10 - 17 December 2013 | Issue 184
Spotlight
China's key fiscal and monetary policy will be kept unchanged in 2014, signaling that the government will target internal structural reforms while maintaining stability and containing risks, analysts have said. A statement released on Friday after the country's four-day central economic work conference said China will continue to implement a proactive fiscal and prudent monetary policies in 2014, a combination that the country has held onto since 2011. (Global Times)
China is opening up its over-the-counter stock market to numerous small businesses, offering a fresh funding channel to the companies, which are seen as vital to employment and economic growth. The State Council, or cabinet, said in a statement Saturday that the primary over-the-counter market is being opened to "qualified" companies around the country. (WSJ)
ASIFMA has an exciting job opportunity available: Analyst - Equities Division to do research and analytical support related to ASIFMAs Equity Division activities and priorities, reporting to the Managing Director, Equities. The successful candidate will join a growing team in Hong Kong. BA degree or above is required, preferably in finance, economics, a related field. Knowledge of (and preferably 1-2 years experience in) the capital markets or relevant product areas.
Update
CHINA
PBoC publish interim measures on negotiable certificates of deposit | (Chinese only)
The People's Bank of China (PBoC) has issued Interim Administrative Measures on Negotiable Certificates of Deposit ('Measures') to regulate the interbank deposit business, expand financing channels and promote the development of the money market, in a step towards loosening control over interest rates. Eligible entities are authorised to issue and invest in the interbank negotiable certificates of deposit (NCDs) as of 9 December 2013. Amongst others, the following key aspects are worth noting:
China's securities regulators issued fresh details on their plans for the resumption of initial public offerings (IPOs) early next year, eliminating pricing and turnover controls for IPOs while detailing how investor participation will be managed. Beijing is moving to reinvigorate its stock markets to make them more responsive to market forces in order to help lessen Chinese firms' over dependence on bank loans for fundraising. (Reuters)
China Bank Regulator Issues Draft Rules on Factoring Business
China's banking regulator has released a draft of regulations that would tighten the monitoring of factoring by the nation's banks in a bid to limit rising risk. Factoring is when a company sells offers it receivables to a bank for short-term financing. It is popular with smaller companies, which often have difficulty obtaining traditional loans. Banks can profit by buying the receivables for less than what they eventually collect as payment. (WSJ)
China legislature drafting reforms on securities, futures
China is revising the country's securities law and writing a futures law, the legislature said on Tuesday, as the government moves to implement ambitious financial reform goals approved by top leaders last month. (Reuters)
Chinese authorities have turned over more audit documents to U.S. regulators regarding U.S.-traded Chinese companies, audit firms disclosed in legal filings, part of a sweeping U.S. probe of suspected instances of accounting fraud. (WSJ)
Bank of England Quarterly Bulletin: Bringing down the Great Wall? Global implications of capital account liberalisation in China and Banknotes, local currencies and central bank objectives
Chinas financial system is still very closed relative to other economies. But there are increasing signs the authorities are in favour of relaxing capital controls and promoting greater use of the Chinese currency abroad. While timescales are still uncertain, the Peoples Bank of China has indicated that full liberalisation could potentially occur over the next decade.
HONG KONG
HKMA issues revised supervisory policy manual on financial instrument fair value practices
The Hong Kong Monetary Authority has issued a revised version of the supervisory policy manual (SPM) 'CA-S-10 Financial Instrument Fair Value Practices' module as a guidance note. The revised module incorporates amendments relating to the full recognition, for regulatory purposes, of fair value gains arising from fair-valued financial instruments as a component of 'Common Equity Tier 1 capital' under Basel III.
The report summarises the key regulatory work of the SFC during the quarter including: The issuance of a joint policy statement with the Stock Exchange of Hong Kong Limited (SEHK) regarding the listing of overseas companies; The approval of amendments to the listing rules of the SEHK concerning the requirements of the new initial public offering sponsors regime; The publication of the supplemental consultation conclusions on the proposed over-the-counter (OTC) derivatives regime, jointly with the Hong Kong Monetary Authority (HKMA); and The release of the Guidelines on the Application of the Committee on Payment and Settlement Systems - (CPSS-IOSCO) Principles for Financial Market Infrastructures for recognised clearing houses.
