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Global Market StructureAsia Pacific Newsletter

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Issue 21, 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 2Short position reporting data now publically available David Graham appointed to new role of Chief Regulatory Officer at HKEx

China ..........................................................Page 4First multi currency QDII fund launched Shenzhen Stock Exchange partners with FTSE to develop indices

Taiwan ........................................................Page 6Taiwanese banks will soon be able to trade Chinese stocksCBC reiterate importance of control measures for hot money

India ...........................................................Page 8Government panel recommends single unified regulatorShome report on GAAR submitted recommending 3 year deferral

Japan..........................................................2FSA release English version of AIJ review SBI Japannext launches NASDAQ OMX trading system

South Korea ...............................................Page 14Short selling regulations updated

FSC revise regulations to implement Basel III

Australia .....................................................Page 16ITG report ASX view on dark executions does not reconcile with data

ASX to be investigated by ASIC for second outage this year

ASEAN .......................................................Page 19All time highs for SET Index, PSEi and JCIMAS disclosure regime changes released, applicable from 19th Nov

Quant Fact Sheet .......................................Page 22


Global Market Structure Hong Kong Newsletter Issue 21

Short position reporting

The SFC on 7th September started to publish aggregated short positions of specified shares on a weekly basis. The information will be kept online for 3 months.

“In publishing short positions, we aim to increase market transparency and offer the public a better picture of short-selling activities in the Hong Kong market,” said Mr Ashley Alder, the SFC’s Chief Executive Officer.

Further information can be found at:

http://www.sfc.hk/web/EN/regulatory-functions/market-infrastructure-and-trading/short-position-reporting/aggregated-short-positions-of-specified-shares.html

Venue News RMB currency futures trading begins

The launch of RMB futures on the HKEx is being promoted as a significant step forward for the Hong Kong venue in line with their published roadmap that aims to make a range of RMB products available. A number of RMB ETFs are now trading and it is hoped that there will be a stock listing by the end of 2012.

On the first day of trading on 17th September, 415 RMB currency futures changed hands. This is equivalent to USD41.5mn notional turnover. December 2012, June 2013 and March 2013 were most heavily traded. Several local brokerages have waived their commission fees and offer interest-free margin loans to retail investors trading the RMB futures.

The CME group also plans to launch a RMB future in an attempt to compete with the HKEx offering.

Eric Landheer, Head of Issure Marketing, presented an overview of RMB IPO Models and Issuance of RMB Bonds on 11 September. He highlighted reasons and advantages of listing in RMB on the HKEx, such as a diversified investor base, raised company profile and untapped demand. Mr. Landheer described different models and facilities such as Dual Tranche, Single Counter and Dual Tranche, Dual Counter.

Further information can be found here:

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/1209173news.htm

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/Documents/1209113news.pdf

Board diversity

The HKEx has proposed changes to the Corporate Governance Code and Corporate Governance Report regarding board diversity. The principle for “Board Composition” will be modified to include “diversity of perspectives” and an issuer will need to consider the benefits of diversity when reviewing its board composition. The board or its nomination committee should also have a policy regarding diversity and should disclose measurable objectives for its implementation.



Financial information service center in Shanghai

HKEx Information Services Limited has announced plans to set up a financial information services business subsidiary in Shanghai. It has received the approval from Chinese authorities and expects the data hub to strengthen its position on the mainland. HKEx-IS will facilitate direct access to real-time market data of HKEx to information vendors in Mainland China. The company will invest HK$3bn on technology upgrades, called project Orion.

For the full announcement see here:


Hong Kong Market Structure Update

Total (USD$) %loss/gain

Monthly ADT (Sep 2012) USD$5.31bn 26.38% Source: Thomson Reuters, 2012

Source: Thomson Reuters, 2012

Source: Bloomberg, 2012



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Hong Kong Market Structure Monthly Newsletter 3

HKEx to issue convertible bonds

The HKEx on 25th September announced that it will issue US$500mn of convertible bonds, increased from the original proposal of US$400mm. The net proceeds will mainly be used to fund the acquisition of the LME.

Full details from the HKEx can be found here:


Secondary listing

Some market participants say the HKEx is planning to simplify the cross-listing requirements for foreign companies. The move is expected in the second half of 2012 and seen as a measure to attract more foreign companies to cross-list in Hong Kong.

Market Share Report

The HKEx have released a summary of the market share between the different 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

Personnel Changes

Director-General of HKMA appointed

The HKMA announced that Mr. Vincent Lee has been appointed as an Executive Director, taking up the post of Director-General, Enforcement.

More information can be found here:

http://www.info.gov.hk/gia/general/201209/20/P201209200418.htm

http://www.news.gov.hk/en/categories/finance/html/2012/09/20120920_174813.shtml

SFC appoint new Chair

The government of Hong Kong appointed Carlson Tong as chairman of the SFC, replacing Eddy Fong whose term ends after 6 years.

HKEx Chief Executive’s contract renewed

The Board of Directors of HKEx has renewed the employment contract of Charles Li as the CE of HKEx. Mr. Li will serve another 3-year term until 15th October 2015. Mr. Li joined HKEx in October 2009 and became the Chief Executive in January 2010.


http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/Documents/120912news.pdf

Chief Regulatory Officer role created at HKEx

David Graham has been appointed as the first Cheif Regulatory Officer (“CRO”) with responsibility for overseeing the Listing Division, compliance, legal and all other regulatory functions. Graham is due to start in January 2013, The current Head of Listing, Mark Dickens, is scheduled to retire in July 2013 at which point the role will pass to the successor.

A former Partner with Freshfields Bruckhaus Deringer, Graham has previously held roles at Nomura, UBS and Morgan Stanley including General Counsel and Global Head of Legal. He was also the Deputy Chairman of the SFC Takeover Panel from 2005 - 2012.

Sourceswww.reuters.com

www.sfc.hk

www.bloomberg.com

www.hkex.com.hk

http://www.chinascopefinancial.com/

http://www.thestandard.com.hk/

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)

SEP 11 8.81 - 2.68 56.82 2.46 - 0.19 33.63 0.18 - 0.00 9.55 1,447.05 72,352.66

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

Past 12 Months Total ($ Bil) 14,073.52

Monthly Average ($ Bil) 1,172.79

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

Eight new QFIIs licenses approved by CSRC in August

On CSRC’s website it was released that the following 8 entities have been approved for QFII licenses:

— Hall Capital Partners LLC, — Board of Regents of The University of Texas System, — Nan Shan Life Insurance Company,Ltd. — Suva — British Columbia Investment Management Corporation — Value Partners Hong Kong Limited — Ontario Pension Board — The Church Pension Fund

The foreign investors are currently experiencing a challenge due to the market downturn. The Shanghai Composite Index has dropped 4% YTD as of 14th September and is one of the worst performers so far this year in Asia. According to the latest figures compiled Thomson Reuters, QFII funds reported a 5.65% loss in August and a 6.12% loss for the first eight months of this year.

Currently a total quota of US$29.87 billion has been granted to 152 QFIIs after the additional quota was released. CSRC and SAFE have confirmed that QFII can make one application for extension of capital injection if they cannot make it within the 6 months’ injection period. The longest extension will be 6 months. Previously QFII has only 6 months to inject capital once their quota was approved, or their quota will be forfeited.

First multi-currency QDII fund launched

Huaxia HSI ETF feeder fund successfully launched to be the first multi-currency QDII fund. Bank of China is the custodian and primary sale proxy (simultaneously raising USD and RMB). During issuance, subscription capital of RMB453 million and US$ 17.11 million was raised.

Foreign Firms IPO may realize in 2013

The long waited program of allowing foreign firms to be listed in China may become a reality in 2013. According to Wall Street Journal, much of the technical work on a listing venue has been finished, and the power shift this fall is expected to lead to a broad range of policy initiatives.

