A group of seven ASEAN stock exchanges The Singapore Exchange, Bursa Malaysia, Hanoi Stock Exchange, Ho Chi Minh Stock Exchange, Indonesia Stock Exchange, The Philippine Stock Exchange and The Stock Exchange of Thailand – recently created an ASEAN Trading Link in order to encourage market growth in a region with a combined market capitalization of $2.1 trillion. A new whitepaper from Deutsche Bank has expanded on follow-up plans for post-trade linking of clearing and settlement in the region. According to Lisa Robins, head of Global Transaction Banking, Asia Pacific, Deutsche Bank integration in the post-trade space will create opportunities for custodians in the region to develop new products and services to help clients adapt to the changes.
The model for integrating the post trade infrastructure in the ASEAN region is being discussed and worked on and the timings and costs are yet to be determined. The first goal will be having uniform standards and practices in order to streamline the way things are done, says Lisa Robins, head of Global Transaction Banking, Asia Pacific, Deutsche Bank.
Robins says the ASEAN integration is a unique opportunity to increase investment in the regions capital markets by streamlining processes and making the region a force with common standards and practices. There are six disparate regulatory bodies. Uniform standards and processes reduce the difficulties of transacting in multiple markets. Furthermore, adds Robins, by implementing a single settlement engine, the complexities of having six different settlement cycles in the post trade infrastructure will also be reduced.
Commenting further on lessons that can be learned from T2S, the harmonized settlement landscape in Europe, Robins notes similar discussions are happening in the ASEAN region, even without the presence of a single currency. There is a move towards improving asset and corporate action servicing and various options on settlement efficiencies are being discussed including a single settlement layer, despite the unique practices that exist in each country in the region,” she says.
While T2S raises questions about potential disintermediation among securities services providers, with global players being able to connect directly to the infrastructure and local providers having to differentiate through asset servicing and corporate actions, Robins says the move towards a harmonized settlement infrastructure in the ASEAN region as a gradual evolution and an opportunity for custodians in the region to provide new products and services to address the needs of clients and to help reduce their costs. If you want to stay relevant, you have to address the specific needs of your client base. We may change some products and services – the vessel may look different – but the core of who we are and what were about wont change.
There will be enough demand for products and services to avoid the disintermediation of service providers in the new ASEAN settlement landscape, adds Robins. For those with a strong core and the ability to adapt, these changes present opportunity. Our clients want to understand the new landscape and spot the specific opportunities. We’re in a great position to help them, she says.
It its white paper, Deutsche Bank noted that the clearing and settlement process is still executed in the securitys place of issuance. Infrastructure links existing between the ASEAN CSDs or CCPs has been raised as a future development following the exchange trading link, said the white paper. For the ASEAN community, the developments of the EUs interconnected post-trade environment provide insights into the inner workings and effects of such initiatives. ASEAN trade-to-post trade flows operate in an equally complex environment, but in a presently straightforward vertical manner within each national boundary. With the practices of domestic clearing and settlement, and also a key difference from the EU model, the linking of ASEAN CCPs and CSDs will instead need to incorporate the regional characteristics of having different currencies, laws and market practices.
Deutsche Bank noted that if a broker-dealer or its clearing agent is able to post one line of collateral for the trades into the different underlying markets, it can have meaningful cost benefits. Integration could be done by merging CCPs across markets to effectively create a pan-regional entity, allowing CCP interoperability or by expanding the eligibility criteria of participants and allowing CCPs to participate as clearing members for each other, said the white paper. This option would require substantial legal, regulatory and technological reforms, rules on fair level playing field as well as harmonization and standardization across the ASEAN countries. Therefore, having cross-CCP memberships could be seen as a more feasible way to link CCPs. In a cross-clearing membership model remote or otherwise each CCP would act as a clearing member for each other. To mitigate additional credit exposure, ASEAN CCPs may need to raise capital and post collateral to each other.
Like CCPs, said Deutsche Bank, CSDs have a variety of inter-operability methods for intra-region settlement. Similarly, they could merge into a single entity across the ASEAN region. Alternatively, they could develop a correspondent account relationship with an integrated centralized messaging hub, or through the outsourcing of settlement functions to a single entity.
In this former scenario, CSDs would open securities settlement accounts with each other. In a move that replicates a portion of what the current custodian /intermediary model performs, a home country CSD would keep records of securities held abroad by each of its participants, said the white paper.
With this model, securities settlement would remain in the market of issuance, however, the linked CSDs may undertake other asset servicing activities or the participating ASEAN locations may move to a central bank money clearing practice. How any of these scenarios would affect ASEAN CSDs, securities and cash settlement, as well as the levels of risk and transparency, would be an important consideration for all stakeholders.
(JDC)