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Global Market StructureAsia Pacific Newsletter

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Issue 22, 2012Welcome to the APAC Market Structure Newsletter containing the news relating to market microstructure,exchange updates and regulatory developments.

Email: [email protected] Tel: +852 2203 5710 +44 207 547 5552 +1 212 250 4170

Hong Kong ................................................Page 2First Dual-counter security listed in Hong Kong HKEx - LME merger update

China ..........................................................Page 4Capital Gains tax @ 10% proposed for QFIIs Shenzhen Stock Exchange to develop next gen Trading Platform with RedHat

Taiwan ........................................................Page 7Taiwanese banks allowed to trade Chinese stocksTW Futures Exchange signs MoU with NYSE Euronext

India ...........................................................Page 9SEBI unveils major IPO reforms, tightens regulationMCX-SX to launch operations after 18th Nov after registering 350 members

Japan..........................................................3TSE – OSE merger update – business plan for Japan Exchange GroupJapan Securities Clearing Corporation launches first Asia-Pacific CCP

South Korea ...............................................Page 15FSC mulling to limit Short selling, increase surveillance of thematic stocks Korea get faster connectivity through IPC – Koscom partnership

Australia .....................................................Page 16ASIC finalising rules for automated trading ASX issues draft rules on continuous disclosures

ASEAN .......................................................Page 18Singapore consults on transparency of clearing and settlement processesSET joins the ASEAN trading link, update on milestones released

Quant Fact Sheet .......................................Page 21


Global Market Structure Hong Kong Newsletter Issue 22

Dual-counter issues listed

The HKEx listed the first dual-counter (DC) security - the Harvest MSCI China A Index ETF in October. A DC security offers two counters (e.g. a RMB and a HKD counter) for trading and settlement and has two stock codes. Investors can, if their brokers offer the service, buy shares in one unit and sell in the other unit and thus can trade in either of the currencies. The benefit for issuers is that they can target a wider audience.

Also in October the HKEx listed the first RMB-traded equity outside mainland China. Hopewell Highway Infrastructure Limited is set up as a DC security. Various mixed transactions such as borrowing RMB-traded securities and selling HKD-traded securities (regarded as a covered short sell) are possible.

Further information can be found at:

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/121011news.htm


Regulations for overseas market participants

While welcoming market participants from overseas, the current chairman of the SFC highlighted that rigorous regulations and enforcement schemes need to be in place to deal with specialized trading mechanisms such as dark pools and high-frequency trading.

HKMA and Clearstream merger

The HKMA and Clearstream announced on October 17th a cooperation to provide cross-border collateral management and liquidity services in Hong Kong. Under the cooperation, international financial institutions can use their collateral posted with Clearstream (the total collateral pool of Clearstream stands at EUR550bn) to conduct repo transactions with and obtain liquidity from members of the HKMA’s Central Moneymarkets Unit (CMU). This arrangement will also benefit general liquidity in HKD and offshore RMB in Hong Kong by enhancing the development of a cost effective and efficient repo market in Hong Kong.

Currency peg

The HKMA defended the peg of the HKD to the USD a total of seven times within a two-week period in October, selling more than HKD14.4bn (buying in excess of USD1.85bn). As money continued to flow into Hong Kong due to monetary easing in Europe and the US, the HKMA had to sell HKD and buy USD to keep the exchange rate in the official band of 7.75-7.85 HKD to the USD. Some in the market have called for a review of the peg and to look into alternatives, such as a basket of currencies or a complete free-float. The exchange fund, which is utilized to defend the Hong Kong Dollar, has assets totaling HKD2.65trn at the end of September, HKD85.8bn higher from a month before.

Similar upward pressures as in the HKD have been witnessed in other emerging markets currencies as well.

Capital rules

A set of revised capital requirements for locally incorporated AIs was gazetted on Friday, 19th October in order to implement the first phase of Basel III requirements. They are scheduled to take effect in January 2013. The Banking (Amendment) Ordinance 2012 was enacted by the Legislative Council in February 2012 to provide the legal framework for implementation of the Basel III regulatory capital, liquidity and disclosure standards.

Environmental guideline

The HKEx recommended that listed companies follow the environmental, social and governance practices it has issued in conjunction with the WWF. Listed companies that agreed to adhere to the guidelines need to address workplace quality, environmental protection and operative practices. Examples are turning off the air conditioning systems after working hours and serving sustainable seafood in the canteen.

QFII and RQFII

The CEO of the SFC, Mr. Ashley Alder, expects investment activities using RQFII to get more active in 2013. In a move to attract more foreign investors, the asset requirement for QFII was lowered from USD5bn to USD6mn.

Hong Kong Market Structure Update

Total (USD$) %loss/gain

Monthly ADT (Oct 2012) USD$5.29bn 0.35% Source: Thomson Reuters, 2012

Source: Thomson Reuters, 2012

Source: Bloomberg, 2012



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Fig 1: Equities Hong Kong market monthly ADT (lit, auction & non-displayed order types)

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Hong Kong Market Structure Monthly Newsletter 3

Venue News

HKEx - LME merger update

Trading volumes on the LME hit record highs in September with 13.09m lots. Average daily volumes on the LME are up 8.5% compared to 2011. Meanwhile, the chief executive of the LME, Martin Abbot, said that he expects regulators to approve the deal by the end of the year.

One area the LME is already making changes in is the minimum load-out rate for its warehouses. Delays for clients wanting to retrieve metal from one of the warehouses have been called unacceptable by the HKEx. The issue was a potential deal-breaker in the merger negotiations. Slow release from warehouses also affects the contango in several metals markets and the resulting storing of the metals by speculators with negative impact on actual users of the metal.

The LME also announced that it aims to expand its product offering to iron-ore, coking coal and iron-ore shipping. This latest initiative is seen as catering to Chinese demand. Additionally the LME is aiming to open warehouses in China.

The HKEx emphasized again that it does not plan to fundamentally change the way the LME does business but rather build and expand on the existing foundation. As an example the HKEx announced it is not in a rush to discontinue the open-outcry system.

HKEx Software update

The HKEx intends to upgrade its HKATS software on November 12th. The upgrade will include the introduction of data compression in central gateway, enhanced CLICK trade software and dynamic price banding mechanisms.

Market Share Report

The HKEx have released a summary of the market share between the difference participants. The categories are defined as follows:

— Category A: Position 1 – 14 — Category B: Position 15 - 65 — Category C: Over 65

http://www.hkex.com.hk/eng/stat/epstat/exreport.htm

HKEx other news

The HKEx announced it was restructuring its business and focusing resources on the joint venture with the Shanghai Stock Exchange and the LME merger amongst others.

The evening futures trading introduction will be delayed to March 2013.

The hacker who was responsible for hacking the HKEx website causing a trading halt for seven stocks, a 28-year old IT boss, was found guilty and will be sentenced at a later date.

Personnel Changes

Chief Regulatory Officer

The HKEx has created the new position of Chief Regulatory Office (CRO) and appointed David Graham to this new position. Mr. Graham will oversee the listing division as well as all legal, compliance and regulatory functions. He has more than 30 years of experience in legal as well as in financial services and will start in early January 2013.

Further information can be found here:


Securities regulator

The Hong Kong government has appointed Carlson Tong, former chairman of KPMG China, as the chairman of the SFC. Mr. Carlson, who will succeed Eddy Fong, will serve for 3 years until October 2015. Leading figures in the industry gathered for a farewell reception at the Hong Kong Club as Mr. Fong looked back on his tenure.

ContactEmail: [email protected] Tel: +852 2203 5710 +44 207 547 5552 +1 212 250 4170

Category A

(Position 1 to 14)

Category B

(Position 15 to 65)

Category C

(Position > 65)

Date Range (%)Total (%)

Range (%)Total (%)

Range (%)Total (%)

Total Turnover ($Bil)

Average Daily Turnover ($Mil)

OCT 11 8.32 - 2.71 57.74 2.33 - 0.21 32.11 0.20 - 0.00 10.15 1,438.81 71,940.49

NOV 11 8.40 - 2.32 59.65 2.09 - 0.20 30.58 0.19 - 0.00 9.77 1,328.40 60,381.74

DEC 11 8.14 - 2.63 58.78 2.40 - 0.20 31.50 0.19 - 0.00 9.72 947.45 47,372.48

JAN 12 8.26 - 2.69 57.52 2.58 - 0.22 32.49 0.21 - 0.00 9.99 1,006.98 55,943.24

FEB 12 7.01 - 2.55 55.83 2.37 - 0.21 33.33 0.21 - 0.00 10.84 1,444.02 68,763.06

MAR 12 6.81 - 2.61 58.06 2.41 - 0.19 32.17 0.19 - 0.00 9.77 1,436.19 65,281.56

APR 12 6.88 - 2.70 58.23 2.48 - 0.20 32.17 0.19 - 0.00 9.60 910.17 50,565.13

MAY 12 8.52 - 2.83 58.79 2.69 - 0.18 32.12 0.17 - 0.00 9.09 1,215.92 55,268.90

JUN 12 8.44 - 2.92 58.28 2.84 - 0.20 32.63 0.19 - 0.00 9.09 965.79 45,990.09

JUL 12 8.60 - 2.86 59.35 2.72 - 0.20 31.42 0.20 - 0.00 9.23 918.70 43,747.64

AUG 12 8.23 - 2.74 58.73 2.31 - 0.21 31.56 0.20 - 0.00 9.71 1,014.04 44,088.49

SEP 12 7.67 - 2.46 59.80 2.34 - 0.22 30.48 0.21 - 0.00 9.72 1,062.62 53,131.02

Past 12 Months Total ($ Bil) 13,689.09

Monthly Average ($ Bil) 1,140.76

Sourceswww.reuters.com

www.sfc.hk

www.bloomberg.com

www.hkex.com.hk

http://www.chinascopefinancial.com

http://www.thestandard.com.hk

http://www.hkma.gov.hk

http://7thspace.com

http://www.businessweek.com

http://www.financialexpress.com

http://www.scmp.com

http://www.aastocks.com

http://www.cityam.com

http://www.mining-journal.com

http://www.amm.com

http://www.miningweekly.com

CSRC restarts IPO approvals

CSRC has given Beijing Zhongkuang Environmental Protection Science and Technology Co Ltd IPO the green light to list on ChiNext board at Shenzhen Stock Exchange. CSRC also announced that it would resume IPO application examinations after the October holidays are over. There are at least 758 domestic companies in the IPO pipeline awaiting regulatory approval and 153 companies have already gone public this year.