Except fund raising, an additional benefit of getting listed in China is to improve the company profile in the market with world’s largest population. More than 300 companies have expressed their interest since the program plan was announced in 2009 according to a banker involved.

Capital flows for China in H1

As a follow up of our last month’s report on China experiencing a net capital outflow in 1H 2012, SAFE officials claimed that there are no large positions betting against the Yuan.

Chinese Market Structure Update


Monthly ADT (Sep 2012) USD$18.51bn 13.93%





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

Fig 2: Equities Daily Turnover per venue - September 2012

Fig 3: Futures HKFE HHI monthly ADT

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Global Market Structure Chinese Newsletter Issue 21

5Chinese Market Structure Monthly Newsletter

The earlier published preliminary reading of 2Q deficit is US$ 71.4 billion which seems to include “errors and omissions” item. SAFE revised the current account surplus to US$ 53.7 billion, down from the preliminary reading of US$ 59.7 billion.

It has been reported that a net inflows of US$ 1.4billion have entered the Chinese market from QFII from June to July, as a measure of the regulator’s effort to boost the market.

“Companies are adjusting their funding behavior, there is no clear sign that Chinese companies are stockpiling foreign exchange assets and shorting the Chinese Yuan”, said SAFE official, “Currently the yuan exchange rate is at a reasonable level that is agreed upon by the market.”

China regulators on the road to lure foreign investors

Reported by Financial Times, a group of Chinese finainical officials started a global roadshow to lure foreign investors to A-share market from US, Europe and Japan. During the roadshow the representitives have been meeting nearly 10 institiutions everyday according to the report.

The recent reforms on QFII has been a big selling point for the Chinese stock markets

“[The] focus on speeding up reform of the market, [the] emphasis on corporate governance and [the] advocacy of institutional investors all accords with the priorities of sophisticated overseas investors,” a second adviser said. This is viewed as an effort to U-turn and stablise the stock market which lost around 9% year-to-date.

Venue News

SZSE partners with FTSE group on indices development

On 10th September, Shenzhen Stock Exchange’s subsidiary Shenzhen Securities Information signed a MOU with FTSE group on future indices development.

“This memorandum of understanding with FTSE is part of our effort to further improve and promote our products in line with sophisticated investor needs.” David Fu, Vice General Manager of Shenzhen Securities Information said, “The development of indices based on international standards incorporating innovative methodologies, along with FTSE’s recognised reach to global investors will facilitate the growth of the China capital market, and provide more opportunities for the creation of new investment products.”

Personnel Change

CSRC starts another round of personnel reshuffle

CSRC has carried out another personnel reshuffle and amended the functions of two bureaus under the Department of Public Offering Supervision. The two bureaus’ original job descriptions were assessing and regulating companies’ requests for refinancing through additional stock or bond issuance, and now changed to assisting other bureaus to review IPO applications.

According to Caixin media, their sources indicated the personnel reshuffle involves all four vice chairmen of the CSRC: Yao Gang, Zhuang Xinyi, Liu Xinhua and Jiang Yang. All these officials will be at least partially removed from their original posts, which are usually in key departments that oversee listing and securities trading issues, after the post.

Source:www.szse.cn

www.sse.com.cn/

www.csrc.gov.cn/

www.scmp.com/

www.4-traders.com

www.wsj.com

www.mninews.deutsche-boerse.com

www.english.caixin.com

www.etfstrategy.co.uk

www.ft.com


Taiwan Banks will be able to invest in Mainland stock markets

The mainland securities regulator, CSRC recently lowered the application conditions for foreign investors to invest in the A-share market. As a result, some Taiwanese banks will be soon able to trade mainland Chinese stocks or accept the consignment of trust clients for making such investments.

Currently no Taiwanese banks are included in the list of the world’s top 100 banks. However, more than 10 domestic banks have trust funds under their management exceeding US$5 billion and meet the new QFII criteria.

Amendments to Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers

On 14th August, the Financial Supervisory Commission (“FSC”) amended specific provisions of the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers. According to the SFB newsletter:

— If the financial assets, idle assets, or investment properties classified under current assets by the foreign issuer have not been disposed properly or are not under active development, the filing may be rejected. Companies listed on either the TWSE or the GTSM must request an opinion of reasonableness of fund and unexpended balance utilisation from their original lead underwriter within 10 days after the end of each month.

— Listed companies sponsoring a Taiwan Depository receipt must disclose their dividend policy along with the pricing methodology and discount ratio of the issuance price relative to the original stock price in the prospectus.

— For privately placed securities, there must first be a public issue prior to the application for the TWSE listing or trading of the securities on an OTC basis.

— Provisions have been added that when a foreign issuer has been notified to carry out a supplementary effective filing for a public issue but has not completed procedures for the TWSE listing or the GTSM trading within 6 months after receipt of the notification, or when the stocks of a foreign issuer have been delisted from the TWSE or the GTSM trading is terminated (except for reasons of the new TWSE listing or GTSM trading), the FSC may void, revoke, or suspend the public issuance of its stocks.

— The requirement that financial reports must be included in the prospectus has been amended, a financial report must now be publicly announced within 45 days after the end of the given quarter and reviewed by two CPAs.

— New provisions have been added to the disclosure requirement for foreign issuers with Chinese investors holding more than a 30% holding or a controlling interest. Before filing for supplementary public issuance, they must submit relevant documents to the TWSE or the GTSM for review and the FSC for approval.

Taiwan Market Structure Update




Global Market Structure Taiwan Newsletter Issue 21





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 - September 2012

Fig 3: Futures FTX TAIEX monthly ADT

Fig 4: Futures Daily Turnover per venue - September 2012

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7Taiwan Market Structure Monthly Newsletter

The newsletter stated that

“ The amendments were aimed at enhancing management of capital raising and information disclosure by foreign securities issuers and harmonising with the 4th January 2012 promulgation of amendments to the Securities and Exchange Act, which added a new chapter specifically dealing with foreign companies, as well as the upcoming adoption of the IFRSs (International Financial Reporting Standards) in fiscal year 2013.”

CBC reiterates control measures on hot money flows

According to the local press, Central Bank of the Republic of China (Taiwan) (“CBC”) has reiterated the following measures to stabilise TWD in view of the recent United States Federal Reserve’s third round of quantitative easing (QE3).

— Custodian to immediately report FINI’s large remittance above US$3 million to CBC

— FINIs to invest in local market after one week of inward remittance

— For FINIs with excessive balance and/or without investments, CBC will work with the Financial Supervisory Commission for further necessary action

— FINI’s non-equities investments should not exceed 30% of their net remitted-in capital

The regulator expects investors with substantial Taiwan dollar deposits to either pull out of Taiwan or invest in the market immediately. Please note that FINI’s inward remittance is for settlement purposes only and speculation of TWD is strictly prohibited by the CBC.

TDCC’s revised regulations to dispose of holdings of delisted companies

The Taiwan Depository and Clearing Corporation (“TDCC”) announced the revised regulations for investors (including FINIs) to dispose of their holdings of delisted companies with effect from 24th September.

Previously, investors were only allowed to dispose of their shares of delisted companies who still have a transfer agent to process as well as to receive disposed shares from investors’ TDCC account to the company’s TDCC account.

After the revision, the TDCC will open a special account in the event that the delisted company no longer has a transfer agent, or a TDCC account to process the request from investors. In this case, upon receipt of investor’s instruction, the local custodian will transfer the shares from the investor’s TDCC account to TDCC’s special account. The TDCC will further complete the whole process with the company.

