ASIFMA - 04 - 10 DeC 2013 | Issue 183

04 - 10 DeC 2013 | Issue 183 Spotlight China opens key economic meeting to plan for 2014 China's Central Economic Work Conference opened on Tuesday to review the country's economic work in 2013 and map out economic plans for 2014. This year's meeting comes about one month after the the Communist Party of China Central Committee unveiled a landmark plan to comprehensively deepen reforms. The meeting is expected to put forward overall requirements and major tasks for economic work in 2014. (Global Times) China Issues Rules to Pave Way for Deposit-Certificate Trading China issued rules for trading of certificates of deposit on the interbank market, a step toward loosening control over interest rates as the government pares its role in the world’s second-largest economy. Markets will determine the certificates’ interest rates and prices, according to a Web posting today by the People’s Bank of China in Beijing. The rules, effective tomorrow, set the CDs’ minimum size at 50 million yuan ($8.2 million), with the Shanghai Interbank Offered Rate as a reference for pricing. The PBOC said issuers must meet other requirements, without elaborating. (Bloomberg) Regulators Seek Pro-Business Recipe for Asset-Backed Bond Market Global regulators are seeking to coax institutional investors, from insurers to pension funds, back into the market for asset-backed bonds to boost non-bank funding for businesses. “The focus of reviving these markets should be to build a sustainable non-bank investor base, and to avoid a system where you are just recycling the credit among banks,” Greg Medcraft, chairman of the International Organization of Securities Commissions, or Iosco, said in a phone interview. (Bloomberg) Update CHINA PBC promulgates and implements the “Administrative Rules on Credit Agencies” | (Chinese only) The “Rules” make improvement on entry requirements and exit procedure of individual credit agencies, and specifically solve the transitional issue between database processing and exit procedure of credit agencies. In terms of regulatory measures, the “Rules” establish a differentiated regulatory system based on specification of reporting requirements on credit agencies. It provides that should credit agencies fall under such circumstances as in serious violation of laws and regulations, possible information divulging, with financial status being fishy, suffering severe losses, or being complained a lot, PBC may have them listed as key targets to be regulated. In addition, the “Rules” also details qualification management requirements for senior management of individual credit agencies. China Issues Financial Reform Guidelines to Boost Shanghai Free Trade Zone The People’s Bank of China (PBOC) released the “Opinions on Leveraging the Role of Finance in Supporting the Construction of China (Shanghai) Free Trade Zone (hereinafter referred to as ‘Opinions’)” on December 2, which puts forward the detailed financial reform guidelines to support the Shanghai Free Trade Zone. (China Briefing) CSRC issues the “Opinions on Further Promoting Reform of IPO Regime” | (Chinese only) The “Opinions" is an important step for China to gradually move from an approval-based approach to a registration mechanism for IPO applications. The "Opinions" highlights a regulation philosophy, which focus on information disclosure. The examination focus of regulatory authorities is to review whether the IPO applications are compliant, leaving the value of the companies and related risks to the independent judgment of investors and the market. The “Opinions" clearly defines the responsibilities of securities service agencies such as issuers and sponsor institutions, accounting firms, law firms and asset appraisers, as well as personnel in these institutions as independent entities during the issuance process. For cases where issuers are in major violation of information disclosure, thereby incurring losses to investors, the issuer and the relevant intermediary agencies must compensate investors according to law. The integrity record and business practices of the intermediary agencies shall be publicized in accordance with provisions. CSRC publishes the "Interim Provisions for Companies’ Shareholders to Issue Shares upon IPO” | (Chinese only) CSRC formulated and published the “Interim Provisions for Companies’ Shareholders to Issue Shares upon IPO” (“Provisions”), which is an important supporting measure in this round of IPO reform. The “Provisions” specifies that senior shareholders who hold shares for as long as 36 months may offer old shares to the public in accordance with the principle of equal consultation at the public offering of new shares, increasing the number of tradable shares of the newly listed companies. The transfer of the old shares, as part of initial public offering, should comply with the provisions in the “Administrative Measures on the Offering and Underwriting of Securities" for their offering and underwriting. Foreign investors given greater access to China's derivatives market Financial regulators are contemplating the changes to make China's derivatives market more attractive to foreign investors, as part of the development plan for the capital market. China will actively and steadily ease access to the derivatives market and allow overseas institutions