CSRC to streamline approval and strengthen regulation of companies

CSRC announced that it will split the listed company supervision department into two, one for the ChiNext board and the other for the main board on Shanghai stock exchange and the Shenzhen small-and medium sized enterprises board. The commission also clarified that stock issuing plan to raise money amounting to less than 20% of the company’s net asset value within a year will not require the commission’s approval. With so many IPOs in the pipeline, the CSRC is considering transitioning from an examination and approval system to a registration and recording system for IPOs.

Unlisted public companies with more than 200 holders of privately issued shares will also be included in the commission’s regulatory system beginning 2013.

CSRC also canceled 32 administrative approval procedures subjected to central government approval.

7 Foreign Investors get QFII licenses with more likely to follow

CSRC has approved QFII applications of 7 foreign investors allowing them to invest in Chinese capital markets. CSRC has approved a total of 52 QFII licenses and has granted quotas worth $9.18 billion so far this year. CSRC and SAFE are likely to accelerate the approval process to reignite the stagnant domestic markets. Latest recipients of the QFII quota include

— Australia’s Macquarie Bank

— Sweden’s Andra AP-fonden

— Hong Kong’s Hai Tong Asset Management

— IDG Capital Management

— Duke University

— EFG Bank

— Qatar Investment Authority

The total number of QFII licenses issued is now 188, with a combined quota adding up to $31B.

Also, more than 30 Institutional Investors have applied for licenses to additional quotas from CSRC to further increase their investments in the

Chinese Market Structure Update


Monthly ADT (Oct 2012) USD$16.17bn 12.63%





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Fig 1: Equities Chinese market monthly ADT (lit, auction & non-displayed order types)

Fig 2: Equities Daily Turnover per venue - October 2012

Fig 3: Futures HKFE HHI monthly ADT

Fig 4: Futures Daily Turnover per venue - October�2012

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Global Market Structure Chinese Newsletter Issue 22

5Chinese Market Structure Monthly Newsletter

Chinese market. Specifically Abdu Dhabi Investment Authority wants to boost its investment to $1B and Kuwait Investment Authority hopes to exceed the $1B investment cap. The increased interest in the QFII program indicates stronger optimism about the outlook of the Chinese economy.

Capital Gains tax of 10% for QFII

China’s regulators have drafted rules which will impose a 10% capital gains tax on QFIIs. No timetable was mentioned regarding implementation of the tax levy.

The proposed tax will not apply to Chinese retail or institutional investors. A formal policy will be announced to remove uncertainty and doubts for investors who wish to invest through QFII. The QFII program started in 2003 and till now it was considered too small and immature to levy any taxes. Recently the market has matured enough for Chinese authorities to consider a capital gains tax. However, with returns already low due to the Chinese equity market, potential investors may fear that taxes would squeeze profits further.

China may apply a sliding scale to tax dividends

In a proposal, investors holding a stock for more than a month would gain preferential tax treatment, while holding a stock for more than a year would win deeper tax cuts. China’s government has rolled out a series of measures recently in an effort to stabilize the slumping stock market, which is down 6% this year.

QDII Funds Profit Surge in Q3; First overseas direct bond fund under QDII launched

QDII funds posted surging profits during Q3, jumping to $557.05M USD. This represents a substantial reversal from the RMB 4.08B loss in Q2. QDII funds performance in Q2 was mainly dragged down by the deepening European debt crisis and slowing US economy.

China’s Huaxia Asset Management has received approval from CSRC to launch the first overseas direct bond fund under the QDII regime.

Hedge Funds continue to make their way into China

Winton Capital Asia’s fund with Lyxor and its JV partner Fortune, launched their first CTA in mainland China targeting sophisticated investors, including institutions and high net worth individuals.

Additionally, two hedge fund associations, The Hedge Fund Association’s Shanghai Chapter and the Shanghai Hedge Fund Association (SHFA) were also launched during the last month. SHFA also launched an offer for creating strategic partnerships with foreign firms interested in offering hedge funds in China. Meanwhile Shanghai Chapter of the HFA hosted a symposium on hedge funds in China at the Cheung Kong Graduate School of Business in Beijing.

Many of the current restrictions on investing in China lie with the currency issues. The Greater China-focused strategies have grown over time and now account for 13.5% of the $125B in Asian hedge funds assets. This class of funds however has disappointed on the returns front with losses averaging -13.05% last year.

China promotes more transparency in a bid to combat insider trading

CSRC has announced that it would start publishing information on restructuring plans and M&As proposed by mainland-listed companies on a weekly basis. The move highlights CSRC’s determination to promote transparency and information disclosure amid a call for greater public scrutiny of restructuring and M&A activities.

This will likely help CSRC’s stance to curb insider trading as more information is made available online and investors can look for abnormal activities before a proposed M&A or restructuring plan. This will help the

public better monitor and report suspected cases of insider trading to the securities authorities.

China launches 2 RMB ETFs for HK Stocks

China has launched two RMB denominated ETFs tracking Hong Kong stocks. The new ETFs will allow mainland investors to indirectly trade HK shares and diversify their portfolios. The ETF rollout is a part of a broader linearization by the tightly-controlled financial sector. The ETF tracking the Hang Seng China Enterprises Index is managed by E Fund Management Co while the Hang Seng Index-tracking ETF is managed by China Asset Management Co.

CSRC published revised version of pilot measures for fund management firms

The newly published CSRC policy which lifts a restriction on public fund management firms in privately offered funds business stipulates that they can invest clients’ money in “equities, bonds and other property rights that are not exchanged through a securities exchange.” Public fund managers can now buy and trade equities in non-listed companies. Firms must establish a subsidiary to manage their PE investment accounts, which should be insulated financially from the rest of their assets. Further restrictions exist on the number of investors, limits, and the amount of capital investors must commit. The person must have at least 30 million yuan in the account if the asset management account is for only one client. If it is combined with multiple investors, the minimum for each individual is 1 million yuan.

Foreigners can increase stake in securities firms

CSRC has announced that foreign investors can now own up to 49% of the securities firms they invest in, up from 33% earlier. Chinese investors must maintain at least 49% shareholding in the foreign-invested securities firms. CSRC also said that securities firms (including JVs) can apply for permission to expand their businesses two years after operating in China.

This move is expected to replenish the capital pools of Chinese securities firms in the short-term although this does not address the long term profitability of these firms. Currently brokers generate more than half of their revenues from transfer and service fees compared to only 10% for overseas brokers.

China’s Money Supply Rose Fastest in 15 Months, Current Account Surplus Rises

M2 climbed 14.8% in September from a year earlier vs. 13.7% census from a Bloomberg survey. Foreign-exchange reserves rose to $3.29 trillion at the end of September from $3.24 trillion at the end of June. With inflation below the government’s target of 4%, PBOC may inject further liquidity to simulate the Chinese economy.

New local-currency loans in September were RMB 623.2B. Exports also climbed at the fastest pace in three months while imports rose 2.4%. China’s current account surplus totaled $70.6B in the third quarter up from $53.7B in the second quarter.

PBOC said on October 19th that China’s FX purchases rose USD $20.7B in September after falling for two months. The National Bureau of Statistics said that corporate profits expanded 7.85% YoY to 464.3 billion yuan in September. The figure was a rebound from a 6.2% drop in August.

6Chinese Market Structure Monthly Newsletter

Venue News

SZSE and Redhat to Build Next Generation Trading Platform

Redhat Technologies and SZSE plan to build a centralized cross-market trading system to provide next generation reliability, scalability and security. The system will include 99.99% availability, failover time of three minutes or less, latency time of less than 10 milliseconds and support to process 300 million orders daily with more than 50,000 securities. The system will run on Red Hat enterprise Linux and JBoss Enterprise Middleware.

Shenzhen Stock Exchange and the Options Industry Council Sign MOU Regarding Options Research

The Shenzhen Stock Exchange and The Options Industry Council have signed an MoU regarding joint options research and education. The ceremony was held with members of the OIC and SZSE in Shenzhen. As China focuses efforts on diversifying investment products, both OIC and SZSE recognize the need for investor education and research programs. The MoU also addresses mutual cooperation and sharing of information and stressed the need to contribute to the development and responsible use of suitable financial products.

Sourceshttp://www.4-traders.com

http://www.equities.com

http://gulfnews.com

http://www.nasdaq.com

http://www.china.org.cn

http://www.globaltimes.cn

http://english.cri.cn

http://english.peopledaily.com.cn

http://english.caixin.com

http://www.marketwatch.com

http://www.opalesque.com

http://www.capitalvue.com

http://www.chinadaily.com.cn

http://articles.chicagotribune.com

http://www.todayonline.com

http://www.morningwhistle.com

http://www.bloomberg.com

http://online.wsj.com

http://www.ifrasia.com


FSC Urges Cut in Lending Rates to Stimulate Business

The Financial Supervisory Commission (FSC) will coordinate with securities firms to cut the lending rates for margin trading and evaluate the cut and to help solve the problem of low trading volumes and also to lower the costs for investors. A ranking FSC official said that in order to expand trading volume one can bolster confidence and lower investment costs. In addition, FSC will encourage listed companies to purchase treasury stocks.

