Asia Regulatory Review | 25 Feb - 04 Mar 2014

25 February - 4 March 2014 | Issue 193 Spotlight Brokers voice worries on Hong Kong dark pool plans Investors could be disadvantaged under proposed rules for governing pools (ALPs) in Hong Kong that, among other things, would give agency flows priority over proprietary ordered, brokers say. (AsianInvestors) ASIFMA's 4th Offshore RMB Markets Conference ASIFMA is pleased to present the 4th Offshore RMB Markets Conference in Singapore on Thursday, 13 March 2014. The conference is an industry-wide event for both sell-side and buy-side, bringing together high-level regulators, policy makers, ASIFMA members and their guests, to discuss key developments, trends and issues for offshore RMB markets. Update CHINA Xi heads Internet security group President Xi Jinping will head the central Internet security and informatization leading group, according to a statement released after the first meeting of the group on Thursday. Xi presided over the meeting, stressing that Internet security and informatization is a major strategic issue concerning a country's security and development as well as people's life and work. "Efforts should be made to build our country into a cyber-power," he said. (Xinhua) Yuan's recent decline is normal, says China's currency regulator The mainland's foreign exchange regulator said recent volatility in the yuan's exchange rate is normal while playing down the possibility of large capital outflows, in a statement apparently aimed at easing market concern over a sharp currency depreciation. "People shouldn't read too much into recent fluctuations of the yuan's exchange rate, as the extent of changes remains normal in comparison with the volatilities in currencies of the developed nations and other emerging markets," the State Administration of Foreign Exchange (SAFE) said in a question-and-answer session. Shanghai free-trade zone approved to pioneer interest rate reform Reform of the mainland's interest rate mechanism will be spearheaded in Shanghai's free-trade zone (FTZ) after it received approval to scrap a cap on foreign-exchange deposits. But Beijing threw cold water on financial institutions' hopes for bold liberalisations in the zone, touted as an important test bed for further economic reforms. (SCMP) SAFE Shanghai Bureau issues foreign exchange implementing rules in Shanghai Free Trade Zone The State Administration of Foreign Exchange (SAFE) Shanghai Bureau has issued the 'Foreign Exchange Administration Implementing Rules to Support the Development of the Shanghai Free Trade Zone', which will further relax the foreign exchange administration applicable in the China (Shanghai) Pilot Free Trade Zone (FTZ). Under the Implementing Rules: - Foreign exchange conversion procedures under the current account are further simplified; - Certain foreign exchange registrations for foreign direct investment and overseas direct investment can be handled by banks (as opposed to SAFE); - FTZ-registered foreign-invested enterprises may convert foreign exchange capital into RMB at their own discretion (subject to certain utilisation restrictions); - The prior approval process for providing foreign security is removed for FTZ-registered enterprises; and - The existing multinational corporations' foreign exchange capital collective operation pilot programme, foreign exchange cash pooling pilot programme and international trade settlement centre pilot programme will be consolidated and furthered in the FTZ. Yves Mersch: China - Progressing towards financial market liberalisation and currency internationalisation Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Renminbi Forum Luxembourg, Luxembourg, 26 February 2014. China, S.Korea, Japan start 4th FTA talks China, South Korea and Japan started the fourth round of negotiations on trilateral free trade agreement (FTA) in Seoul on Tuesday. The fresh round of negotiations, to last until Friday, focuses on modalities of tariff reduction, the way of opening service trade, investment and certain range and fields of the agreement, according to the Chinese delegation. (Xinhua) HONG KONG HKMA Chief Executive discusses future of Asia's finance Norman T.L. Chan, Chief Executive of the Hong Kong Monetary Authority (HKMA), has delivered the welcome remarks at the IMF-HKMA Joint Conference, discussing the future of Asia's finance. Mr. Chan stated that while Asian banking and financial markets are moving along the right track, Asia cannot afford to feel complacent as its finance is still facing many short-run and longer term challenges. Impasse over closing auction plan for Hong Kong stock exchange Local brokers are adamantly