SFC steps up oversight of corporate conduct
Chairman of the Securities and Futures Commission, Mr. Carlson Tong, delivered a speech at the 11th Anniversary Gala Dinner of the Chamber of Hong Kong Listed Companies and stated that the SFC will take a broader and more proactive approach in overseeing corporate conduct of listed companies, leading to more surveillance, analysis and enforcement work. According to Mr. Tong, this approach stems from market concerns over cases of serious corporate misconduct in listed companies and how it can be detected at an early stage to reduce damage to the market and the investing public.
SFC updates FAQs relating to licensing matters
The Securities and Futures Commission (SFC) has updated its frequently asked questions relating to licensing matters under 'other topics relating to the Securities and Futures Ordinance'.
Tougher international banking requirements should help the Hong Kong government achieve its goal of turning the city into an Islamic finance centre to capture a large slice of the US$1.3 trillion market. The Hong Kong and the British governments next year plan to issue sukuks, bonds structured according to the tenets of Islam. (SCMP)
SINGAPORE
Investor relations functions are becoming increasingly important among Singapore-listed firms but the resources put into it vary across companies of different sizes, according to a survey by the Investor Relations Professionals Association Singapore (IRPAS). Going forward, the association says it will push for better investor relation practices among businesses. Investor relations are in the spotlight amid growing competition for investors' attention. (Channel Newsasia)
INDIA
The government has given its go ahead to the proposed Draft Regulatory Reform Bill, 2013 which aims to make regulators across key infrastructure sectors accountable to the Parliament besides giving them power of licensing. “The Prime Minister's Office gave its go-ahead to the bill last week. The bill is now up for consultation with various stakeholders and once it is finalised it may be taken up in Parliament during the budget session," a senior official told ET. The bill aims to fill a lacuna since India does not have a law to monitor the functioning of a large number of regulatory authorities existing in the country. (Economic Times)
Reserve Bank Governor Raghuram Rajan today exhorted political parties not to postpone passage of key economic bills because it may become challenging to get them approved after the 2014 general elections. "A stable government post-elections cannot be taken for granted...It would be dangerous for parties to postpone necessary legislations with the idea of passing the legislation post-election. Post-election politics may become even more challenging for whoever assumes power," he said. Similarly, Rajan said delays in putting large, stalled projects back on track or an additional fiscal slippage would only amplify the challenges that the new government will face. (Business Standard)
The government has modified the existing foreign direct investment (FDI) policy, which now allows unlisted companies to raise capital abroad without the requirement of prior or subsequent listing in India initially for a period of two years. Prior to this, unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. (VC Circle)
Projecting economic recovery, Asian Development Bank (ADB) today said India is likely to record 4.7 per cent growth in current fiscal which will improve to 5.7 per cent next year. "After bottoming out in the first fiscal quarter, India's economy appears to have recovered on the back of a rebound in exports and higher industrial and agricultural outputs," Asian Development Bank (ADB) said in its Outlook Supplement report. (Financial Express)
Foreign banks have picked more holes in the guidelines on subsidiarisation of operations in the country: the requirement of guarantees from the parent and restriction on dividend payout. Banks have raised these issues a few days after the Reserve Bank of India (RBI) clarified that foreign banks planning to set up subsidiaries in the country will be exempted from paying capital gains and stamp duty. (Economic Times)
Former Reserve Bank of India governor Bimal Jalan, who heads the external committee set up to screen applications for new bank licences, said the panel won't rush the process as the institutions will be dealing with public money. "We will take a decision which is in our interest, public interest. RBI is doing intensive scrutiny of all the parameters as per the guidelines," he said. (Economic Times)
The foreign direct investment (FDI) flows received by India in the January-March 2013 period reflects a rebound in inflows, said a World Bank Group arm. This is a result of the new investment policies put in place for select sectors, such as telecoms and insurance. In its World Investment and Political Risk Report, the Multilateral Investment Guarantee Agency, said India is by far the largest recipient of FDI in South Asia, comprising India, Pakistan, Sri Lanka and Bangladesh, and changes in its flows influence the picture for the entire region. (Hindu Business Line)
Lower interest rates, increasing investor appetite for Indian papers and a strategy to diversify exposures into different currencies have prompted many Indian companies to make their debut in international bond market in 2013. Indian companies that ventured into the international bond market for the first time raised over $4.9 billion through bonds in 2013, more than three times of what they had raised in 2012, some $1.5 billion, according to Bloomberg data. (Live Mint)
When Franklin Templeton's India unit wanted to launch a mutual fund that would switch allocation among stocks, bonds, gold and money markets, the Indian regulator baulked, deeming it too risky for domestic investors, according to the company. The Securities and Exchange Board of India, or SEBI, is wielding an unprecedented level of control over how mutual funds operate, delaying new launches and dictating investment strategy, frustrated insiders in the embattled industry say. (Reuters)
JAPAN
Japanese business confidence has soared to its highest level in six years, according to the Bank of Japan's latest Tankan survey. The big manufacturers' index rose to plus-16 from plus-12 in September's survey, exceeding market forecasts. (BBC)
Prime Minister Shinzo Abe wants the Government Pension Investment Fund to take a bolder approach, especially with its stock investments, as he seeks to use all available measures to help power Japan's long-term growth. At the same time, with Japan's population rapidly aging, the fund needs to improve its performance as it struggles to make payouts to retirees without selling assets. (WSJ)
Real estate funds can be structured in various ways under Japanese law. However, under the Act, it has been difficult to use a bankruptcy remote special purpose company (SPCs) in the fund structure. The amended COO, together with the amended Act of June 2013, enables the creation of real estate funds involving bankruptcy remote SPCs. The MLIT anticipates that these new funds will attract investment from the private sector and promote redevelopment and renewal of brown field sites and existing buildings in Japan. The amended COO will take effect on 20 December 2013.