There are only three securities financing firms and the credit is provided at much higher rate than what is charged internationally. Despite the claim of higher funding costs, the FSC hopes these firms can cut their lending interest rates.

Companies Rushing to List

At least 17 companies are rushing to list their shares on the stock market before the end of the year. This is ahead of the levy of securities transaction gains tax next year. TWSE predicted that the number of new share listings on the market will reach 23 this year, including 13 in the fourth quarter alone. Another cited reason for the delay of companies until the fourth quarter is the lingering European-debt crisis.

New Unified Platform Not a Threat

TWSE Chairman has said that a unified Southeast Asian trading platform will not adversely affect foreign investor’s willingness to invest in the local markets. The exchange will instead focus on exploiting opportunities created by a new currency clearing mechanism between Taiwan and mainland China. The currency settlement mechanism will allow Chinese yuan deposits and loans to be available in Taiwan. Schive’s remarks came as ASEAN Exchanges announced that the Thailand Stock Exchange (in addition to Bursa Malaysia and Singapore Exchange) had become the third member to be connected to the ASEAN Trading Link. The ASEAN Trading Link allows connected brokers to execute trades directly without having to be licensed in that market. The three markets offer investors access to more than 2,200 companies with a market capitalization of US$1.4 trillion.

12 Taiwanese Banks Allowed to Buy Shares in China Using QFII

An MoU was signed to relax the qualifications of China QFII and Taiwan allowing domestic banks to buy shares in China. New QFII rules apply to 12 Taiwanese banks that are allowed to invest in securities in China. The banks include

— Bank of Taiwan

— Taiwan Cooperative Bank

— First Commercial Bank

— Hua Nan Bank

Taiwan Market Structure Update




Global Market Structure Taiwan Newsletter Issue 22





Fig 1: Equities Taiwan market monthly ADT (lit, auction & non-displayed order types)

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Fig 2: Cash Equities Daily Turnover per venue - October 2012

Fig 3: Futures FTX TAIEX monthly ADT

Fig 4: Futures Daily Turnover per venue - October 2012

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8Taiwan Market Structure Monthly Newsletter

— Chang Hwa Bank

— Cathay United Bank

— Chinatrust Commercial Bank

— Taipei Fubon Commercial Bank

— Mega International Commercial Bank

— E. Sun Bank

— Taiwan Shin Kong Commercial Bank

— Taishin International Bank

The qualifications for QFII include having been in banking for over 10 years, Tier 1 capital exceeding US$300 million, and securities assets exceeding US$5 billion.

TWSE Chairman urges lower tax on warrants and ETFs

TWSE Chairman said that lowering stock transaction tax on warrants and ETFs from 0.3% to 0.1% would restore trading volumes. Brokerage firms in Taiwan pay 40% of the income from trading warrants as transaction tax.

The Chairman explained that warrants accounts for 20-30% of Hong Kong’s volumes and 20% of US trading volumes.

Venue News

NYSE Euronext and TW Futures Exchange sign MoU

NYX and Taifex signed a MoU to explore bilateral business opportunities and connect customer bases in Asia, Europe and the US. The agreement will serve as a framework for cooperation to develop innovative products, establish two-way order routing and explore distribution channels for key products. The MOU was signed by executives from both exchanges at a ceremony in Taipei and paves way for joint business initiatives.

China-based Firms Seeking to List on TWSE

Airmate, an appliance maker of home appliances (electric fans, heaters, and air cleaners), seeks to issue 12.25 million new shares. Airmate aims to raise about NT$735 million (US$25.08 million) tentatively with the use of proceeds going to working capital and future expansion and repaying bank loans. In 2011, Airmate had a net profit of NT$204 million on sales of NT$10.43 billion. In the first half of this year, Airmate posted a net profit of NT$432M

Casetek Holdings Ltd, a contract computer component maker, is planning to issue 35M new shares for its primary listing. Casetek is expected to raise NT$2.21B from the share sale as working capital. Casetek posted a net profit of NT$112m in 2011. In the first 6 months of 2012, the company made NT$807 in net profit.

Sources:http://news.cens.com

www.chinapost.com.tw

www.4-traders.com

http://www.finextra.com

http://www.hedgeweek.com

http://focustaiwan.tw

http://www.taipeitimes.com


FIIs embrace Indian markets amid renewed resolve to push reforms

Buoyed by the newfound resolve of the Indian authorities to push market reforms to boost economy and investment climate, the FIIs investments into the local markets have picked up pace since August when the big ticket reform announcements started. The total net inflows from FII in 2012 have already crossed the US$ 18bn mark in October. This is the second highest level after the US$ 29.3bn investments made by them in 2010.

The revival of FII net inflows has also meant that P-Note investments are once again seeing a rise as a preferred route for investments into the local markets and rose to the highest levels in past 6 months.

Also, the average monthly stock delivery volumes on the Bombay Stock Exchange (BSE) and the National Stock Exchange have risen to 43 per cent in September, the highest levels since October 2011.

http://www.business-standard.com/india/news/fiis-net-inflows-cross-18-bn/490979/

http://www.hindustantimes.com/business-news/WorldEconomy/Economic-reforms-boost-P-Note-investments/Article1-953275.aspx

http://www.business-standard.com/india/news/delivery-based-volumes-touch-11-month-high/489605/

SEBI unveils major IPO reforms and strict criteria for rejection of offer documents

SEBI has amended the regulations governing the issue of capital through IPOs with greater disclosure requirements from the companies looking to raise public funds. SEBI has also applied greater scrutiny to the actual use of such funds. Following are the major reforms notified by the regulator

— Institutional participation is now mandatory for IPOs and issues failing to get at least 65% subscription from the institutional bucket will either have to withdraw the offer or will need to be underwritten by merchant bankers

— The issue will need to open at least three working days from the date of registering the red herring prospectus with the Registrar of Companies

— The price band must be announced at least five days before the opening of the offer period

— Each retail investor will be eligible for a minimum amount of shares to be allotted depending on availability. They can also revise / withdraw their bids until finalization of share allocation

— Companies coming through the ‘profitability route’ must have a minimum average pre-tax operating profit of Rs 15 crore in three of the preceding five years

— For companies eyeing the SME platform or compulsory book building route, the minimum QIB participation has been raised to 75%

— A maximum 10% of the stake can be sold to Alternative Investment Funds (AIFs)

Indian Market Structure Update




Global Market Structure Indian Newsletter Issue 22





Fig 1: Equities Indian market monthly ADT (lit & auction types)

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Fig 3: Futures NSE Nifty monthly ADT


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10Indian Market Structure Monthly Newsletter

— Upto 5% discount on the price can be offered during Qualified Institutional Placement, subject to shareholder’s approval

— Non-retail investors will not be allowed to modify / withdraw their bids at any point during the offer

— The companies will not be allowed to deploy more than 25% of funds raised in the name of “general corporate purposes”. Also, this category cannot include expenses related to the issue itself

SEBI also notified the framework for rejection of draft offer documents saying it will be rejecting offer documents in cases with inadequate disclosures or high risk perception. Such companies will not be allowed to access the markets for at least one year after rejection. Strict criteria have been notified for scrutinizing the capital structure, objective for fund raising, business model and financial performance of applicants. SEBI will be rejecting the offer documents if

— There is an unreasonably long gap between raising of funds and their proposed utilisation

— The proceeds from the issue are used towards repayment of loan or inter-corporate deposits or a major portion is proposed to be utilised for the purpose which does not create any tangible asset

— Business model of a company is exaggerated, complex or misleading creating confusion in investor’s minds

— There is a sudden spurt in financial performance ahead of filing the draft offer document

— There are any pending litigation(s) or regulatory actions to the extent that the company’s survival is dependent on the outcome of the same

SEBI amendments to ICDR: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1350292380663.pdf

Framework For Rejection Of Draft Offer Documents: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1349953955224.pdf

http://business-standard.com/india/news/sebi-notifies-ipo-reforms-brings-funds-usage-under-scrutiny/191343/on

http://www.business-standard.com/india/news/institutional-participation-must-for-ipos-says-sebi/490594/

http://www.business-standard.com/india/news/institutional-participation-must-for-ipos-says-sebi/490594/

http://www.livemint.com/Money/R74FckFLf21SjweFfblgQJ/Sebi-issues-rejection-rules-for-offer-documents.html

http://www.hindustantimes.com/business-news/Markets/SEBI-sets-out-tough-norms-for-public-offers/Article1-945131.aspx

Government still for finalise GAAR provisions and Retrospective Tax amendments

The Shome panel has submitted its final report on the retrospective tax amendments related to indirect transfer of Indian assets, suggesting that the provisions should only be applied prospectively and invoked retrospectively in rarest of rare cases where no burden should be fixed on the payer for non-deduction of tax at source.