opposed to a reinstatement of the closing auction system by Hong Kong Exchanges and Clearing, but international institutional investors want the system back. HKEx chief executive Charles Li Xiaojia is set to unveil his 2014 strategy for the exchange at a media briefing today, during which he is expected to discuss a study into the feasibility of determining closing prices using the auction system. (SCMP) HKEx Mainland Market Data Hub in Shanghai Commences Service Hong Kong Exchanges and Clearing Limited (HKEx) rolled out its Mainland Market Data Hub (MMDH) in Shanghai today (Monday), establishing its first infrastructure footprint in the Mainland and hence strengthening HKEx Mainland connectivity. MMDH offers clients easy access to HKEx market data without having to maintain costly cross-border communication lines. HKEx maps out plans for 2014 Hong Kong Exchanges and Clearing (HKEx) has laid out its intentions for upcoming market microstructure improvements. The plans were set out in tandem with the exchange announcement of its 2013 results. (The Trade) SFC proposes to strengthen regulation of alternative liquidity pools The Securities and Futures Commission (SFC) has begun today a two-month consultation concerning the future regulation of alternative liquidity pools (ALPs), which are also known as alternative trading systems and dark pools (Note 1). The SFC proposes to enhance and standardize the regulatory obligations imposed on Hong Kong licensed corporations that operate ALPs, by including within the Code of Conduct (Note 2) comprehensive requirements governing their operation. As a consequence of doing this, the SFC will cease its current practice of imposing conditions on the licences of ALP operators on a case-by-case basis. Stamp duty waiver extended by Hong Kong Government The Hong Kong government has announced that stamp duty on trading of all exchange-traded funds (ETFs) will be waived. (The Trade) Hong Kong could face Greek-style financial crisis, warn government advisers Hong Kong could be as heavily indebted as Greece - facing a structural deficit of HK$1.54 trillion by 2041 - if the city's spending grows at the current pace and nothing is done to mitigate the impact of an ageing population, the government's fiscal advisers warned yesterday. (SCMP) SINGAPORE Trans-Pacific Partnership Talks End Without Deal Negotiators from the U.S. and 11 other nations in the Asian-Pacific region failed to ink a free-trade pact but claimed to be moving toward a deal. The negotiators wrapped up a meeting in Singapore on Tuesday to work out details of the Trans-Pacific Partnership free-trade agreement. (WSJ) Singapore Aims to Become Southeast Asia's Silicon Valley Singapore is pulling out all the stops to build its own version of Silicon Valley as it attempts to create a startup hub for Southeast Asia. (WSJ) INDIA Raghuram Rajan: Fighting inflation Speech by Dr Raghuram Rajan, Governor of the Reserve Bank of India, at the FIMMDA-PDAI Annual Conference 2014, 26 February 2014, Mumbai. Cabinet to consider proposal for SEBI ordinance The Cabinet is likely to consider tomorrow a proposal to bring an ordinance that provides more powers to market regulator Sebi for cracking down on ponzi schemes. The Securities Law (Amendment) Ordinance will be re-promulgated as it had lapsed on January 15. According to sources, the Cabinet may tomorrow consider a proposal to bring the ordinance. (Economic Times) SEBI new buyback regulation hits legal hurdle The Securities and Exchange Board of India's new rules to curb swindle by promoters in share buybacks could face a blockade as the law ministry has backed the ministry of corporate affairs claim that the market regulator was not empowered to change the regulations. (Indian Express) SEBI proposes monitoring agency for all public issues Capital markets regulator Securities and Exchange Board of India (SEBI) has proposed to make it mandatory for companies to appoint a monitoring agency for all public issues irrespective of its size to check the possible misuse of money. Currently, the appointment of a monitoring agency is mandatory only if the issue size, say a rights issue or an initial public offer (IPO), exceeds Rs 500 crore. (VC Circle) Bank branches running on Windows XP to face huge security threat The banking industry in India faces a huge security threat due to Microsoft's decision to withdraw support to Windows XP from April 8, 2014. Besides over 34,000 bank branches, WinXP is used by thousands of retailers in their point of sale terminals which would expose them to hackers. (Economic Times) JAPAN BOJ Official Says Tax Won't Choke Recovery The Japanese economy can withstand