AUSTRALIA
Australia's conservative government forecast a 47 billion Australian dollar (US$42.3 billion) budget shortfall this fiscal year, in its first economic update since winning elections three months ago. The budget shortfall, equal to 3% of national output, widened by more than 50% on Treasury's pre-election projection of A$30.1 billion. (WSJ)
PHILIPPINES
Foreign banks operating in the country have been given until January 2015 to comply with new capital requirements under the Basel III, the Bangko Sentral ng Pilipinas (BSP) said. “The Monetary Board approved amendments to the capital framework of foreign bank branches (FBBs) operating in the Philippines,” BSP said. “The amendments will align the capital structure of FBBs with the implementation of the Basel III Accord while further strengthening the capacity of FBBs to absorb risks from their operations in the Philippines,” it added. (Philstar)
The Bangko Sentral ng Pilipinas decided yesterday to keep its key policy rates steady amid a manageable inflation environment. The BSP’s overnight borrowing and lending rates were maintained at 3.5 percent and 5.5 percent, respectively. Interest rates on special deposit accounts facility and the reserve requirement ratios were also left unchanged. “The Monetary Board’s decision is based on its assessment that the inflation environment remains manageable,” BSP Governor Amando M. Tetangco Jr. said in a briefing. (Philstar)
The Philippines has submitted its application to the European Union’s (EU) Generalized Scheme of Preferences Plus (GSP+), a scheme expected to allow the country to enjoy more tariff reductions for goods entering the bloc. Trade undersecretary Adrian Cristobal Jr., in a text message said yesterday the Department of Trade and Industry (DTI) has given its application to the EU. (Philstar)
MALAYSIA
The Kuala Lumpur-based Islamic Financial Services Board (IFSB) has published guidelines on capital adequacy for Islamic banks and risk management of takaful, or Islamic insurance, as the industry body expands its activity and membership base. Guidelines from the IFSB, one of the main standard-setting bodies for Islamic finance, are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries. (The Star)
Malaysia is on track to achieve a gross domestic product (GDP) growth of between 4.5% and 5% this year and between 5% and 5.5% in 2014 on improved external factors, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz. “Going forward in 2014, if the trend of the external factors continues to improve, as it has during the second half of this year, we expect the growth to (further) improve,” she told reporters. Zeti said domestic demand, which continued to register positive growth, had been growing in the region of 7% to 8%. (The Star)
INDONESIA
Member countries of the Greater Mekong Subregion (GMS) under a new Regional Investment Framework (RIF) have agreed to draft a collection of potential projects worth US$50 billion. “The next generation of projects can help boost cross border trade and investment and stimulate employment and growth,” Asian Development Bank (ADB) vice president Stephen Groff said in an official release Thursday. The ADB acts as Secretariat for the GMS Economic Cooperation Program. (The Nation)
Bank Indonesia (BI) delivered no surprises on Thursday by keeping its benchmark interest rate unchanged at 7.5 percent as the country’s macroeconomic indicators began to show positive signs. BI said its current monetary stance was consistent with ongoing efforts to tame inflationary pressures and manage the current-account deficit. The hawkish central bank, which had unexpectedly raised borrowing costs by 25 basis points last month, said the latest decision was taken after BI noticed a downward trend in inflation, as well as “evidence of further improvement in the balance of payments” in the fourth quarter. (Jakarta Post)
THAILAND
Thailand is at risk of being downgraded by international credit rating agencies as its political deadlock is difficult to resolve and could worsen if there is no government in place, says UBS. "It's true that politics features in the credit rating agencies' analysis, so if you have a period when there is no government and political dislocation, it is possible that they might make that judgement," said Edward Teather, a senior Asean economist at UBS. He said agencies will not jump to the conclusion of downgrading the country's credit rating immediately because there is a process of selecting a new government and getting government organisations back to work. (Bangkok Post)
The evolution of real property financing in Thailand from primarily bank loans to rigid property funds to the proposed real estate investment trusts (REITs) reflects the liberalisation of the Thai market, the need for alternative funding options, and the need for the country to maintain its regional competitiveness. The Capital Market Supervisory Board under the Securities and Exchange Commission (SEC) issued regulations last year governing the issuance and offering of REITs in Thailand. The regulations took effect on Jan 1 this year. (Bangkok Post)