Venue News

TWSE launched index linked to corporate social responsibilities

On 11th September, TWSE launched the second index focusing on corporate social responsibilities – TWSE RAFI Taiwan Corporate Operation 101 Index. This index was compiled by TWSE and California based Research Affiliate.

GreTai Exchange hosted “Listing on Taiwan’s GTSM” seminar in Tokyo

On 3rd September, GreTai Securities market (“GTSM”) hosted “Listing on Taiwan’s GTSM” seminar in Tokyo, to introduce and promote the advantages of listing in Taiwan to Japanese firms.

The regulation has been relaxed this year by allowing foreign firms that apply for registration on Emerging Stock Board or listing on GTSM to issue non-par stocks or stocks with par value other than NT$10, strong interest in listing on Taiwan’s capital market has been shown by many Japanese firms. The Tokyo seminar attracted nearly 30 firm’s mid-to-high level executives.

TDCC signed MOU with CDC Pakistan

The Taiwan Depository and Clearing Corporation (TDCC) and Central Depository Company of Pakistan (CDC) signed a Memorandum of Understanding (MOU) on 21st September that reflects an agreement by both parties to exchange information in order to facilitate the further development of both financial markets.

In accordance with the MoU, both markets are to share knowledge and information on various business areas and regulatory developments. The signing of the MoU will facilitate supervisory cooperation in relation to cross border securities clearing matters.

Source:http://news.cens.com

SFB Newsletter

www.chinapost.com.tw

www.4-traders.com

DSS Report


Shome panel submits final report on GAAR, Final guidelines expected by month-end

The expert panel headed by Dr. Shome to make recommendations on the GAAR proposals has submitted its final report to the ministry of finance. The final report is believed to be in line with the proposals made in the second draft asking for dilution of some rules and deferring implementation by 3 years. The Finance Ministry will be studying the recommendations and finalizing the guidelines by end of October 2012.

The panel also submitted its report on the retrospective tax amendment which is under review by the ministry of finance. The report will be put for public comments once the ministry has reviewed the same. Mr. P Chidambram also said that the Income-tax code will be amended if deemed necessary but it could take more time as it will need to be passed by the cabinet.

http://www.livemint.com/Politics/BBDnEWc5Hr96pTsI8lxMyM/GAAR-to-be-finalized-in-next-20-days-Chidambaram.html

http://articles.economictimes.indiatimes.com/2012-10-01/news/34198262_1_parthasarathi-shome-shome-committee-general-anti-avoidance-rules

Government panel suggests a single unified regulator

The Financial Sector Legislative Reforms Commission, a government panel headed by former justice B N Srikrishna tasked with considering the financial regulatory landscape in the country, has suggested the merger of SEBI, IRDA, PFRDA and FMC into a single regulatory body Unified Financial Agency (“UFA”).

http://articles.economictimes.indiatimes.com/2012-10-01/news/34198052_1_fsdc-fmc-pfrda

SEBI notifies final mutual fund reforms, to be effective from 1st October

SEBI has released a circular notifying the mutual fund sector reforms that have been approved by the board and will take effect 1st October onwards. The changes notified are

— Mutual funds will be able to charge an additional 30 bps as expenses provided that their new inflows from places other than the top 15 cities are either 30% of the gross new inflows or 15% of the average assets under management of the scheme, whichever is higher

— These charges can be utilised for distribution purposes in such areas and will have to be clawed back in case the investments are redeemed within a year

— Fund houses can also charge transaction and brokerage costs which would be capped at 12 bps for cash segment and 5 bps for derivatives

— Fund houses may levy investment and advisory fees on their schemes, which would have to be fully disclosed in the offer document

— For Fund of Funds schemes, the total expenses would be capped at 2.5% of the daily assets

Indian Market Structure Update




Global Market Structure Indian Newsletter Issue 21





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

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9Indian Market Structure Monthly Newsletter

— All exit load levied will need to be clawed back into the scheme

— Fund houses will need to calculate and publish NAV on a daily basis in atleast two national dailies

— Fund houses will not be able to offer multiple investment plans under the same scheme. This will result in a discontinuation of fresh investments in estimated 190 schemes across major fund houses

— SEBI has also ordered AMCs to pay a maximum of 12 bps as transaction fees to brokerage houses

SEBI will also set up a Self Regulatory Organisation for regulating the Mutual Fund distribution operations across the industry in collaboration with AMFI (Association of Mutual Funds in India). The funds to run its operations are envisaged to come via contributions from AMCs (2-3 bps of their AUM). SEBI has also tasked the Mutual Fund Advisory Committee (“MFAC”) to study the MF distribution models in US and UK and propose initiatives to deepen MF reach in the country.

The SEBI release can be found here:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1347547815927.pdf

http://www.livemint.com/Money/NrrAXoqcd63UUQiMK0ekCL/Sebi-formalises-norms-seeking-to-boost-mutual-funds.html

http://www.moneycontrol.com/news/mf-news/5-mfs-to-halt-190-schemes-to-complysebi-rules_764745.html

http://www.firstpost.com/fwire/mutual-funds-may-use-aums-for-distrubution-biz-sebi-467605.html

http://www.moneycontrol.com/news/cnbc-tv18-comments/sebis-12bps-limitbrokerage-fees-sparks-protest-_758907.html

http://articles.economictimes.indiatimes.com/2012-09-16/news/33880166_1_mf-regulations-sebi-panel-mf-advisory-committee

KYC norms for FIIs relaxed; collateral norms under discussion

SEBI released a circular clarifying relaxed Know Your Client (“KYC”) norms for various overseas entities including foreign institutional investors, sub-accounts and Qualified Foreign Investors (“QFIs”). Below are the major relaxations

— Personal verification requirement for non-individual clients has been removed

— Documentation requirements for Sovereign Wealth Funds and overseas government agencies have been eased. Global or local custodians of such entities can now furnish a resolution from the concerned party’s board of directors and power of attorney to carry out transactions

— The intermediaries are advised to conduct ongoing client due diligence based on the risk profile and financial position of the clients

— In absence of a certificate of Incorporation or Memorandum and Articles of Association for a FII, any other equivalent legal document evidencing formation of that entity may be allowed subject to scrutiny

SEBI has also approved CAMSKRA, a subsidiary of CAMS (which provides transaction processing services in the mutual fund industry) to commence operations as a KYC Registration Agency. More competition is expected in this space as the newly announced market reforms are expected to attract more investors.

SEBI is also looking at relaxing the collateral rules for FII who have to maintain full collateral in cash for both derivatives and the cash segment. Discussions are underway for allowing FIIs to provide domestic instruments, such as approved securities, bank guarantees, fixed deposits, government bonds and mutual funds as collateral.

The SEBI circular can be found here:


http://business-standard.com/india/news/sebi-relaxes-kyc-norms-for-foreign-institutional-investors/185551/on

http://www.business-standard.com/india/news/competition-hottingin-kra-space/485261/

http://www.thehindubusinessline.com/markets/stock-markets/article3866993.ece?homepage=true&ref=wl_home

SEBI pushes for increased integrity and transparency in the IPO segment

SEBI has made a number of announcements in the past month with far reaching effects on the IPO segment of capital markets in a bid to streamline processes, increase transparency and ensure greater market integrity. The major changes are as follows

— SEBI plans to expand the scope of statutory disclosures to include details of any probes by all regulators and investigative agencies against the companies applying for an IPO to check misrepresentation of facts in offer documents

— SEBI also directed all designated banks including the Self Certified Syndicate Banks (“SCSBs”) to make the ASBA (Application Supported by Blocked Amount) facility available in all of their branches by 31st December in a phased manner

— SEBI also directed all banks to clearly demarcate the bank accounts as well as availability of funds to be used for applying to IPOs using the ASBA facility. SEBI said “such accounts shall be used solely for the purpose of making application in public issues and clear demarcated funds should be available in such account for ASBA application”

SEBI also released a public consultation on a safety net mechanism crafted to protect the interests of retail investors in the primary market. The consultation will close on 31st October and proposes that:

— The mechanism will be available for shares allotted to all original resident retail investors with application amounts upto Rs 50, 000 in an IPO

— The total liability in lieu of the safety net will however be capped at 5% of the issue size

— The provision will be invoked in cases where the volume-weighted average market price of the shares for a period of three months from the date of listing has depreciated more than 20% from the issue price. Also the 20% depreciation will be considered over and above the general movement in the market indices

SEBI also directed the exchanges to synchronise their listing dates and trading approvals for all new issues with each other in a bid to check the malpractice of transfer of shares and other securities issued before listing.