headwinds from a coming sales tax increase in April, a senior Bank of Japan official said Monday, brushing aside concerns that the higher levy will choke off the nation's recovery. The remarks by the BOJ's chief staff economist, Eiji Maeda, underscore the central bank's confidence in its current outlook, and come in the face of growing expectations that the central bank will be forced to further ease policy in the coming months to offset the likely drop in consumption as a result of the tax increase. (WSJ) Japan says any bitcoin regulation should be international Any regulation of the bitcoin crypto-currency should involve international cooperation to avoid loopholes, Japanese vice finance minister Jiro Aichi said on Thursday. (Reuters) Takehiro Sato: Maximizing the potential of Japanese government bonds (JGBs) as global financial assets - recent initiatives to improve the market infrastructure for JGB settlement Speech by Mr Takehiro Sato, Member of the Policy Board of the Bank of Japan, at the International Bankers Association of Japan, Tokyo, 27 February 2014. AUSTRALIA Australia Optimistic for China Trade Deal by Year's End Australia believes it can reach a free-trade deal with China by year's end as well as complete deals with Japan and South Korea, despite a chill in ties with Beijing over disputed Chinese territorial claims in the East China Sea. (WSJ) ASX Consultation paper: Shortening the Settlement Cycle in Australia: Transitioning to T+2 for Cash Equities’ On 25 February 2014, ASX released a consultation paper: Shortening the Settlement Cycle in Australia: Transitioning to T+2 for Cash Equities. Through this consultation, ASX is seeking feedback on the benefits, industry readiness, a feasible timetable for implementation and the key preconditions which will need to be in place to transition to T+2 for cash equities in Australia. Written submissions in response to this consultation paper are due by 7 April 2014. UNITED STATES T+2: Coming to US Fund Managers How much difference can it make that a US trade group representing mutual fund advisors adds its support to longstanding efforts by the Depository Trust & Clearing Corp. to move the US to a two-day settlement cycle? Enough to make it clear that the ball is now rolling, and deadlines are being considered. (Finops) Janet Yellen wants firmer handle on the weather effect on data The Federal Reserve wants a firmer handle on the causes of a recent string of weak economic data to determine whether it reflects a broader economic slowdown that could call into question its policy of scaling back monetary easing, Janet Yellen told Congress. (FT) EUROPE European Banking Regulator to Review Virtual Currency Risks Virtual currencies such as Bitcoin may pose risks to consumers, investors and society, the European Banking Authority said. The EBA, set up in 2011 to harmonize banking rules across the 28-member European Union, said that it would set up a task force in the first half of this year to review policy options. (Bloomberg) Lautenschlaeger: ECB will not let banks failing tests off the hook The new euro zone bank watchdog will let banks fail if they do not pass the ongoing balance sheet review, the vice chair of the Single Supervisory Mechanism said on Friday. Sabine Lautenschlaeger, who is also a member of the European Central Bank Executive Board, said in the worst case scenario, national governments had to provide sufficient backstops to catch a failing bank. (Reuters) Euro Banks in Dark on Payment Rules for Resolution Fund Euro-area banks face uncertainty over how much they shall have to pay into a planned 55 billion-euro ($76 billion) fund for saving or shuttering lenders as lawmakers wrangle over the rules for contributions. (Bloomberg) ESMA official responds to liquidity fears ESMA has had frequent discussions over the definition of liquidity during the past three years and is mindful of the need to monitor the impact regulations such as Mifid II could have on liquidity on the FX markets, its executive-director tells the Association for Financial Markets in Europe. (Euro Money) EU Council confirms Central securities depositories agreement with EU Parliament on proposed regulation The regulation needs to be in place for the European Central Bank's Target2-Securities initiative to begin operating as planned in 2015. The regulation introduces an obligation to represent all transferable securities in book entry form and to record them in CSDs before trading them on regulated venues. It harmonises settlement periods and settlement discipline regimes across the EU and introduces a common set of rules addressing the risks of CSDs' operations and services.