote onboarding,” she says.

ASIFMA’s key objective in terms of improving the sustainability of securities lending in the region is to create interoperability between systems, definitions and reporting standards, including disclosure (TFCD and/or ISSB standards adoption by listed companies); taxonomies - common definitions on what is green, in transition or sustainability linked; and development of carbon markets with similar and potentially interoperable characteristics.

“Ultimately this will help avoid market fragmentation, which would increase costs and obstruct financial flows across the region,” says Diana Parusheva-Lowery, executive director and head of public policy and sustainable finance.

BMR submission

In August 2022, ASIFMA responded to the European Commission’s consultation seeking feedback on further potential improvements to the functioning of the EU Benchmarks Regulation, specifically as regards the rules applicable to third country benchmarks and the impact on market participants of the full entry into application of the third country regime as of January 2024.

“We advocated to limit the scope of the regulation to only apply to third country benchmarks deemed ‘strategic’ and that ‘non-significant’ EU and equivalent third country benchmarks be excluded given that they are unlikely to have an impact on the market integrity or stability of the EU or individual member states,” explains John Ball, managing director - global FX division Asia Pacific, GFMA.

Five trade associations - ASIFMA, GFMA, ISDA, FIA and EMTA - published a briefing paper titled ‘The Importance of Reforming the EU Benchmarks Regulation’, updating an earlier version issued in June 2020.

“In March 2023, we responded to the call for evidence issued by the EC on ensuring continued access to benchmarks worldwide for EU businesses and investors and on the application of the supervisory rules applying to EU Paris-aligned benchmarks and EU climate transition benchmarks to ensure non-EU administrators using these labels are subject to EU supervision,” says Ball.