to hold stakes in Chinese companies, Jiang Yang, vice chair of the China Securities Regulatory Commission, was quoted as saying on Tuesday in Shenzhen, by the China Securities Journal. (Xinhau) GDP growth could hit 7.8% next year The best scenario for the Chinese economy in 2014 would be to achieve 7.8 percent GDP growth, a major think tank said on Monday. That could be obtained if all the recently proposed reform initiatives are carried out and the global market shows a more robust recovery, said the National Academy of Economic Strategy under the Chinese Academy of Social Sciences. (China Daily) HONG KONG Hong Kong and China reach guiding principles on mutual recognition Hong Kong’s Securities & Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) are in the final stretch of defining the details of a mutual recognition platform between Hong Kong and China, according to Alexa Lam, deputy chief executive officer, executive director – investment products, international & China at the SFC. (Asia Asset) First Meeting of the Hong Kong – Malaysia Private Sector Dialogue on Offshore Renminbi Business This Dialogue was established following the agreement by the Hong Kong Monetary Authority (HKMA) and Bank Negara Malaysia (BNM) in August 2013 to strengthen the collaboration between Hong Kong and Malaysia in the area of renminbi (RMB) business. It was attended by senior representatives from 10 Hong Kong and Malaysian banks. HKMA and BNM officials facilitated the discussions during the meeting. SFC issues circular in relation to reporting of OTC derivatives transactions The Securities and Futures Commission (SFC) has issued a circular to licensed corporations in relation to the reporting of over-the-counter (OTC) derivatives transactions to the Hong Kong Trade Repository (HKTR). The circular is intended to inform licensed corporations that the HKMA has further updated its administration and interface development guide (AIDG) containing the technical specifications for reporting of OTC derivatives transactions to the HKTR. SFC publishes annual review of SEHK’s performance in regulating listing matters The Securities and Futures Commission (SFC) has published its report on the annual review of the performance of the Stock Exchange of Hong Kong Limited (SEHK) in its regulation of listing matters during 2012. The report reviews the operational procedures and decision-making processes adopted by the SEHK's Listing Division in 2012, to assess whether they are adequate to enable the SEHK to meet its statutory obligation under the Securities and Futures Ordinance (SFO). HKEx and SGX cooperate on RMB internationalisation and connectivity Hong Kong Exchanges and Clearing Limited (HKEx) and the Singapore Exchange (SGX) have signed a memorandum of understanding (MOU) to cooperate in several areas of common interest, which include: Promoting the internationalisation of the Renminbi (RMB) by exploring joint product development; Enhancing connectivity through points of presence in each other’s data centres; and Collaborating on technology development and regulatory issues. SINGAPORE MAS sets out arrangements relating to RMB facility The Monetary Authority of Singapore (MAS) has set out on its website the arrangements relating to the Renminbi (RMB) Facility under its central bank operations and liquidity management functions. The MAS RMB Facility is a foreign currency lending facility that allows eligible counterparties to borrow RMB funds, obtained through the People's Bank of China (PBC)-MAS bilateral currency swap arrangement, for approved uses on a term basis. It is intended to promote bilateral trade with and direct investment into China and enhance financial stability in the offshore RMB market in Singapore. INDIA RBI to announce separate category ‘Too big to fail’ bank norms to avoid 2008 crisis replay The Reserve Bank of India will soon announce a separate category of 'too big to fail' banks which will have to set aside more capital to cover risks and be subject to more intense regulations by the banking regulator. The central bank said in its draft guidelines on Monday that the criteria for dealing with the systematically important, or the so-called too big to fail, banks (SIB) will include several indicators such as size and interconnectedness. (Economic Times) All OTC trades to be reported to clearing body: RBI All over-the-counter transactions by banks in currency swaps and interest rate derivatives will have to be reported to the Clearing Corporation of India Ltd (CCIL) effective December 30, the Reserve Bank of India (RBI) said on Wednesday. The RBI had advised banks in March 2012 to report all or some of the trades in the OTC segment to the CCIL, subject to a mutually agreed confidentiality protocol. (Reuters) Foreign bankers line up to meet Rajan after subsidiary promise Top executives of foreign banks are making a beeline for appointments with Reserve Bank of India (RBI) Governor Raghuram Rajan. The agenda, among other things, is to discuss the subsidiarisation of foreign banks in India, say people familiar with the development. Following the central bank announcing the final norms on wholly-owned subsidiaries (WOS) of foreign banks last month, the reciprocity clause in the norms is seen as a barrier to allowing foreign lenders unfettered branch access. This is because the US