The government is studying the final reports and firming up its policy which will be implemented. There are reports that all the recommendations of the Shome panel might not be accepted especially related to deferment of GAAR by three years and only prospective taxation on indirect asset transfers. The government has indicated that it is working on removing the unintended consequences by changing the definitions in the IT act and GAAR proposals.

http://www.business-standard.com/india/news/finmin-for-partial-okay-to-shome-panels-retro-tax-suggestions/491357/

http://www.thehindubusinessline.com/industry-and-economy/shome-panel-submits-final-report-on-indirect-transfers/article4051283.ece

SEBI wants QFI’s to be exempted from filing IT returns

In a bid to promote the QFI route for foreign individual investors, SEBI has suggested the Finance Ministry to ease certain requirements for QFI registration. SEBI after discussions with custodians and market experts has recommended that QFIs should not be required to present their physical PAN card to the custodian and should also be exempted from Advance Tax and filing of IT returns.

http://timesofindia.indiatimes.com/business/india-business/Exempt-QFIs-from-filing-I-T-returns-Sebi-to-govt/articleshow/16818456.cms

SEBI to draft a new ‘annulment’ policy; Exchanges up the ante to avoid future ‘flash crashes’

In the aftermath of ‘flash crash’ at NSE on 5th Oct caused by an erroneous trade entered by one of the brokers, both the regulator as well as the exchanges have sprung into action to put checks and balances in place to avoid a repetition of such events.

Although the rogue trades on Oct 5th were not annulled, SEBI has announced that it is working on an annulment policy for erroneous trades but it will take some time to finalise the same as the regulator does not want to tinker with the rules in a hurry. “We will work on a policy on trade annulment. It will take some time. We want to be very cautious in whatever structures we come out with. We will not be in a hurry.” said Sebi Chairman UK Sinha.

On the other hand, both NSE and BSE have tightened up the risk management requirements from their brokers and asked them to enforce trading limits on their terminals to ensure that each order is placed within the prescribed limits. The brokers also need to submit their compliance reports to the exchanges on a quarterly basis which should include the limits prescribed after assessing the risks associated with each user of the trading terminal and that of the individual branches.

The exchanges are also learned to have approached SEBI with a request to narrow down the trading limit for all stocks to 8% – 9% to limit the impact of any such rogue trades. Also industry experts have urged SEBI to apply the price limits on the derivatives segment as well.

The broker responsible for the erroneous trade is learnt to have met its obligations and settled the trades with NSE. Consequently the suspension on the broker was lifted by the NSE.

http://articles.economictimes.indiatimes.com/2012-10-12/news/34412829_1_uk-sinha-sebi-chairman-annulment

http://www.moneylife.in/article/bse-seeks-extra-caution-by-brokers-to-avoid-flash-crash/29476.html

http://www.business-standard.com/india/news/nse-asks-brokers-to-define-order-limits-experts-demand-more-steps-in-derivatives/192699/on

http://articles.economictimes.indiatimes.com/2012-10-10/news/34363358_1_erroneous-trades-emkay-global-financial-services-freak-trades

SEBI to draft uniform guidelines, sign bilateral MoUs to attract foreign investment

SEBI has announced that it is in the process of drafting uniform rules for all the different classes of Foreign Investors including FIIs, NRIs, FVCIs and QFIs. The move is aimed at simplifying the investment process for foreign entities and strengthen their surveillance.

SEBI will also be signing bilateral MoUs with six countries Argentina, Turkey, Kuwait, Qatar, Ireland and Latvia to attract foreign investors from these countries to the Indian markets. SEBI will also request the market regulators across these countries to allow Indian market intermediaries operating in their jurisdictions to solicit business from interested qualified foreign investors (QFIs) at those places.

http://www.indianexpress.com/news/sebi-to-frame-uniform-guidelines-for-all-classes-of-foreign-investors/1013044/

http://www.moneylife.in/article/sebi-to-sign-mous-with-seven-countries-to-attract-foreign-investors/29060.html


IDR fungibility enhanced

The ministry of corporate affairs (MCA) has notified amendments to the IDR rules effective 1st October, which will allow any holder to transfer the IDRs, ask the domestic depository to redeem them or seek re-issuance of IDRs by conversion of underlying equity shares subject to the provisions of Foreign Exchange Management Act and SEBI rules at the time.

http://articles.economictimes.indiatimes.com/2012-10-08/news/34323045_1_indian-depository-receipts-idr-conversion-fungibility

SEBI for special courts, faster probes and strong legislation to curb collection of public funds

SEBI has requested the government to set up special courts to handle the cases of market manipulation, market frauds and financial crimes in a bid to expedite the cases which have been pending for years. SEBI has also set an internal timeline to complete the probes for all market crimes within a maximum timeframe of a year.

The ministry of Corporate Affairs has also been asked to formalise a more stringent legislation to curb the practice of raising large sums of public funds by companies taking advantage of certain loopholes in the regulatory framework and bypassing mandatory approvals from the market watchdog.

http://www.moneycontrol.com/news/market-news/sebi-seeks-special-courts-for-speedy-trialsmkt-frauds_772094.html

http://www.hindustantimes.com/business-news/WorldEconomy/Sebi-sets-1-yr-target-for-probes-warns-manipulators-of-action/Article1-948006.aspx

http://www.business-standard.com/india/news/sebi-seeks-law-to-curb-public-money-collection/490623/

SEBI approves 2 more AIFs

SEBI has given its approval to two more Alternative Investment Funds (AIFs) taking the total registered funds in the country to 9. The two AIFs are Real Estate Opportunities Trust and Dicci Trust. As on August 31st 2012, around 20 applications were pending with SEBI for registration as AIFs.

http://www.financialexpress.com/news/sebi-oks-2-alternative-investment-funds/1012438/0

Personnel Changes

BSE appoints Ashishkumar Chauhan as the new MD & CEO

The Bombay Stock Exchange (“BSE”) has announced the appointment of Mr Ashishkumar Chauhan as its new MD & CEO effective immediately. Mr Chauhan had joined BSE as the deputy CEO in 2009 and has been the interim CEO since May when Mr Kannan moved out.

An official statement stated that the chairman and board of directors of the bourse took the decision based on the recommendation of a selection committee and help from an executive search firm and that all necessary approvals from market regulator SEBI have already been received.

http://www.thehindu.com/business/markets/ashishkumar-chauhan-appointed-md-ceo-of-bse/article4057993.ece

http://www.vccircle.com/news/2012/11/02/ashishkumar-chauhan-named-new-ceo-bse

NSE Chief to head up the working committee at WFE

The World Federation of Exchanges (WFE) has announced the induction of Ravi Narain, MD & CEO of the NSE as the new Chairman of its Working Committee at its annual meeting held in Taipei.

Mr Andreas Preuss, Deutsche Börse AG’s deputy CEO was also selected as the WFE chairman succeeding Mr Ron Arculli while Thomas A Kloet, chief executive of TMX Group, was announced the vice-chairman of WFE’s working committee.

http://www.business-standard.com/india/news/nse-chief-to-head-world-bourses-panel/489801/

http://articles.economictimes.indiatimes.com/2012-10-17/news/34525780_1_wfe-member-exchanges-ceo

Venue Updates

MCX-SX will launch its trading infrastructure on 18th Nov, trading to start after 350 members are registered

MCX-SX has announced that it will be launching its trading infrastructure on the 18th of November but will wait to achieve a total of 350 member registrations before going live with trading in Equities, F&O and other segments. The exchange had earlier announced that it has received a record 700 applications for its membership even before launching the platform. SEBI has already completed its inspection of the exchange and member’s connectivity will be tested on November 19th.

“We are in complete state of readiness and shall go live any time after November 18, as soon as we reach the critical mass of 350 members,” said Joseph Massey, MD & CEO, MCX-SX.

The exchange is also planning to launch an SME platform in the next year. “Our entrepreneurs are best in class. They require risk capital. If China can raise $12 billion in fresh capital, I think we have to aspire to raise a minimum USD10-20 million of fresh capital by SMEs,” Shah said

http://articles.economictimes.indiatimes.com/2012-11-02/news/34876273_1_mcx-sx-today-ceo-joseph-massey-equity-and-other-segments

http://business-standard.com/india/news/mcx-sx-signs700-members-undecidedequity-launch/192397/on

http://www.financialexpress.com/news/jignesh-shah-hints-at-launching-sme-platform-on-mcxsx/1012476/

NSE announces plans to list next year

The National Stock Exchange is planning to go public in the next year according to a report in the Wall Street Journal. “The exchange is planning to take advantage of the opportunity afforded by the regulator’s move in April to allow domestic exchanges to go public, with the timing of the decision likely to be finalised by early next year,” CEO Ravi Narain told WSJ.

http://www.moneycontrol.com/news/market-news/nse-loggedlargest-equity-tradesworld-during-sept_776385.html

http://www.thehindubusinessline.com/markets/stock-markets/nse-logged-in-most-equity-trades-in-world-during-sept/article4054335.ece

NSE became world’s number 1 exchange in terms of number of trades in September

According to the latest data compiled by the World Federation of Exchanges (WFE), the NSE was the world’s largest exchange in September in terms of number of trades executed followed by the Korea Exchange (KRX) and NYSE Euronext. NSE executed a total of 11.64 crore trades during the month. The NSE also maintained its top spot for the ninth month running in the Asia-Pac region.

The Indian exchanges NSE, MCX and BSE are also included in the top 20 derivatives exchanges according to a list compiled by the Futures Industry Association (FIA) for trading volumes between the period January - June 2012. The NSE is placed 5th while MCX is at 10th and the BSE at 18th position.

http://www.moneycontrol.com/news/market-news/nse-loggedlargest-equity-tradesworld-during-sept_776385.html

http://www.thehindubusinessline.com/markets/stock-markets/nse-logged-in-most-equity-trades-in-world-during-sept/article4054335.ece

http://www.thehindubusinessline.com/markets/stock-markets/indias-nse-mcx-bse-among-top-20-global-derivative-bourses/article4022734.ece


NSE to hold special trading sessions on 11th and 13th Nov

The NSE will be holding a special trading session for Gold ETFs in the equity segment on Nov 11 from 11AM to 3:30PM to cash in on the festival season and the occasion of ‘Dhanteras’ which is considered auspicious to buy gold.