The IPO market in India is expected to see a revival on the back of the recent aggresive policy action by the government. Bharti Infratel Ltd., the mobile-tower unit of Bharti Airtel Ltd has filed its application for the $1bn IPO expected to be launched in December this year.

SEBI circular on ASBA facility can be found here -


SEBI discussion paper on Safety net mechanism -


Source: http://timesofindia.indiatimes.com/business/india-business/SEBI-may-seek-litigation-information-from-companies-launching-IPOs/articleshow/16525399.cms

http://articles.economictimes.indiatimes.com/2012-09-25/news/34082688_1_scsbs-asba-facility-market-regulator-sebi

http://zeenews.india.com/business/news/finance/demarcate-accounts-for-asba-facility-in-public-offers-sebi_60246.html

http://origin-www.livemint.com/Money/reT1k2aetoBXyG73F3JsgM/Sebi-issues-draft-norms-on-safety-net-for-IPO-investors.html

http://articles.economictimes.indiatimes.com/2012-09-11/news/33763201_1_issuance-of-equity-shares-sebi-today-rights-issue

http://www.business-standard.com/india/news/sebi-rejigs-primary-market-advisory-panel/486493/

Draft guidelines for IPO by General Insurance Companies issued

The Insurance Regulatory and Development Authority, the insurance sector regulator of the country, has come out with the draft guidelines for general insurance companies (non-life) to raise public funds in the capital markets. The draft guidelines which cover divestment by promoters


(through issue of capital as well as public offer for sale) propose that

— The companies seeking to raise capital through IPO should have completed atleast 10 years in the business

— The company will have to seek a formal approval from IRDA before approaching SEBI with the application for public offer. Such an approval will be valid for a period of one year

— IRDA will take into account the financial position, capital structure and regulatory record of the applicant among other things while deciding on the approval

— Lock-in period and limit for diluting shareholding for the promoters as well as the extent of allotment to foreign investors will be prescribed by IRDA

The draft is open for public comments till end of this month and can be found here :

http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo1786&flag=1&mid=Insurance%20Laws%20etc.%20%3E%3E%20Exposure%20drafts

http://www.thehindu.com/business/article3915216.ece

http://www.rttnews.com/1968965/irda-issues-draft-ipo-guidelines-for-non-life-insurers.aspx?utm_source=google&utm_campaign=sitemap

SEBI revises margin calculation methodology for ETFs

SEBI has revised the norms for calculating margins on ETFs tracking broad based market indices. The new VaR (Value at Risk) margins will be calculated as higher of five per cent or three times sigma of the ETF. Cross margining facilities will be extended to ETFs based on equity indices and its constituent stocks, stocks futures and relevant Index Futures to the extent of offsetting the positions of each other.

The SEBI release can be found here:


http://www.hindustantimes.com/business-news/WorldEconomy/Sebi-revises-norms-for-calculating-ETF-margins/Article1-936096.aspx

SEBI asks for online submission of suspicious transaction reports

SEBI has asked all entities under its jurisdiction to start submitting their suspicious transaction reports (“STRs”) and Cash Transaction Reports (“CTRs”) electronically through a new direct online gateway to the Financial Intelligence Unit (“FIU”).

http://articles.economictimes.indiatimes.com/2012-10-02/news/34218072_1_market-entities-counterfeit-currency-reports-suspicious-transaction-reports

Supreme Court questions SEBI chief U K Sinha’s appointment

Acting on a writ petition alleging that office of the then Finance Minister (Pranab Mukherjee) had bent rules to facilitate the appointment of U K Sinha as SEBI chief, the Supreme Court of India has issued notices to the Government and SEBI to respond within four week’s time.

http://www.yourmoneysite.com/news/2012/sep/sc-issues-notices-to-govt-sebi-on-uk-sinhas-appointment.html

Personnel Changes

NSE Proposes S B Mathur as the new non-executive chairman to replace Vijay Kelkar

The National Stock Exchange (“NSE”) has approached SEBI with a proposal to appoint Mr. S B Mathur as the new non-executive chairman to fill up the post vacated after Vijay Kelkar resigned last month to avoid a conflict of interest. Mr Mathur was formerly the chairman of state-owned Life Insurance Corporation of India (“LIC”). SEBI is currently considering the proposal.

http://www.business-standard.com/india/news/former-lic-chief-mathur-to-be-nse-chairman/187971/on

http://articles.economictimes.indiatimes.com/2012-09-24/news/34062046_1_vijay-kelkar-independent-director-global-advisory-board

New Chair for PMAC

The primary market advisory committee (“PMAC”) advising SEBI on regulation and development of primary market segments has also been recomposed with T V Mohandas Pai, formerly a senior executive at information technology giant, Infosys as the new Chairman

Venue Updates

Another ‘Flash Crash’ jolts the Indian market, NSE loses 15.6% in minutes, estimated $60bn lost

In another occurrence of a ‘flash crash’ in the local markets on 5th October triggered due to 59 erroneous orders from a basket of trades on NSE, the NSE Nifty lost 15.6% within minutes and trading had to be halted for 15 minutes. The index eventually closed the day down 0.84 per cent to 5,738.70.

The NSE attributed the error to human error. “Orders worth Rs6.5bn ($125.7m) entered by Emkay Global, a Mumbai-based brokerage, on behalf of an institutional investor, caused the problem. The errant trades were caused by human error, rather than an computer-based algorithm, which have come under scrutiny in India and across the world after a series of high-profile technical glitches have sparked wild swings in share prices, especially on US markets.” - said Divya Lahiri, spokeswoman for the NSE.

Emkay Global has accepted the responsibility for the erroneous trade entry and has approached NSE asking for annulment of the trades caused due to the entry. As of the 10th October, the trades have not yet been cancelled.

SEBI has initiated a separate probe into the matter and is looking at the chain of events leading up to the flash crash situation. The representatives of the exchanges are also reported to have approached SEBI asking the regulator to tighten the circuit filters applicable on large cap scrips in the market.

Questions are being raised however on the NSE’s implementation of market wide circuit breakers mandated by SEBI which stipulate that all trading in the market should be suspended in the event when an index moves more than 10% in either direction. Trading on NSE didn’t stop until the Nifty lost 15.6%. Also according to SEBI rules, the trading halt should have been enforced for 1 hour whereas NSE started trading within 15 minutes after the suspension.

The BSE continued trading throughout the halt.

http://www.ft.com/intl/cms/s/0/9869b272-0ecd-11e2-9343-00144feabdc0.html#axzz28QUSUC2R

http://timesofindia.indiatimes.com/business/india-business/Sebi-probes-NSE-flash-crash/articleshow/16691914.cms

http://www.bloomberg.com/news/2012-10-07/exchanges-asks-india-regulator-to-lower-price-bands-after.html

MCX-SX announces aggressive pricing, to commence operations with 1200 stocks and own index

MCX-SX, the newest entrant in the stock exchange business has started offering membership services at very competitive price points for its equities and derivatives segments slated to start operations in November on the eve of Diwali.