and several countries in Europe have a conservative approach towards foreign banks. (Business Standard) Finance Ministry to track progress of cleared projects, settle funding problems In a new initiative to turn the investment cycle, the finance ministry will soon start tracking projects cleared by the PM's project monitoring group (PMG) and the Cabinet Committee on Investment (CCI) to ensure they are duly implemented. The attempt will be to resolve funding problems between companies and lenders and ensure the investments start. (Financial Express) India allows unlisted firms to directly raise funds abroad The government today modified FDI policy allowing unlisted companies to directly list on stock exchanges abroad to raise funds for acquisitions or retiring overseas debts, a move which may help India in containing high current account deficit. As of now, unlisted companies are not allowed to directly list in overseas markets without prior or subsequent listing in Indian markets. Necessary changes have been made in the 'Consolidated FDI Policy' in this regard.(Business Standard) Interest rate futures to help bond investors hedge risks RBI has launched cash-settled interest rate futures (IRF) contracts for investors to help them hedge interest rate risks while investing in government bonds. The central bank has allowed IRF contracts in 91-day Treasury bills and other government bonds. The contract size will be R2,00,000 and will represent 2,000 underlying government bonds, said the Sebi in a separate notification. The tenure of the IRF shall be a maximum of three months.(Financial Express) NEW ZEALAND New laws create stronger regulations for covered bonds and non-bank deposit takers Parliament has passed one law to strengthen the regulatory regime for non-bank deposit takers and another to regulate covered bonds issued by banks. Reserve Bank committed to effective communication The Reserve Bank is deeply committed to transparency and sees clear communication as vital to making its actions more effective, Deputy Governor Geoff Bascand said today. INDONESIA Indonesia Focuses on Improving Investment Climate In Indonesia, securing long-term investment remains a high priority following a summer of sudden capital outflows. “We need to implement breakthroughs to improve our investment climate,” said Perry Warjiyo, Deputy Governor of Bank Indonesia, the country’s central bank. “That’s the key to attracting foreign direct investment.” (Asean Briefing) INTERNATIONAL WTO Deal Shows Hurdles to Global Trade Pacts Efforts to liberalize global trade inched forward over the weekend, but the limited progress showed the difficulties of broadly reducing trade barriers for all nations and the rising appeal of smaller regional pacts. Negotiators at the World Trade Organization meeting in Bali, Indonesia, agreed to a scaled-back package aimed primarily at streamlining customs procedures world-wide, a modest breakthrough in the trade discussions that began in 2001 in Doha, Qatar. The agreement could add billions of dollars to the $65 trillion global economy by making it easier for goods to pass through customs. (WSJ) After WTO, Expectations Grow for Trans-Pacific Trade Deal Expectations are growing that an ambitious trade pact between a dozen nations around the Pacific Rim may be wrapped up in 2-3 months, with signs that political desire for a deal is trumping a string of technical difficulties in drawing it up. Just days after the first World Trade Organization trade reform deal was pushed through on Saturday, trade ministers from 12 countries are in closed-door talks in a Singapore hotel to try to tie up the Trans-Pacific Partnership. (Reuters) Watchdog Warns of Chaos in Competing Derivatives Rules Failure to thrash out a common supervision of the $640 trillion global financial derivatives industry will split markets and bump up costs for end users, a top regulator said on Monday. Banks who trade interest rate swaps, credit default swaps and other derivatives are looking to the United States and the European Union to harmonize their approach to new rules aimed at making markets more transparent. Banks worry that rule clashes and overlaps will create legal uncertainties and extra compliance costs. David Wright, secretary general of the International Organization of Securities Commissions (IOSCO), an umbrella group for regulators from across the world, warned it was a "recipe for chaos" that could get messy and anti-competitive. (Reuters) Volcker Rule Sets New Hurdles for Banks Regulators are set to usher in a new era of tough banking oversight on Tuesday that drills to the core of Wall Street's profitable markets and trading businesses, according to a draft of the rule reviewed by The Wall Street Journal. The so-called Volcker rule will put in place new hurdles for banks that buy and sell securities on behalf of clients, known as market making, and will restrict compensation arrangements that encourage risky trading, according to the draft. (WSJ) U.S. urges Asia, Europe to hurry on new tough bank rules The United States urged Europe and Asia to match its efforts to make the financial industry safer, saying on Thursday it likely had done enough to ensure taxpayers will not have to bail out banks again in future crises. Treasury Secretary Jack Lew vowed to keep any new free trade deal from