NSE has also announced its schedule for the special ‘Mahurat Trading’ session on Diwali, 13th November. The trading will open at 3:45PM for 45 minutes and close at 4:30PM

http://articles.economictimes.indiatimes.com/2012-11-02/news/34876231_1_gold-exchange-etfs-nse-platform

http://articles.economictimes.indiatimes.com/2012-10-30/news/34817277_1_muhurat-nse-diwali

BSE incorporates an advisory panel consisting of trading members

Pursuant to the SEBI directive for stock exchanges to create a committee of trading members for their expert advice, the BSE has created a 16 member panel consisting of trading members to advise the governing board of the exchange on matters such as product design, technology, charges and levies etc. This panel will be headed by the current non-executive chairman S Ramadorai.

http://www.business-standard.com/india/news/bse-setsadvisory-paneltrading-members-/192093/on

Nifty futures trading on SGX overtakes that on NSE

The FII exposure to Nifty futures on SGX has overtaken that on the NSE and hit a record high in the last month. The average daily value of FII’s Open Interest on SGX was recorded at Rs 21.7K crore as against Rs 14.6K crore on the NSE. The uncertainty created by the GAAR proposals is believed to be the reason behind the rising trend of volumes shifting from NSE to SGX.

http://articles.economictimes.indiatimes.com/2012-11-05/news/34925493_1_nifty-futures-nse-futures-open-interest

IIM-A study reveals that call auctions at NSE do not have any positive impact

The Indian Institute of Management - Ahemdabad working paper on Impact of the Introduction of Call Auction on price discovery: Evidence from the Indian Stock Market Using High-Frequency Data researched and created by faculty members Sobhesh Kumar Agarwalla, Joshy Jacob and Ajay Pandey has concluded that the call auctions do not have any positive impact on the overall market.

The study has found that the call auctions attract insignificant volume and that the intraday volume and volatility dynamics remain unaffected except for, the delay induced by call auctions. There is also a tendency for price reversal in the continuous normal market from the price discovered in the call auction. The study also says that introduction of call auction for opening the market has merely shifted the intraday volatility and volume pattern without changing the time taken by the Indian market to settle down from the higher volume and volatility experienced in the opening hours.

“There are low volumes at the call auction at the opening of daily trades. This makes institutions wary of disclosing their trade information. Also, due to low volumes at the call auction, trade will not get completed and there are fears of information getting revealed to the rest of the market,” said Ajay Pandey, co-author of the working paper

http://business-standard.com/india/news/call-auctions-have-no-positive-impact-iim-a-study/191663/on

http://timesofindia.indiatimes.com/business/india-business/NSE-call-auctions-do-not-have-a-positive-impact-says-study/articleshow/16890787.cms

BSE, NSE publish the list of illiquid stocks, advice caution

As per the SEBI directive to safeguard the interest of investors, both BSE and NSE have published lists of illiquid stocks on their websites and advised caution to investors looking to trade in those scrips.

http://articles.economictimes.indiatimes.com/2012-10-08/news/34322713_1_illiquid-stocks-illiquid-securities-jaybharat-textiles

http://www.bseindia.com/markets/MarketInfo/DispNoticesNCirculars.aspx?page=20121004-9


Japan Securities Clearing Corporation launches first Asia-Pacific CCP

The Japan Securities Clearing Corporation has launched the first over-the-counter (OTC) derivatives clearinghouse in the Asia Pacific region. The central clearing service has been introduced for yen-denominated interest rate (IRS) derivatives which represent a significant portion of the OTC derivatives market. The yen-denominated IRS rank as the third-largest contract type behind euro- and dollar-denominated IRS. The company intends to expand its services to other products in the near future.

Major traders from both Japan and overseas are already using the clearing services provided by JSCC making it the largest CCP in the region in terms of number of members. However it is reported that the Tokyo Stock Exchange and Osaka Securities Exchange also plan to merge their derivatives settlement businesses by next year creating competition for JSCC.

FSA extends temporary measures regarding restrictions on short selling and purchase of own stocks by listed companies

The FSA has decided to further extend all the temporary measures in force currently regarding restrictions on short selling and purchase of own stocks by listed companies until April 30, 2013. To this end, the Cabinet Office Ordinances and FSA Regulatory Notices necessary for these extensions have been promulgated before expiry of these measures by the end of October, 2012.

Additionally, the FSA has announced that it will be considering a more perpetual system pertaining to short selling, taking into account trends of restrictions in the United States and Europe, etc.

Venue Updates

TSE-OSE merger update

A business plan and management structure for the Japan Exchange Group (JEG) created as the holding company into which TSE and the OSE will merge on 1st Jan 2013 has been decided at board meetings of the two companies. Both exchanges will hold extraordinary shareholder meetings on Nov 20th to seek approval of the merger agreement from shareholders.

The board has planned to merge the Cash Equities businesses under the TSE group in July 2013 and the companies listed on the OSE’s First and Second sections will be moved to the TSE’s First and Second sections, while the derivatives businesses are slated to be combined under the OSE umbrella between Jan and Mar 2014 with OSE changing its name to just Osaka Exchange. Emerging markets such as TSE’s Mothers and OSE’s Jasdaq will continue separately.

Japanese Market Structure Update




Global Market Structure Japanese Newsletter Issue 22





Fig 1: Equities Japanese market monthly ADT (lit & auction types)

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14Japanese Market Structure Monthly Newsletter

The new management structure has also been announced where

— Hiroyuki Iwakuma, TSE’s senior executive vice president, will be appointed as the new TSE President

— Motoharu Fujikura, OSE deputy president and a former Ministry of Finance official, will be appointed as the new OSE head

— Current TSE President Atsushi Saito will become the chief executive officer of Japan Exchange Group

— OSE President Michio Yoneda will become the chief operating officer of Japan Exchange Group

TSE to create a special category for companies providing greater opportunities to women

In a bid to attract wider range of investors to the equities markets amid slowing trading, the Tokyo Stock Exchange is planning to apply a special tag “Nadeshiko stocks” (which means pink flower, and is a Japanese byword for women) to the 15 best-performing listed companies that have provided more opportunities to women in terms of promotions, child-care measures and other specific criteria.

TSE will initially select 100 companies from its 2200 listed companies based on proportion of women in managerial posts, corporate systems to help workers raise their children and other measures related to their female employees. Finally the 15 best companies will be selected amongst the selected 100 based on their return on equity and other figures from their earnings reports. TSE may also create a separate index to track performance of such companies.

Japan exempts Proprietary Trading Systems (PTS) from the Take-Over-Bid (TOB) rules

Japan’s financial regulator the FSA has announced that effective 31st October, the Proprietary Trading Systems will be exempt from the Take-Over-Bid (TOB) rule of the Financial Instruments and Exchange Act which requires investors who approach a five percent stake in a company’s outstanding shares to launch a tender offer if they are trading at an off exchange venue. SBI Japannext and Chi-X Japan Ltd are the only two PTS venues operational in Japan. The FSA is said to have relaxed the rule to encourage competition in the wake of the merger of Japan’s two largest exchanges TSE and OSE which were already exempted from this rule.

‘‘We expect to see results into the first and second quarter of next year. The buyside community understands the benefit of competition and that there is price improvement on PTSs and they want to take advantage of these trading opportunities.’’ - Yasuo Hamakake, CEO of Chi-X Japan said.

TSE imposes a record $2.5mn fine on Nomura

The Tokyo Stock Exchange (TSE) has levied a record 200 million yen ($2.5mn) penalty on the Nomura Japan after it was found guilty of the insider trading charges due to which the chief executive Kenichi Watanabe and chief operating officer Takumi Shibata had to resign earlier this year. The bourse has also ordered a “business improvement report” asking for details pertaining to the measures that have been taken to prevent a repetition.

TSE trading overview

The monthly statistics for the TSE are as detailed in this table.

http://www.tse.or.jp/english/news/30/b7gje60000015trg-att/20121101EN.pdf

Trading Volumes

Trading Value Change

from last month

Change from month last year

Daily average

1st Section 41,529 256,189 + 40,207 + 23,838 11,644

2nd Section 434 524 + 127 + 91 23

Mothers 289 3,814 + 1,755 + 1,266 173

ETF 111.9 1,479 + 252 - 832 67

REIT 1.6 4,104 + 1,599 + 2,194 186

Equity Market (Including ToSTNeT) (Volume: mil. Shares/mil. units, Value: 100mil yen)

(Including foreign stocks)

Trading Volumes

Open Interest at end of month

Change from last month

Change from month last year

Daily average

Index Futures 1,057,381 - 1,271,725 + 239,806 48,063 573,624

(TOPIX Futures) 843,051 - 1,158,011 + 50,292 38,321 405,255

JGB-Futures 630,134 - 159,343 + 148,614 28,642 82,369

(10-year JGB Futures) 629,514 - 158,963 + 147,994 28,614 81,731

Index Options 596 -555 + 328 27 1,716

Options on JGB-Futures 155,798 + 37,360 - 37,513 7,082 18,811

Individual Options 45,228 +23,738 + 19,120 2,056 73,503

Derivative Market (Including ToSTNeT) (Volume/Open Interest: Units)

Trading Volumes

Trading Value Change

from lastDaily average

Domestic Stocks 98,862 130,838 + 25,844 5,947

TOPIX 79,059 59,026 + 8,052 2,683

Nikkei 225 6,368 57,262 + 18,024 2,603

Other 13,436 14,551 - 232 661

REIT 2,791 3,002 + 1,261 136

Foreign Stocks 5,149 3,885 + 906 177

Foreign Bonds 8 293 + 86 13

Commodities 5,117 9,933 - 2,892 452

Total 111,927 147,951 +25,205 6,725

ETF Market (Including ToSTNeT) (Volume: thou. units, Value: mil. yen

Sourceswww.fsa.go.jp

www.tse.or.jp

www.en.japannext.co.jp

www.fincad.com

http://www.yomiuri.co.jp

http://www.foxbusiness.com

http://www.4-traders.com

Korean Regulator might limit stock short sales

With rising short positions in the market, South Korean regulators are discussing plans to put a limit on short sale of individual stocks. Short sale balance on Korean names rose to 5.6 trillion won ($5.1 billion) since markets started the downward trend in Sept this year. The increase in short sale has been primarily led by foreign investors targeting exporters and companies with deteriorating earnings.