Under a special introductory offer valid until 18th October it has priced a composite membership of the cash and futures & options segments for Rs 30 lakh including a deposit of Rs 20 lakh and an admission fee of Rs 10 lakh. In a bid to expand its reach into tier 2 and 3 cities, it is offering a 20% discount for members in rural areas. A 10% discount is offered for professionally qualified individual members as well.


The bourse also announced its transaction charges which again are upto 50% lower than the competition. The MCX-SX will charge Rs 2 per Rs 1 lakh trading in the equity cash segment if the total traded value in a month is under Rs 1,000 crore while it will be Rs 1.75 per Rs 1 lakh if the monthly volume is over Rs 1,000 crore and under Rs 5,000 crore. If the volume is over Rs 5,000 crore, then the transaction fee will be Rs 1.50 per Rs 1 lakh. On the equity futures segment, if the total traded value in a month is under Rs 2,000 crore, the charge will be Rs 1.20 per Rs 1 lakh, and if it is over Rs 2,000 crore and under Rs 10,000 crore, it will be Rs 1.10 per Rs 1 lakh. But if the volume exceeds Rs 10,000 crore a moth, the chargeable fee will be a low Rs 1 per Rs 1 lakh, the exchange said. On the equity options front, the fee will be a flat Rs 25 per Rs 1 lakh of the premium for any the traded volume in a month.

The exchange also announced that it will create its own index SX-40 in partnership with Indian Statistical Institute (“ISI)”, FTSE and Financial Technologies Knowledge Management Company (“FTKMC”), which will be a free-float-based index of 40 large market cap and liquid stocks representing most important sectors. Initially the bourse plans to list around 1000 – 1200 stocks when it commences operations.

“We will list liquid stocks of BSE and NSE under permitted category initially” MCX-SX vice-chairman Jignesh Shah said.

Reacting to the aggressive pricing by MCX-SX, the NSE has also announce cuts in transaction fees (not quantified yet) as well as membership fees and net worth requirements by introducing a new class (Alpha class) for proprietary investors. NSE also reduced connectivity charges upto 76% for its members in the wake of new competition.

http://www.business-standard.com/india/news/mcx-sx-begins-membership-driveaggressive-pricing/485485/


http://www.business-standard.com/india/news/mcx-sx-preparing-own-benchmark-index/486248/

http://business-standard.com/india/news/mcx-sx-aims-to-begin-trading1200-stocks-/486331/

http://www.financialexpress.com/news/mcxsx-effect-nse-to-cut-transaction-fees/1001695/

http://www.moneycontrol.com/news/market-edge/nse-counters-mcx-sx-membership-price-waralpha-class_761215.html

http://business-standard.com/india/news/nse-cuts-connectivity-cost-for-brokers/187183/on

http://www.business-standard.com/india/news/nses-new-sweeteners-to-cut-trading-fee/487476/

NSE launches ‘Emerge’; MCX-SX to set up SME board next year

NSE launched its SME platform ‘Emerge’ on 18th September with the finance minister P Chidambram honoring the inauguration. The first company to launch IPO and list on the board is Thejo Engineering.

The SME platform of BSE is well on its target to list 30 companies by the year end according to BSE. It has been performing well with 6 out of 7 stocks listed so far trading at a premium. BSE also started providing research reports from independent research agencies on the companies listed on its SME board on its website.

MCX-SX has also announced its plans to start an SME platform in the next year once its equity segment is stabilised.

http://businesstoday.intoday.in/story/nse-sme-exchange/1/188197.html

http://www.moneycontrol.com/smementor/news/indian-markets/bse-starts-providing-reportscos-listedsme-platform-760528.html

http://articles.economictimes.indiatimes.com/2012-09-23/news/34040707_1_max-alert-systems-bcb-finance-sangam-advisors


http://www.business-standard.com/india/news/mcx-sx-plans-to-offer-sme-platformnext-year/486126/

BSE joins Sustainable Stock Exchanges league

Bombay Stock Exchange has joined the Sustainable Stock Exchanges by publically committing to promote sustainable investment practices amongst its members. The Brazilian stock exchange BM&FBOVESPA, Egyptian Exchange (“EGX”), Istanbul Stock Exchange (“ISE”), Johannesburg Stock Exchange (“JSE”), and NASDAQ OMX are other members of the group.

http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=310&Sitemap_x0020_Taxonomy=ISAR%20-%20Corporate%20Transparency%20-%20Accounting;

Sensex, Nifty rise to highest levels in 15 months

Both Sensex and Nifty have been witnessing market wide rally in the recent weeks on the back of strong economic reforms and policy decisions by the government and have reached their highest levels in the past 15 months. While NSE Nifty reached the 5750 mark, the BSE Sensex has crossed the 19000 mark.

http://in.reuters.com/article/2012/09/28/markets-india-stocks-idINL4E8KS4UP20120928

http://www.hindustantimes.com/business-news/Markets/Sensex-zooms-to-14-month-high-as-reforms-return/Article1-930131.aspx


FSA releases English translation of AIJ Review

On 4th September, a paper titled ‘Review of the Regulation and Supervision regarding Asset Management building on the Experience from the case of AIJ Investment Advisors Co., Ltd.’ Key points made in the report are as follows.

— A mechanism shall be developed by domestic trust banks to directly obtain net asset value (“NAV”) and an audit report from the reporting source. Domestic trust banks must also develop systems to perform double checks data.

— Information provided in Investment reports will be enriched to include the structure of the scheme, the calculation method of the NAV and the presence or absence of audit reports.

— Reports must now be released once per quarter

— Eligibility requirements for pension funds to be classified as professional investors will become stricter

Penalties for breached have been made tougher with prison terms increasing from between six months and 3 years to 3 to 5 years (depending on the breach). Potential fines have been increased to ¥3 to 5 million.

For the full report see here: http://www.fsa.go.jp/en/refer/measures/aij.pdf

Venue Updates

SBI Japannext launches new trading system from NASDAQ OMX

Japan’s second largest trading venue launched the new X-stream INET system on 1st October. The new technology is billed as ultra-low latency with throughput capacity advantages compared to the previous platform.

The NASDAQ OMX X-stream technology is now used in 22 markets and is capable of handling equities, commodities, debt, ETFs, swaps, futures and options on a single platform.

Japanese Market Structure Update




Global Market Structure Japanese Newsletter Issue 21





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

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13Japanese Market Structure Monthly Newsletter

TSE trading overview

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

Sourceswww.fsa.go.jp

www.tse.or.jp

www.en.japannext.co.jp

Trading Volumes

Trading Value Change

from last month

Change from month last year

Daily average

1st Section 35,944 215,981 - 9,184 -41,710 11,367

2nd Section 323 397 - 108 - 145 20

Mothers 118 2,059 + 319 - 972 108

ETF 100.4 1,227 - 368 -1,025 64

REIT 1.2 2,504 + 319 + 169 131

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 2,329,106 + 1,247,344 + 197,508 122,585 551,657

(TOPIX Futures) 2,001,082 + 1,155,588 - 67,037 105,319 390,930

JGB-Futures 789,477 + 21,979 + 152,837 41,551 77,220

(10-year JGB Futures) 789,477 + 21,518 + 152,837 41,499 76,885

Index Options 1,151 + 746 - 330 61 1,670

Options on JGB-Futures 118,438 - 62,832 - 22,053 6,234 8,899

Individual Options 21,490 - 1,228 - 27,346 1,131 41,628

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

Trading Volumes

Trading Value Change

from lastDaily average

Domestic Stocks 87,963 104,994 - 42,195 5,526

TOPIX 68,076 50,974 - 15,037 2,683

Nikkei 225 4,304 39,238 - 28,439 2,065

Other 15,584 14,783 + 1,281 778

REIT 1,699 1,740 - 476 92

Foreign Stocks 5,872 2,979 + 1,413 157

Foreign Bonds 6 207 + 48 11

Commodities 4,950 12,825 + 4,699 675

Total 100,491 122,745 - 36,511 6,460

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


South Korean short selling rules to change from 30th October

The current rules for short selling in Korea have been amended to allow the regulator to implement a ban if they deem it necessary. The change in the rules is not in itself a ban on short selling.