MYANMAR
Japanese Prime Minister Shinzo Abe pledged ¥63 billion ($610 million) in fresh aid to Myanmar and backed the development of major industrial zones in the country, the latest effort by Tokyo to act as a counterbalance to China's influence in the Asian region. (WSJ)
INTERNATIONAL
IOSCOs report makes four recommendations that seek to promote market liquidity and efficiency, price transparency, and investors´ execution quality in a fragmented environment. The report identifies possible outstanding issues and risks posed by existing or developing market structures and it describes how these risks should be addressed. Finally, it recommends that regulators monitor the impact of fragmentation on market quality.
IOSCOS report on Trading Fee Models and their Impact on Trading Behaviour provides a comprehensive overview of trading fees and trading fee models around the globe and how they influence trading behaviour. In recent years, securities regulators in many jurisdictions have introduced regulatory frameworks that foster competition among trading venues. Advances in technology also have played a critical role in enhancing competition among trading venues by reducing the cost of establishing new trading venues & providing access to new pools of liquidity.
The Basel Committee on Banking Supervision has published a final standard that revises the prudential treatment of banks' investments in the equity of funds within the Basel risk-based capital framework. The revised policy framework is scheduled to take effect from 1 January 2017 and will apply to banks' equity investments in all funds (e.g. hedge funds, managed funds and investment funds) that are not held for trading purposes.
Policymakers in Europe and the U.S. have been working over the past five years to overhaul the market for over-the-counter derivatives. However, their efforts have made it difficult for market participants to comply with the different regulations, and liquidity is being increasingly fragmented. "We have clear overlaps of rules," said David Wright, secretary general of the International Organization of Securities Commissions. "If we don't have mechanisms to deal with these difficulties, the situation will just get more and more complex." (Financial News)
Industry welcomes cross-border discussions on CCPs
Inter-region dialogue is vital to ensuring cross-border derivatives regulation does not stifle Asian markets, according to industry leaders. Recently, the Asia Pacific Regional Committee of the International Organisation of Securities Commissions wrote to the European Union, calling on legislators and regulators to give Asian clearing counterparties some breathing space. (The Trade)
WFE launches global cyber security committee
The World Federation of Exchanges announced the launch of the exchange industrys first cyber security committee with a mission to aid in the protection of the global capital markets. The working group will bring together representation from a number of exchanges and clearinghouses across the globe, to collaborate on best practices in global security.
Atlantic Council publishes transatlantic financial reform report
The Atlantic Council, Thomson Reuters and TheCityUK have jointly published a report entitled 'The Danger of Divergence: Transatlantic Financial Reform & the G20 Agenda' (the 'Report'). This Report explores the areas of continuing difference such as derivatives, banking oversight and privacy protection between the US and the European Union (EU) following the financial market crises of 2008 - 2010.
UNITED STATES
A US budget deal hailed as lifting the cloud of political dysfunction hanging over the worlds largest economy cleared the House of Representatives with overwhelming support on Thursday evening, as leaders of both parties quashed dissent within their ranks. (FT)
US regulators adopt regulations to implement the Volcker Rule
The US Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and the Securities and Exchange Commission have published joint final regulations to implement the 'Volcker Rule' (codified as Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act).
The FDIC has been developing the SPOE strategy in order to achieve the policy goals outlined in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The FDIC is required under the Act to resolve a SIFI in a manner that holds accountable the owners and management responsible for the failure of the company while maintaining the stability of the US financial system. The Single Point of Entry Strategy will be available for public comment for 60 days after its publication in the Federal Register, which is expected shortly. In the meantime, it can be reviewed on the FDIC website.