weakening U.S. financial regulations, saying other nations had been moving "far more slowly" than America in the area of derivatives reform. (Reuters) The OTC interest rate derivatives market in 2013 Low and stable interest rates after the financial crisis went hand in hand with low but still positive turnover growth in most currencies. The increase was entirely driven by a larger volume of contracts with financial institutions other than dealers. The share of inter-dealer trades has shrunk to 35%, the lowest since the survey's inception. Despite rapid growth in emerging market currencies, trading remains concentrated in major currencies and financial centres. Changes in regulation have led to more contracts being centrally cleared. Key Indicators for Asia and the Pacific 2013 The 44th edition of this series, includes the latest available economic, financial, social, and environmental indicators for the 48 regional members of the Asian Development Bank (ADB). This publication aims to present the latest key statistics on development issues concerning the economies of Asia and the Pacific to a wide audience, including policy makers, development practitioners, government officials, researchers, students, and the general public. UNITED STATES CFTC sued by trade groups over swaps rules The Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association and the Institute of International Bankers accused the CFTC of “unlawfully circumventing” procedures, failing to conduct legally required cost benefit analysis and imposing rules that are contrary to international co-operation. Lew Says Volcker Rule to Prevent Repeat of London Whale Bets Treasury Secretary Jacob J. Lew said the Volcker rule banning banks’ proprietary trading that regulators plan to vote on next week will prohibit transactions such as JPMorgan Chase & Co.’s so-called London Whale and put more responsibility on top Wall Street executives. (Bloomberg) Regulator O’Malia Cites ‘Insanity’ in U.S. Overseas Swaps Policy A Commodity Futures Trading Commission policy extending the Dodd-Frank Act’s reach to more overseas swap-trades raises “problematic” legal issues, one of the agency’s commissioners said. Scott O’Malia, a Republican, criticized recent staff opinions on the agency’s oversight of foreign derivatives deals as “regulatory insanity.” (Bloomberg) EUROPE Deadlock on ECB’s Bank-Crisis Plan in Focus of EU Meeting European Union finance ministers will try to break a deadlock tomorrow on a euro-area bank-failure authority that the European Central Bank says is vital to the bloc’s efforts to prevent future financial crises. The ECB begins to supervise euro-area banks next November, and wants a “strong and independent” resolution authority with a central fund to cover the cost of saving or shuttering lenders. That puts it at odds with German Finance Minister Wolfgang Schaeuble, who prefers a network of national regulators and has led opposition to EU financial-services chief Michel Barnier’s proposed Single Resolution Mechanism. (Bloomberg) Dijsselbloem Seeks EU Bank-Failure Breakthrough by Dividing Plan A European Union proposal for handling bank failures should be “split up,” putting a decision on a contentious cleanup fund on a separate track, Dutch Finance Minister Jeroen Dijsselbloem said. The Dutchman’s plan may give EU finance ministers a way to break a deadlock on the Single Resolution Mechanism proposed by Michel Barnier, the bloc’s financial-services chief, when they meet in Brussels on Dec. 10. (Business week) ECB underlines readiness to take further action if necessary The European Central Bank remains prepared to take various policy options to support the euro zone economy, President Mario Draghi said on Thursday. "We are ready to consider all available instruments," Draghi said at a news conference after the ECB kept its interest rates unchanged. (Reuters) EBA publishes follow-up review of banks transparency in their 2012 reports The European Banking Authority (EBA) has published a follow-up review aimed at assessing the disclosures made by 19 European institutions in response to the Basel Pillar 3 requirements, as set out in the EU Capital Requirements Directive (CRD). Overall, credit institutions' compliance with disclosure requirements remains unchanged compared to the assessment of 2012 where no bank had fully met all the requirements. The report also highlights that comparability and consistency of disclosures between the different institutions could be improved. EU executive document says transaction tax plan legal The proposed tax on financial transactions in 11 European Union countries complies with EU and international laws, the bloc's executive said, hoping to revive the flagging project. The tax on stock, bond and derivatives trades has been proposed as a way of raising about 35 billion euros a year from banks starting in 2014 to claw back the taxpayer aid they received in the financial crisis. (Reuters) Experts urge more action on ETFs after Autumn Statement move The government will have to take further action to improve the environment for exchange traded funds (ETFs) if it is serious about making the UK a hub for the products, experts have claimed. Chancellor George Osborne announced as part of his Autumn Statement last week that stamp duty would be abolished for investors purchasing ETFs. (FT)