Tightened stock movement monitoring ahead of elections in Korea

Ahead of presidential elections scheduled later this year, South Korea’s financial regulator FSC will tighten the monitoring on thematic stocks as the political theme-based stocks might show an irrational movement during this period. Thematic sticks tend to be of primary concern to regulators as they rapidly move up or down based on rumors and expectations.

Along with price movements, FSC will also look at stocks with irregular price movement, volatility and volumes to indentify the overpriced ones. FSC is setting the numerical benchmark ranges such as over 30% higher price than 40-day moving average, daily volatility of over 50% and ratio of trading volume to market cap staying above 500 percent to categorise the stocks as overpriced.

Venue News

Newer Faster Expanded connectivity in Korea

Koscom, technology arm of the Korean Stock Exchange (“KRX”), struck a deal with communications and turrets provider IPC whereby, Koscom will use its Connexus extranet and Direct Connect data service to upgrade their operations in Busan. Following this deal, Koscom can now make use of IPC’s newly laid cable path from Tokyo, which allows electronic trading clients to route via the KRX’s Busan derivatives engine without going through Seoul, providing lower latency.

Top 10 Korean companies account for 54% of Capital Stock

Total market cap weighted share of top 10 listed firms on Korea Exchange (KRX) together adds up to 54%, 649.32 trillion won (US584.7 billion). The gain leader was Samsung Group with a 17.48% increase in market cap that can be attributed to the growing android market. Next in lead is Hyundai Motor Group, the world’s fifth-largest automotive firm, posted a market cap of 140.3 trillion won, up 5.95% from same time last year.

Sourceswww.krx.co.kr

www.fsc.go.kr

http://www.menafn.com

South Korean Market Structure Update




Global Market Structure South Korea Newsletter Issue 22





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Fig 1: Equities Chinese market monthly ADT (lit, auction & non-displayed order types)


Fig 3: Futures KFE KOSPI monthly ADT

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http://www.globaltimes.cn

http://www.waterstechnology.com

http://www.reuters.com


ASIC to come out with rules for Automated Trading

ASIC is reported to have finalised the proposed rules for automated trading which intend to insulate the Australian markets from “flash crash” like situations by introducing “kill switches” at the broker end to protect against sudden and untoward market movements caused by automated trading by turning off the corresponding programs. The rules are also set to introduce certification and direct oversight of trading system filters and controls.

Automated trading especially High Frequency Trading has been getting a lot of flak recently as it is believed to provide undue advantage to the traders owing to the speed at which the orders are sent to and executed at the exchanges. Local and US fund managers, alongside industry super fund representatives, who collectively oversee more than $1 trillion, have called on the Australian Securities & Investments Commission to level the playing field for investors by limiting the advantages from lightning fast trading.

A number of solutions are being proposed to curb HFT that include minimum time gap between consecutive orders, charging HFTs for each order and execution and slowing down the orders at exchange end.

ASIC is expected to publish its proposed rules shortly.

ASIC investigates into Oct 18th opening spike in ASX

On the morning of 18th October, many stocks including Australia and New Zealand Banking Group (ANZ), gaming group Aristocrat Leisure, AGL Energy and pallets distributor Brambles jumped as much as 7 percent just as the market opened at 10 a.m. local time. ASIC had launched an informal investigation into the same and has found out that the disruption was probably caused because an order worth $ 200mn placed by UBS was modified to $ 50mn just seconds before trading began. However ASIC has ruled out the hand of HFT in this incident.

“The market experienced some dislocation for slightly less than a minute. We are looking to see whether a party or parties might have profited as a consequence of the trading, so we are looking at whether there was deliberate actions that caused the events and whether there was some illegal action in that context.” - ASIC deputy chair Belinda Gibson said.

Australian Market Structure Update

Monthly ADT (Oct 2012) Total (AUD$) %loss/gain

Total market ADT AUD$3.35bn 19.10%

Lit ADT AUD$3.06bn 20.30%

Dark ADT AUD$0.16bn 0.29%

OTC ADT AUD$0.12bn 7.77% Source: Thomson Reuters, 2012


Global Market Structure Australian Newsletter Issue 22





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Fig 1: Equities Australian market monthly ADT (lit, auction & non-displayed order types)

Fig 2: Equities Daily Turnover per venue - Oct 2012

Fig 3: Equities Daily % Order Type - Oct 2012 �

Fig 4: Equities Spreads (bps) - Oct 2012

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17

Venue News

ASX issues draft rules on continuous disclosures

THE Australian Securities Exchange has released draft revisions to its continuous disclosure rules. The Australian Securities and Investments Commission had welcomed the draft revisions, saying it had worked closely with the ASX to develop them.

“ASIC views continuous disclosure by listed entities as the foundation of market integrity and a central tenet of fair and efficient financial markets. We recognise that listed entities need clear guidance about their continuous disclosure obligations, particularly in the age of instant communication and social media.

The major amendments especially to to the drafting of Listing Rule 3.1 are

— Material information - no “bright line” test, but ASX now looks to movements in share price rather than earnings by assessing whether information is likely to be material to the entity’s share price, and therefore within the scope of Listing Rule 3.1

— Immediately - ASX recognises commercial reality, and “immediate” now means “promptly and without delay”

— Incomplete - negotiations are incomplete until the entity is legally committed, but you can’t artificially delay signing to delay disclosure

— Confidentiality - if your share price moves, or trading volumes increase, confidentiality has been lost. ASX confirms its position that it will regard specific media or analyst comment or other market rumors about particular information or a significant movement in an entity’s market price or trading volume as evidence that confidentiality has been lost in respect of that information

— Reasonable person - ASX is de-emphasising the importance of this limb of the exception - a reasonable person would not expect a matter to be disclosed just because it is material

— Earnings guidance - focus is on the effect of variations on share price rather than a bright line test based on the magnitude of the variation. ASX has moved away from its current guidance that a variation of 10-15% from earnings guidance, analysts’ consensus or the results for the prior corresponding period requires disclosure

— Mandatory disclosure of specific information, including beneficial ownership reports - ASX has amended Listing Rule 3 to require mandatory disclosure of some specific information, which may not otherwise be considered material for the purposes of Listing Rule 3.1, such as the beneficial ownership reports that many entities routinely compile based on responses to beneficial interest tracing notices

The draft will be open for public consultation until 30th Nov. The ASX hopes to have it formally issued by early next year.

The consultation paper can be accessed here

http://www.asxgroup.com.au/media/CD_Listing_Rule_Amendments.pdf

http://www.asxgroup.com.au/media/GN_8_Consultation_Paper.pdf

http://www.asxgroup.com.au/public-consultations.htm

Source:www.asic.gov.au

www.afr.com

www.smh.com.au

www.itg.com

www.treasury.gov.au

www.4-traders.com

http://www.theaustralian.com.au

Australian Market Structure Monthly Newsletter





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Fig 5: Equities Volatility - October 2012

Fig 6: Futures SFE-ASX SPI 200 monthly ADT

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Singapore brings in new regulations on disclosure of interests; completes Companies Act review

The Monetary Authority of Singapore (MAS) has introduced new rules to enhance disclosure requirements for listed companies which will come into effect from 19th November. Under the new regime, the reporting obligations pertaining to interests and changes in interest in securities of listed companies have been extended to non-director chief executive officers (CEOs) and to interests in foreign companies with a primary listing on the Singapore Exchange (SGX).

Currently, under the Securities and Futures Act (SFA), only the directors and substantial shareholders of listed companies are required to report to SGX on their interests and changes in interest in Singapore incorporated listed securities.

The penalty for intentional or reckless breaches of the rules have also been made more stringent with a fine of up to $250,000 which may be accompanied by a prison term of up to 2 years. Additional civil penalties may also be imposed.

“Timely disclosure of interests is necessary for the proper functioning of a fair, efficient and transparent securities market.” – MAS said

The Ministry of Finance has also said that it has completed the 4 year long exercise of reviewing the Companies Act which aims to maintain Singapore’s competitiveness as an international hub for both businesses and investors, reduce the regulatory burden for companies and improve the city’s corporate governance landscape. A consultation paper seeking public feedback on a steering committee (SC) report which had suggested a total of 217 changes to this effect was released in Oct 2011. Following the public consultation, the MOF has accepted 192 and modified 17 recommendations of the SC while 8 others have been rejected. The changes are expected to be notified next year after the bill is presented and passed in the parliament.

Singapore consults on enhancement of transparency of clearing and settlement processes

The SGX has released a public consultation to enhance the transparency of clearing and settlement processes. The following amendments have been proposed

— SGX intends to incorporate already existing arrangements between The Central Depository (CDP) and Singapore Exchange Derivatives Clearing (SGX-DC) for the holding of Clearing Members’ collateral and Clearing Fund contributions into the rules, which would boost clarity and provide ease of reference for Clearing Members and their customers.

— New CDP Clearing Rules are proposed which will formalise certain processes and measures that may be taken in the management of a Clearing Member’s default.