From 30th October, the scope of the securities subject to the regulations will be expanded to include stocks that average a short position ratio of over 5% (or 3% for KOSDAQ securities in the previous 20 trading days), the KRX will report and request for approval for a short ban on that stock to the FSC. The previous rule that affected stocks that reach a short selling value of 5% of the total transaction value from the previous 20 days (or 3% for KOSDAQ securities) still applies.

The KRX will post on their website stocks that are under review by the FSC for short ban approval, and even though the short volume or position exceeds 5% (3%), it doesn’t mean that the issue will automatically be banned. It should however be noted that the KRX can also apply to the FSC for short selling to be banned on a given security even without the above criteria being reached.

The penalties for a breach of the rules have also been updated with the duration of the penalty being differentiated on the basis of transaction value and number of days affected. The KRX has published the below summary table.

Members of the KRX will now be required to further investigate settlement failures without exemption. Previously, if the failure was due to a ‘simple error in instruction statement or by delay in receiving the statements’, the member was exempt from the need to investigate further.

Regulators are still in discussion on whether they should publish aggregate short balances in line with the publication of data in other markets such as Hong Kong who started publishing data on 7th September.

The full announcement can be accessed here:

http://eng.krx.co.kr/coreboard/BHPENG09004/view.jspx?srchTitle=&srchWord=&srchCate1=&curPage=1&bbsSeq=19968&secretYn=N

South Korean Market Structure Update


Monthly ADT (Aug 2012) USD$7.47bn 25.39% Source: Thomson Reuters, 2012


Global Market Structure South Korea Newsletter Issue 21





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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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Duration of regulatory actions based on transaction value and # of days of Regulation Breach

Value of Regulation Breach (in KRW)

# of days 0.5 bil. or less 0.5bil. ~ 1 bil. More than 1bil.

1 day none 20 days 40 days

2~4 days 20 days 40 days 60 days

5 days or more 40 days 60 days (Significant Breach) 60 days of pre-delivery requirement

15South Korean Market Structure Monthly Newsletter

FSC revise regulations to implement Basel III

On 27th September, the South Korean regulator released the ‘Plan for Revision to Regulations on Supervision of Banking Business’ in order for the Basel III rules to be implemented domestically by 2013.

The minimum capital requirements have been revised, a capital buffer has been introduced and conditions set out for corrective measures and the evaluation of management status. The table below taken from the FSC paper sets out the key changes:

Corrective Measures Current Proposed revision

Management improvement recommendation

Less than 8% of BIS ratio

1. less than 8% of the total capital 2. less than 6% of Tier 1 capital 3. less than 4.5% of common Tier 1

Management improvement

requirement Less than 6% of BIS ratio

1. less than 6% of the total capital 2. less than 4.5% of Tier 1 capital 3. less than 3.5% of common Tier 1

Management improvement order

Less than 2% of BIS ratio

1. less than 2% of the total capital 2. less than 1.5% of Tier 1 capital 3. less than 1.2% of common Tier 1

Venue News

KRX and SET sign a contract for the development of clearing and settlement systems

The KRX and the SET have agreed to develop an integrated clearing and settlement system in two phases. The first phase is expected to last for 16 months and will develop the technology for derivative products with cash products following in the second phase scheduled to last for a further 8 months.

The Korean exchange is also working with the Bursa Malaysia and the Philippines Stock Exchange on additional system development projects.

Sourceswww.krx.co.kr

www.fsc.go.kr


‘Short selling: Post-implementation review’ released by ASIC

September 2008 saw Lehman Brothers file for Chapter 11 bankruptcy and global markets fall into crisis. Many regulators reacted by introducing a temporary ban on short selling with a view to reducing the downward slide of the stock markets. ASIC have reviewed the data from September 2008 – November 2008 (when the Australian ban on covered short selling was in place for non financial stocks) and May 2009 (when the restrictions were lifted for financial stocks) to consider whether this ban in fact had the intended result.

It was concluded that there was reduced liquidity and a widening of spreads at the time of the ban on covered short selling, both in Australia and in other markets that pursued a similar course. Although the ban may have been a contributing factor, it should be taken in the context of the general macro conditions – the report notes that there was extreme uncertainty and volatility. ASIC also found that short selling tends to lag a fall in stock price rather than leading or causing a stock price decline.

Settlement failures were found to have reduced during the ban period although there were also increased penalties imposed for failures. Compliance costs for implementing the short selling measures are summarised below:

Costs of complying with the short selling measures—AFMA members

However, ASIC also stated that in exceptional circumstances, such a move may be justified in order to reduce the risk of greater market disorder, to bolster investor confidence and limit the potential for international regulatory arbitrage.

The full text of REP302 can be accessed here:

http://www.asic.gov.au/asic/asic.nsf/byheadline/12-233MR+ASIC+reports+on+GFC+short+selling+restrictions?openDocument

Australian Market Structure Update

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

Total market ADT AUD$4.14bn 15.50%

Lit ADT AUD$3.84bn 8.80%

Dark ADT AUD$0.16bn 28.89%

OTC ADT AUD$0.13bn 76.09% Source: Thomson Reuters, 2012


Global Market Structure Australian Newsletter Issue 21





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20112010 2012

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

Fig 2: Equities Daily Turnover per venue - Sep 2012

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

Fig 4: Equities Spreads (bps) - Sep 2012

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Sep 20: All Equity IndexDerivatives Expiration

Sep 27: All Individual EquityDerivatives Expiration

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IT or system build costs

$390,00 $500,000 $687,000

Compliance and legal costs

$135,000 $229,000 $438,000

Non-capital operating costs

$81,000 $125,000 $292,000

Opportunity costs $1.5m $6m $15m

17

ITG find ASX view on dark executions does not reconcile with data

In a paper titled ‘Dark Pool Concerns: Trying to Solve a Problem that Doesn’t Exist?’, ITG have conducted analysis on the ASX numbers that have been used to promote the idea that dark pool trading is on the increase to the detriment of the lit markets.

Using the ASX’s definition and data, ITG found that the execution percentages on the lit market have been steady for the last 10 years and if anything, the proportion of trading on the lit market has increased (n.b. Centrepoint orders were introduced in 2010).

Also of interest is that ITG found the ASX has been including in its definition of “dark” liquidity long established off market transaction types such as the exercise of option puts and calls, futures expiries, Portfolio Crossings, Special Block Crossing and Priority Crossings. These types of transactions have not historically have been available to the general market and are generally accepted as legitimate to conduct away from a lit order book (note that these types of transactions have been explicitly considered by ASIC in the series of recent Market Structure consultations). In contrast the recent debate has been focused more on so called ‘dark pool’ crossing engines.

The paper concludes that even though there may be new mechanisms for crossing orders, there is little net impact to overall market composition. According to a speech given by Belinda Gibson in April 2012, the market share of dark pools at the end of 2011 was 4%. In a final statement, ITG says

“ While it is important to monitor and build regulation and market structures not only for today’s market but also, as far as possible, for the markets of the future, it is neither constructive nor beneficial for anyone if measures are put in place to address problems that do not exist.”