FDIC Details Bailout Plans Without Taxpayer Funds
Federal regulators provided the strongest indication yet about how they plan to dismantle large financial firms on the verge of collapse without a taxpayer bailout. On Tuesday, the Federal Deposit Insurance Corp.'s board unanimously approved a draft plan of how it would keep parts of a failing institution open, prioritize payments to creditors and recapitalize the firm. (WSJ)
U.S. exchanges are near an agreement to upgrade a central piece of the country's trading infrastructure that critics say has been neglected and caused a serious market outage in August, according to people with knowledge of the discussions. Designed to avoid another large-scale breakdown, the plan would establish faster backups for a key part of the market's plumbing known as securities information processors, or SIPs, which consolidate the quote and trade data from exchanges before it is displayed to the public. (WSJ)
EUROPE
EU Parliament and EU Council Presidency negotiators have reached a political agreement on the draft bank recovery and resolution directive. The agreement is to be finalised on a technical level and will then need official approval by EU Council and the EU Parliament's plenary. The directive is to enter into force on 1 January 2015 and the bail-in system is to take effect on 1 January 2016.
The EU Commission has published its report to the EU Parliament and EU Council on the evaluation of Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps. Article 45 of the regulation requires the Commission to report on the appropriateness and impact of certain provisions. The report covers the points listed in Article 45.
Sovereign Debt to Be Included in Stress Test
Bank holdings of government bonds will be tested among other debt categories in the European Central Bank's planned stress test next year, the bank's president said Thursday, but he warned that the larger debate over risk weights for sovereign debt holdings isn't up to the ECB. "Sovereign debt is going to be stressed like all other categories in banks' balance sheets," ECB President Mario Draghi said. (WSJ)
Frances Daniele Nouy Appointed as ECB Bank Oversight Chief
The European Parliament appointed Daniele Nouy to the helm of the European Central Banks oversight arm by a vote in Strasbourg, France, today of 555 in favor and 50 opposed with 52 abstentions. Shell have one year to help to build the institution from the ground up and get it ready to assume its supervisory powers in full next November. (Bloomberg)
Resolution Authority Should Decide on Burden Sharing
The new euro-zone resolution authority responsible for winding down failed banks must be able to make decisions on burden sharing between countries when a bank is shuttered down, a top European Central Bank official said Wednesday. "It would be very important if there is an authority, they would be able to take decisions on burden sharing of any resolution," Vitor Constancio, vice president of the ECB said, speaking on a panel of International Monetary Fund officials and others in Frankfurt. (WSJ)
The consultation is working towards ensuring a transparent identification process in line with international regulatory work on global systemically important banks as well as foreseeing other large institutions with an overall exposure of more than EUR 200 billion being subject to the same disclosure requirement. The feedback statement on this consultation is envisaged to be issued in March 2014 and consultation comments are required by 28 February 2014.
Germany's finance minister has drawn lines on how far his country is willing to fund a new system for winding down sick banks in the euro zone, setting the stage for difficult discussions with his European Union counterparts this week. EU finance ministers have promised to agree on a so-called Single Resolution Mechanism?consisting of more centralized decision making and financing for the shuttering or downsizing of failing banks - before the end of the year. (WSJ)
The House of Lords EU Select Committee has published a follow up to its March 2012 Report on the EU Commission’s proposals for a Financial Transaction Tax (FTT). The report analyses the recent decision of eleven EU Member States to take forward an FTT via the enhanced cooperation procedure, the implications of the European Council Legal Service opinion and the UK Government’s decision to launch a legal challenge against the proposal.
The European Parliament has adopted the Directive on Credit Agreements relating to Residential Immovable Property (CARRP) referred to as the Mortgage Credit Directive (MCD). The Directive aims to ensure that all customers who purchase property or take out a loan secured against their home are adequately informed and protected against the risks.
The Regulations require each institution to publish annually on a consolidated basis, by country where they have an establishment various information such as the nature of their activities and turnover. This information must first be published on or before 1 July 2014. The second publication must be by 31 December 2015 and annually thereafter. The Regulations will be enforced by the Prudential Regulation Authority (PRA) for PRA-regulated institutions and by the Financial Conduct Authority for all other institutions.
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Thursday, December 26, 2013
ASIFMA: 10 - 17 December 2013 | Issue 184
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