— Clarifications are proposed on the events for which CDP may declare a default of a Clearing Member along with the processes for customers of the defaulting Member to settle their trades directly with CDP

— Proposal to amend CDP Clearing Rules to shorten the period for buying-in of securities from 3 market days to 2 market days to reduce the period when a short position remains outstanding

— Amendments to SGX-DC Clearing Rules and Futures Trading Rules of Singapore Exchange Derivatives Trading (SGX-DT) are proposed to clarify the point at which trades are novated to SGX-DC for clearing, and the process of novation enhancing the legal certainty for SGX-DC participants

The discussion paper can be accessed here:

http://www.sgx.com/wps/wcm/connect/839cc8004d34f1ed99d1bfccdc24f6ea/Enhance+Transparency+of+CDP+Processes+25+Oct+2012.pdf?MOD=AJPERES

ASEAN Market Structure Update




Global Market Structure ASEAN Newsletter Issue 22






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Fig 1: Equities Singapore market monthly ADT (lit, auction & non-displayed order types)

Fig 2: Equities Daily % order type - October 2012

Fig 3: Futures SGX MSCI Singapore monthly ADT

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19ASEAN Market Structure Monthly Newsletter

MAS approves banking licenses for BoC and ICBC

Two major Chinese banks, Bank of China Ltd and the Industrial & Commercial Bank of China Ltd were granted full banking licenses by MAS on 5th October. The MAS is also working towards allowing one of them to clear yuan trades enabling Singapore to compete with Hong Kong as a center for yuan-denominated financial products.

“Implementation details on the RMB [yuan] clearing bank will be worked out by the relevant agencies in Singapore and China in due course,” said a MAS representative.

Singapore signs Avoidance of Double Taxation (DTA) agreements with a host of countries

Within the past one month, Singapore has signed Avoidance of Double Taxation (DTA) agreements or added additional protocols to existing agreements with a number of countries including Poland, Italy, Bermuda, Jersey, Isle of Man, Vietnam and Bahrain. Singapore also agreed with Germany to enter into a similar agreement.

Singapore has been working hard to change its image as a Tax Haven and wants to project itself as a clean and investor friendly state.

Bank Negara Malaysia (BNM) and Securities Commission Malaysia (SC) Sign MOU

In a bid to adapt to the changing financial landscape and the new international regulatory regime, Bank Negara Malaysia and the Securities Commission Malaysia (SC) have signed a new Memorandum of Understanding (MOU) to further strengthen the MOUs signed between the two earlier. Below are the highlights of the new agreement

— Focus on common areas of interest important to promote the financial sector and capital market stability

— Reinforces the intention to collaborate, cooperate and share information to enable both regulatory agencies to effectively carry out their respective mandates

— Formulates legislation/policies with regard to supervision of the payment system, mutual recognition of financial planners/advisers and the conduct of investigation/enforcement actions

Securities Commission Malaysia (SC) adds two more types of Registered Persons

The Securities Commission Malaysia (SC) has issued Guidelines for Registered Persons which adds two new classes of registered persons –

— Trading Representative: persons who will be able to take orders and execute trades

— Introducing Representative: persons who can market and refer prospective clients to the stock broking companies

The introduction of these new categories is aimed at widening the opportunities for fresh talent to join the stock broking industry while ensuring sustainable growth of the industry. Detailed criteria have been issued with respect to the eligibility conditions, competency requirements and expected conduct of these professionals. Interested applicants are also required to successfully complete a two-day familiarisation programme before submitting their application to the SC.

Venue News

SGX wins “Exchange of the Year” award; adds MarketPrizm to CoLo

The Singapore Exchange (SGX) was recognised as the “Exchange of the Year 2012” at the Asia Risk Awards ceremony held in Hong Kong

on 1st November as it demonstrated “the strongest achievements and developments, across all asset classes and regional bank categories, with a forward-looking approach to clearing and firm commitment on risk management”.

SGX has also been awarded the “Asian Derivatives Exchange of the Year”, “Asian Clearing House of the Year” and “Professional Traders’ Asian Derivatives Exchange of the Year” recognitions earlier this year by Futures & Options World 2012.

Trading infrastructure provider MarketPrizm has also joined SGX’s co-location facility and setup its low-latency infrastructure. This will enable MarketPrizm to provide ultra-high-speed data and managed trading solutions to its clients and improve connectivity performance and reduce trade execution speed.

SGX’s MSCI Indonesia futures approved by US CFTC

The Singapore Exchange (SGX) has received the US CFTC’s (Commodity Futures Trading Commission) approval to market its MSCI Indonesia futures contracts to US clients enabling them to directly trade the SGX-listed contracts from within US. The MSCI Indonesia futures contract is based on the MSCI Indonesia equity index and is first offshore futures contract providing international investors easy and efficient access to the Indonesian market.

SGX ties up with FIA Tech to automate fee processing in derivatives clearing

SGX has tied up with FIA Technology Services Inc, a wholly owned subsidiary of the Futures Industry Association (FIA), to implement the Electronic Give-Up Automated Invoicing System (eGAINS) for its derivatives clearing members which would bring in greater efficiency and cost-savings at their back office operations.

eGAINS enables system-wide efficiency in the billing and payment process related to give-up transactions, and therefore allows automated electronic handling and reconciliation among SGX clearing members on a daily basis, reducing the mammoth effort required in the current manual process. This will increase operational productivity and reduce discrepancies resulting from manual processing thereby facilitating better cash flow management and reduction in financial risk.

Philippines, Indonesian, Malaysian and Thai Indices, BMD reach all time high

The Philippine Stock Exchange Index (PSEi) closed at its all time high level of 5443.7 on the 3rd of October on the back of strong buying interest and optimism about domestic growth.

The Stock Exchange of Thailand index also reached its all time high levels on 5th October (highest in 16 years) when it reached 1311.5 points.

The Indonesian Index JCI reached its all time high of 4364.6 points on October 30th.

While Bursa Malaysia breached its earlier all time high on 20th October by reaching the 1670.1 points mark, Bursa Malaysia Derivatives also reached a historical milestone by trading highest number of contracts (78,401) on 1st November reflecting the increasing importance of the local options exchange to global traders and investors.

Certain individual stocks in Malaysia and Indonesia also touched their all time high levels as the investment sentiment in the whole of ASEAN block remained positive.

ASEAN Trading Link adds Stock Exchange of Thailand; launches an enhanced website

On 15th October, the Stock Exchange of Thailand (SET) became the third regional bourse to join the ASEAN trading link which was launched last month when SGX and Bursa Malaysia joined hands to facilitate

20ASEAN Market Structure Monthly Newsletter

seamless cross-border trading. Nine local brokers have already joined the bandwagon and started offering cross border trading via the trading link. SET expects another six brokers to enroll by Jan 2013. With the addition of Thailand, the trading link now offers investors with access to over 2,200 listed companies with market value of $1.4 trillion, nearly 70% of market capitalisation of companies listed in the 10-member Association of Southeast Asian Nations.

“Connecting to ASEAN Trading Link is the starting point of making trading in the region faster and more convenient. For the first time ever, with Bursa Malaysia, Singapore Exchange and now SET connected, investors will have a single entry-point access to three of the largest equity markets in ASEAN.” SET president Charamporn Jotikasthira said.

The Thai central bank has also announced that it will ease the rules governing capital outflows from the country to encourage overseas investments by local investors. The central bank plans to ease regulations in five areas

— Lifting of direct overseas investment limits for Thai individual investors currently US$100m per year

— Allowing unlimited portfolio investment by Thai funds (current restriction of $50m per year)

— Allowing listed companies to freely invest in overseas securities with no limit

— Easing restrictions on foreign currency deposit holdings by Thai individuals and companies

— Easing regulations mandating foreign currency hedging for investments and transfer limits for foreign currencies

“The central bank views that the time is appropriate to ease regulations to allow freer capital outflows,” Mrs Pongpen, Deputy Governor, Bank of Thailand said.

The SET has generated returns of over 26% in the current year taking it to the number 2 spot globally after Turkey. SET also said they expected to meet the target of new listings generating 100 billion baht by the year end with 12 companies already in pipeline and 10 more expected to follow before year end.

The Indonesia Stock Exchange (IDX) has also announced that it will be joining the trading link no later than 2015 and is working hard to prepare the bourse infrastructure to that end.

The ASEAN exchanges have announced enhancements to its website www.aseanexchanges.org, which now provides aggregated ASEAN market data and analytics in a single location.

IDX launches a new index; expects new listings to continue

Indonesia Stock Exchange (IDX) along with PT Infoarta Pratama (Infobank magazine publisher) launched a new index named InfoBank 15 on 7th October. This index measures the performance of 15 leading stocks from banking companies listed on the Stock Exchange. The index will be reviewed every six months in June and December each year.

The fundamental criteria for stock selection are the banks’ ratings and their implementation of good corporate governance as reviewed by Infobank magazine. Other aspects such as transaction activities (value, frequency and days of trading), market capitalization, and free float rate are also part of the consideration.

IDX also said that it expected another 11 companies to go public before the end of this year. The next year’s target for 30 IPOs was also announced. “The target of 30 IPOs will make the bourse work harder to attract new companies.” IDX president director Ito Warsito said.

IDX to start trading earlier in 2013

IDX plans to start the trading sessions half an hour earlier from next year. IDX director Ito Warsito said that as of Jan 2nd, the exchange would start trading 30 minutes earlier at 9 am (0200 GMT) instead of 9:30 am.

The move is aimed to boost the falling daily trading volumes on the bourse. The plan has got the regulatory approval from Bappepam-LK.