For a full copy of the paper see here:

http://www.itg.com/news_events/insights/Blotter_Corcoran_101012.pdf

Treasury releases paper considering takeover issues

Following recent concerns over ‘creeping acquisitions’, the Australian Treasury has released a paper considering the takeover provisions that allow a shareholder with a stake of at least 19% to acquire an additional 3% in each six month period. ASIC had highlighted that this could allow a shareholder to use the method to acquire a controlling stake without making a formal takeover bid. This in turn could lead to uncertainty in the market as to the details of an acquisition, allow the acquirer to avoid paying a takeover premium and mean that shareholders in the target company may not have an equal opportunity to participate in the transaction.

The paper will be used as the basis for a series of roundtable discussions with key business, legal and market stakeholders that will result in a more detailed discussion paper being released.

To view the paper click here:

http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2012/takeovers%20issues/downloads/Taskeovers-issues-TSY-scoping-paper.ashx

Venue News

ASX to be investigated by ASIC following second outage in a year

23 companies due to make price sensitive announcements were forced into a trading halt when the ASX stopped publishing company news due to system problems. Companies affected included steel maker Arrium, Continental Coal, Cooper Energy, BCD Resources, Frontier Resources and Quickfix. There were no announcements made between 12.11pm and 3.56pm.

In a statement released by an ASX spokeswomen, the exchange pointed out it was not an issue with the trading technology but was rather ‘just the publication of company announcements’ that they were unable to deliver. The issue was caused by a ‘database application issue’ that they viewed as ‘relatively minor in scale’.

The last outage saw the entire market shut for several hours. ASIC later found the issue was due to insufficient testing of new functionality.

Chi-x reaches 8.4% market share

On 10th October, the alternate trading venue in Australia reached 8.4% market share. The on market value was AU$272,027,313 representing a volume of 56,178,467 shares.

Chi-x Australia Daily Reports can be accessed here:

http://www.chi-x.com.au/

VolumeMatch to close on 10th November

The ASX are closing VolumeMatch, the large order execution service that was launched on 28th June 2010. The exchange stated this move was following the launch of Centre Point Block, a dark order type that operates in a similar manner to Centre Point with the ability to set a Minimum Acceptable Quantity.

Australian Market Structure Monthly Newsletter





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20112010 2012


Fig 5: Equities Volatility - September 2012

Fig 6: Futures SFE-ASX SPI 200 monthly ADT

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18Australian Market Structure Monthly Newsletter

ASX Trade Reporting Facility fee cap reduced

As of 1st November, the ASX will reduce the monthly fee cap from AU$8,000 to AU$6,000 meaning the ASX will be able to rebate all fees on trade reports in excess of that value. The calculation will also be changed to include NBBO Crossing Trades reports.

For the full fee schedule, click here:

https://www.asxonline.com/intradoc-cgi/groups/participant_services/documents/communications/asx_035019.pdf

Source:www.asic.gov.au

www.afr.com

www.smh.com.au

www.itg.com

www.treasury.gov.au

www.4-traders.com


Changes to disclosure regime due to commence on 19th November

On 5th October, MAS released the updated disclosure rules that will extend the universe of stocks to include foreign incorporated companies with a primary listing on the SGX and to include Chief Executive Officers who are not directors.

The FAQs and disclosure forms can be accessed on the MAS website via these links:

http://www.mas.gov.sg/~/media/FAQs_on_Disclosure_of_Interests.pdf

http://www.mas.gov.sg/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Funds-Management/Forms/Disclosure-of-Interests.aspx

MAS consult on proposals to designate tax crimes as money laundering

In an effort to fully align the legal and policy regime with the Financial Action Task Force (“FATF”) Recommendations, Singapore is looking to designate a sufficiently broad range of serious tax crimes to discourage the entry of tax evasion monies into the financial system.

The paper stresses that “FIs will need to understand client’s tax-risk profile and apply customer due diligence, transaction monitoring and control measures that are commensurate with the assessed risks, to effectively detect and deter the laundering of proceeds from serious tax offences through the financial system. “

The consultation is open until 9th December and can be accessed here:

http://www.mas.gov.sg/~/media/resource/publications/consult_papers/2012/9%20October%202012%20Designation%20of%20Tax%20Crimes%20as%20Money%20Laundering%20Predicate%20Offences%20in%20Singapore.pdf

Singapore might allow dual-class share structure for listed companies

Singapore government might amend its Companies Act to allow public companies to offer dual-class shares to the public. The finance ministry plans to submit the amendments to Singapore’s Parliament after seeking public comments on the proposal early next year.

SGX however, hasn’t yet decided on whether to allow listed firms to issue shares with varying voting rights and is expected to make its decision after consulting with the Monetary Authority of Singapore.

Philippines set to expand into new products

The Philippines Securities and Exchange Commission (“SEC”) is looking to finalise and release the rules governing the setup and trading of Exchange Traded Funds (“ETFs”) and other new products such as real estate investment trust (“REIT”) and collective investments schemes in the local market. The introduction of halal equity issuances and Islamic bonds (sukuk) is also being looked at according to the SEC

Chairman Teresita Herbosa.

The Philippines also adopted the newly released standard of corporate governance titled the “ASEAN corporate scorecard” Jesus Estanislao, chairman of the Institute of Corporate Directors (“ICD”) said. The scorecard is a project developed by the ASEAN and funded by the Asian Development Bank. It has already been employed by ASEAN member-states Malaysia, Singapore, Thailand and Indonesia. The Philippines and Vietnam are the new members. It supersedes the National Corporate Governance Scorecard implemented by the ICD and public companies listed under the Philippine Stock Exchange would now be screened using more than 190 questions, as compared to the previous scorecard which had only 110 questions. The first ASEAN Scorecard assessment in the Philippines will be conducted on 25th and 26th October.

ASEAN Market Structure Update




Global Market Structure ASEAN Newsletter Issue 21






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

Fig 2: Equities Daily % order type - September 2012

Fig 3: Futures SGX MSCI Singapore monthly ADT

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20ASEAN Market Structure Monthly Newsletter

Venue News

Thai Index, PSEi and JCI reach all time high

The SET index has reached an all time high after reaching 1,300.17 points before closing at 1,305.66 on 2nd October. This is its highest close in 16 years. The index has risen 27.3% since the start of this year.

The Philippine Stock Exchange index rallied past its all time high closure level on 3rd October and closed at 5,375.52 while the Jakarta Composite Index (“JCI”), Indonesia touched an all time high of 4.269.04 on 15th September on the back of the announcement of US Federal Reserve’s new stimulus package QE3. Analysts believe that the share price rally would continue because like in the previous years, the new stimulus program was also expected to trigger the influx of foreign funds into the local market.

SGX and Bursa Malaysia commence cross border trading under the ASEAN Trading Link

The ASEAN trading link was officially rolled out on 18th September when the bourses from Singapore (“SGX”) and Malaysia (Bursa Malaysia) connected to facilitate cross border trading, allowing brokers in each country to deal in securities of the other. The link aims to enhance market access and liquidity through promoting ASEAN-branded products in the global market. It provides global investors a single entry point into ASEAN stock exchanges and facilitates the flow of capital around ASEAN member nations.

The Stock Exchange of Thailand (“SET”) will be the third partner joining the link next month completing the coverage of 70% of the total market capitalisation of the region. 31 brokers across Singapore, Malaysia and Thailand have already joined the trading link including CIMB Investment Bank and Maybank Investment Bank (two of ASEAN’s biggest investment banks).

The brokers of participating countries will enter into agreements with each other so that when an investor places an order, it will be routed by the local broker to the exchange on which the stock trades. The activity will be governed by the rules of the country and exchange on which the stock is listed, and the trade will still clear and settle locally. Sungard have provided the technology platform and various rebates are being given on market data to help encourage brokers to participate.