New listings on Bursa Malaysia and Philippines Stock Exchange create history

Bursa Malaysia has surpassed its previous high in terms of total funds raised through IPOs this year as it has so far helped companies raise US$ 7.3bn (RM 22.3bn) from the local markets. This accounts for 25% of the total funds raised in the whole of Asia-Pacific. The bourse is ranked 4th globally behind Nasdaq, the New York Stock Exchange and Tokyo Stock Exchange’s First Section.

Philippines Stock exchange has also succeeded in raising a record P 174.97bn from the local capital markets with three IPOs and six secondary listings so far this year crossing its previous best achieved in 2011.

Bursa launches Shariah-compliant small cap index; implements final phase of CDS STP

THE FTSE Bursa Malaysia Small Cap Shariah Index was launched on 8th October by the FTSE Group and Bursa Malaysia. It is designed to provide investors with a precise benchmark for Shariah compliant investment in Malaysian small cap companies and will complement the existing FTSE Bursa Malaysia Shariah indices. This new index forms a part of the FTSE Bursa Malaysia EMAS Shariah universe and will be calculated on an end-of-day basis. Subscribers to the FTSE Bursa Malaysia Index Series will receive the new index as part of their existing data package at no extra cost.

Bursa also announced the complete implementation of the final phase of its CDS Straight Through Processing initiative. Market participants will now be able to automate voluminous depository related transactions from their back office straight into CDS.

The Philippine Stock exchange is also in process of identifying the Shariah compliant stock in the local markets and hopes to complete the exercise and create a corresponding index sometime next year in a bid to attract Muslim investors to the stock markets.

Thailand eyes market-hub status in the Greater Mekong Sub-region (GMS)

At the Thailand Investment Conference jointly hosted by CFA Society Thailand, the capital market regulator SEC said that it has investment vehicles ready to facilitate the connectivity of stock markets in the Greater Mekong Subregion (GMS) and is ready to play the central hub role in its development. The GMS comprises Thailand, Myanmar, Laos, Cambodia, Vietnam and China’s Yunnan province.

SEC Secretary General Vorapol Socatiyanurak said “The available tools are the infrastructure fund, the real estate investment trust (REIT), listing of holding companies in the Stock Exchange of Thailand, private equity fund, and securitization. These investment vehicles support the development of stock markets in the region and provide a channel for prospective investors to make indirect investments in the regional markets.”

Sourceswww.channelnewsasia.com

www.sgx.com

www.mas.org

www.reuters.com

www.4-traders.com

www.bangkokpost.com

www.todayonline.com

www.online.wsj.com

www.thejakartagloble.com

www.en.acnnewswire.com

www.ft.com

www.biz.thestar.com.my

www.bworldonline.com

www.nationmultimedia.com

www.philstar.com

www.waterstechnology.com

www.btimes.com

www.finextra.com


Global Market Structure APAC Quant Analysis Factsheet - Sep 2012

Below is a selection of quantitative metrics, which provides additional analysis of the markets and liquidity during September 2012. For further information, please contact:

Global Market Structure:email: [email protected]: +44 207 547 4390

MSCI Asia Pacific Ex JP

Taiwan TAIEX Index

FTSE Straits Time Index

NSE S&P CNX Nifty

Hang Seng Composite Index

S&P/ASX 200 Index

Korea SE Kospi 200 Index

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s)

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19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

ct

02-O

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03-O

ct

04-O

ct

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08-O

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09-O

ct

10-O

ct

11-O

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12-O

ct

15-O

ct

16-O

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17-O

ct

18-O

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19-O

ct

22-O

ct

23-O

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24-O

ct

25-O

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26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

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02-O

ct

03-O

ct

04-O

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05-O

ct

08-O

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09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

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16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

Liquidity

Historical Volatility

The chart below shows the daily index primary spreads on APAC indices during October 2012:

The chart below shows primary volatility of APAC indices during October 2012:


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


Sp

read

(bp

s)

33.0

28.0

3.0

18.0

8.0

13.0

23.0

Vo

lati

lity


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


16.0

14.0

10.0

6.0

8.0

12.0

18.0

20.0

Intr

a-In

dex

Co

rrel

atio

n

40.0%

10.0%

15.0%

20.0%

25.0%

35.0%

30.0%

45.0%

55.0%

50.0%

60.0%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

Sources:Deutsche Bank AG estimates and calculations


Quantitative Analysis:email: [email protected]: +44 207 545 3129

22Quant Factsheet Monthly Newsletter

Sector Correlation Matrix

Au

to &

Par

ts

Ban

ks

Bas

ic

Res

.

Ch

emic

al

Co

nst

. &

M

at.

Fin

anci

al

Ser

v.

Foo

d &

B

ev.

Ind

. G

ds

& S

erv.

Med

ia

Oil

& G

as

Per

s.

Go

od

s

Rea

l E

stat

e

Ret

ail

Tech

.

Tele

com

s

Trav

el &

Le

is.

Uti

litie

s

Auto. & Parts

Banks

Basic Res.

Chemicals

Constr. & Mat.

Financial Serv.

Food & Bev.

Ind. Gds & Serv.

Media

Oil & Gas

Pers. Goods

Real Estate

Retail

Technology

Telecoms

Travel & Leis.

Utilities

1M Historical Correlations80-100% 60-80% 25-60% <25%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


Sp

read

(bp

s)

33.0

28.0

3.0

18.0

8.0

13.0

23.0

Vo

lati

lity


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


16.0

14.0

10.0

6.0

8.0

12.0

18.0

20.0

Intr

a-In

dex

Co

rrel

atio

n

40.0%

10.0%

15.0%

20.0%

25.0%

35.0%

30.0%

45.0%

55.0%

50.0%

60.0%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

01-O

ct

02-O

ct

03-O

ct

04-O

ct

05-O

ct

08-O

ct

09-O

ct

10-O

ct

11-O

ct

12-O

ct

15-O

ct

16-O

ct

17-O

ct

18-O

ct

19-O

ct

22-O

ct

23-O

ct

24-O

ct

25-O

ct

26-O

ct

29-O

ct

30-O

ct

31-O

ct

Intra-Index Correlation

The chart below shows the correlation of movement within each index, calculated using the index and index constituents volatilities and weights:

The matrix below shows the % correlation of movement between two sectors during the previous month:



100.0% 71.2% 83.5% 79.4% 86.9% 72.4% 60.6% 76.1% 72.9% 79.9% 67.8% 62.6% 74.3% 70.2% 65.6% 58.9% 48.1%71.2% ##### 91.3% 77.4% 87.3% 80.7% 74.3% 77.9% 77.3% 89.1% 75.0% 55.4% 74.7% 57.6% 72.0% 60.1% 57.2%83.5% 91.3% ##### 87.0% 94.3% 82.2% 72.1% 85.0% 79.9% 90.5% 79.2% 61.4% 82.3% 70.1% 77.9% 69.2% 61.9%79.4% 77.4% 87.0% ##### 85.7% 71.7% 70.3% 81.2% 82.1% 84.5% 68.3% 66.1% 77.5% 72.9% 73.0% 77.4% 59.2%86.9% 87.3% 94.3% 85.7% ##### 80.2% 68.3% 81.5% 74.6% 89.6% 75.6% 63.5% 78.6% 74.4% 78.0% 65.5% 64.7%72.4% 80.7% 82.2% 71.7% 80.2% ##### 65.5% 84.6% 75.4% 75.2% 75.0% 70.4% 73.5% 69.2% 79.1% 57.4% 61.1%60.6% 74.3% 72.1% 70.3% 68.3% 65.5% ##### 69.2% 60.0% 63.9% 78.0% 50.4% 74.4% 55.3% 55.3% 71.6% 50.0%76.1% 77.9% 85.0% 81.2% 81.5% 84.6% 69.2% ##### 80.0% 74.2% 76.9% 72.0% 84.0% 78.9% 76.8% 73.4% 65.2%72.9% 77.3% 79.9% 82.1% 74.6% 75.4% 60.0% 80.0% ##### 75.0% 70.3% 57.1% 74.3% 63.8% 61.2% 51.6% 36.7%79.9% 89.1% 90.5% 84.5% 89.6% 75.2% 63.9% 74.2% 75.0% ##### 60.9% 58.5% 69.3% 61.1% 72.9% 62.5% 52.0%67.8% 75.0% 79.2% 68.3% 75.6% 75.0% 78.0% 76.9% 70.3% 60.9% ##### 43.3% 84.0% 58.4% 70.7% 58.4% 43.6%62.6% 55.4% 61.4% 66.1% 63.5% 70.4% 50.4% 72.0% 57.1% 58.5% 43.3% ##### 54.5% 77.4% 60.0% 60.4% 68.8%74.3% 74.7% 82.3% 77.5% 78.6% 73.5% 74.4% 84.0% 74.3% 69.3% 84.0% 54.5% ##### 65.4% 69.8% 67.3% 51.8%70.2% 57.6% 70.1% 72.9% 74.4% 69.2% 55.3% 78.9% 63.8% 61.1% 58.4% 77.4% 65.4% ##### 61.5% 64.1% 72.9%65.6% 72.0% 77.9% 73.0% 78.0% 79.1% 55.3% 76.8% 61.2% 72.9% 70.7% 60.0% 69.8% 61.5% ##### 56.4% 64.4%58.9% 60.1% 69.2% 77.4% 65.5% 57.4% 71.6% 73.4% 51.6% 62.5% 58.4% 60.4% 67.3% 64.1% 56.4% ##### 59.4%48.1% 57.2% 61.9% 59.2% 64.7% 61.1% 50.0% 65.2% 36.7% 52.0% 43.6% 68.8% 51.8% 72.9% 64.4% 59.4% #####

23

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