SGX-DC proposes rule changes for clearing of OTC Derivatives

Singapore Exchange Derivatives Clearing Limited (“SGX-DC”) has proposed changes to its Clearing Rules which will enable its Clearing Members to clear over-the-counter financial derivatives (“OTCF”) transactions for their customers. Currently the Clearing Members are permitted to clear proprietary OTCF transactions only.

The proposal also includes an Enhanced Customer Collateral Protection model which provides an option for all customers clearing OTC contracts through SGX-DC to protect against the use of their collateral in the event of default of other customers.

The consultation is open till 24th October and can be accessed here -

http://www.sgx.com/wps/wcm/connect/56cb85804cf1507fa390ef8e8ccf4cd1/SGX-DC+Client+Clearing+Rule+Amendments+PC+%2803.10.2012%29.pdf?MOD=AJPERES

SGX proposes to increase retail allocation of shares in IPOs

The SGX is consulting public on proposals which aim to increase retail participation in the IPOs on the mainboard of its equities platform. The key proposals are to

— increase the minimum allotment of public subscription to 5% of IPO invitation shares

— introduce a claw-back mechanism that acts to increase the public subscription proportion to between 10% and 20% if the stock is in great demand and retail tranche is oversubscribed

— have a “reverse claw-back mechanism” which is activated when the stock demand is low so that shares meant for public subscription can be transferred back to the placement tranche

The consultation is open till 29th October and can be accessed here -

http://www.sgx.com/wps/wcm/connect/33a800804ce115beae2dae2cba30b851/20121001_SGX_Consultation_Paper_Initiatives_In_Relation_To_Offer_Structures_Of_IPOs_Final.pdf?MOD=AJPERES&CACHEID=33a800804ce115beae2dae2cba30b851

SGX set to list its first Yuan based REIT

SGX has given its approval to ARA Asset Management, the Singaporean real-estate firm partly owned by Hong Kong tycoon Li Ka-shing for listing Singapore’s first yuan-denominated REIT. Dynasty REIT will be a Singapore real estate investment trust with an initial portfolio of three commercial properties in Nanjing, Dalian and Shanghai, ARA said. The REIT will also offer investors the flexibility to trade its units in either yuan or Singapore dollars via SGX’s dual-currency trading platform.

SGX partners Savvis for providing local hosting services

SGX has teamed up with the US-based data center services provider Savvis to provide its customers in Singapore with direct low-latency connectivity to SGX’ market services. The partnership covers managed hosting, colocation, network and low-latency market-connectivity services. Both the companies will provide dual-site hosting for resiliency.

“We are delighted to work closely with Savvis in promoting our ultra-low latency colocation services and to offer dual-site hosting to financial institutions, which is ideal for business continuity.” Tinku Gupta, head of market data and access at SGX, said.

SGX enters into an MoU with the Turkish Stock Exchange

SGX has signed a Memorandum of Understanding (“MoU”) with Istanbul Menkul Kıymetler Borsası (“IMKB”), the primary Turkish securities exchange which facilitates a greater collaboration on investment opportunities within the respective markets, as well as knowledge transfer, sharing of information, and conferral on best practices.

“We look forward to developing a mutually beneficial partnership with IMKB and to support Turkish companies and market participants in tapping into the Singapore capital market. As the Asian Gateway, SGX supports global investors who seek to expand their presence in Asia and beyond.” said Mr Chew Sutat, Executive Vice President, SGX.

TFEX to launch new derivative products on 29th October

Thailand Futures Exchange (“TFEX”), a part of the Stock Exchange of Thailand group, will be launching new versions of SET50 Index Futures and SET50 Index Options, and also introduce Sector Index Futures on 29th October, 2012. This is aimed at providing more investment choices for investors and boost market liquidity.

SET third best in Asia in terms of Corporate Governance

The Stock Exchange of Thailand has been ranked as the third best Asian exchange in terms of corporate governance after SGX and HKEx in the CG Watch 2012. Thailand’s score improved in following four areas while still needing improvement on the Political / Law enforcement front

(1) Speedy information disclosure by listed companies and tough auditing rules(2) Rule enforcement among the private sector(3) Accounting and auditing(4) Overall prospect of corporate governance

21ASEAN Market Structure Monthly Newsletter

PSE enhances disclosure rules for minimum public float

The Philippine Stock Exchange has enhanced its disclosure rules governing minimum public ownership of listed companies. According to the new rules, all the listed companies must

— Immediately disclose to the PSE upon realising that their public float levels have dropped below the prescribed minimum percentage of 10%

— Institute an effective procedure for monitoring of public float including computation of public float on a monthly basis

— Submit a public ownership report within 15 calendar days after the end of each month in case their public shareholding is found to be below 12%

— Comply with these rule latest by 1st January 2013

Companies failing to comply will face a 6-month suspension from PSE leading to delisting if they do not comply within the suspension period as well. A number of companies are well short of the minimum 10% public float currently and it is being speculated that many of them might opt to delist rather than trying to shore up the public shareholding.

PSE revises plans to create new listing board

After considering the public views on its consultation on creation of a new board to replace the second and SME boards, the Philippine Stock Exchange has revised its plans and instead proposed to consolidate the First and Second boards into one (to be called the Main listing board) and retain the SME board as it is.

PSE has also suggested enhancements in the listing criteria. Under the new proposal, the companies seeking listing on the main board should have

— At least 1,000 stockholders

— Minimum market capitalization of P500 million

— EBITDA (earnings before interest, taxes, depreciation, and amortization) of at least P50 million

— Minimum authorized capital stock of P500 million (at least 25% of which must be subscribed and fully paid)

— A three-year operating history

While for the SME board the criteria will be

— A minimum authorized capital stock of P100 million

— Three-year EBITDA of at least P15 million

— A three-year operating history

— Holding, portfolio, or passive-income companies will be barred from listing on the SME board

— An applicant firm will not be allowed to offer secondary shares or change its primary purpose as long as it is on the SME board

The proposals were open for comments till 2nd October on PSE’s website.

Bursa enhances eCash Payments framework

Bursa Malaysia has extended its eDividend facility to encompass all kinds of cash payments including interest or profit rates on debt securities or sukuk, income distribution by REIT or ETF and capital repayment made by listed issuers to the holders of their securities.

“The expansion of the electronic payment to other types of cash payments by listed issuers is aligned to our national agenda of migrating to electronic payment systems that expedite the crediting of cash payments for corporate exercises and reducing the cost associated with the issuance of cheques by listed issuers.” Dato’ Tajuddin Atan, CEO Bursa Malaysia said.

Bursa Malaysia Derivatives awarded for Technological Innovations

At the Futures & Options World Award ceremony held in Singapore, the Bursa Malaysia Derivatives was declared as a runner up in the “Asian Derivatives Exchange of the Year” award category and also won the “Best Technology Innovation by an Asian Exchange” award because of easy accessibility and global connectivity of the Malaysian derivatives market.

Several technological enhancements were undertaken by BMD including migration to the Chicago Mercantile Exchange’s GLOBEX Trading Platform, hosting an Order Management System and launching a new Derivatives Clearing System with multiple functionalities and capabilities with a SPAN risk-based margining system.

“Derivatives are becoming well accepted as tradeable and hedging products that create opportunities and we see huge potential in this market. The partnership with the CME Group has indeed assisted our growth story and this award recognition clearly validates the economic path that Malaysia has taken to globalise the derivatives market.” Dato’ Tajuddin Atan, Chairman BMD said.

Personnel News

Timothy Utama joins SGX as Chief Operations and Technology Officer

SGX has announced the appointment of Timothy Utama as its Chief Operations and Technology Officer reporting to CEO Magnus Bocker effective 1st December 2012. Prior to SGX, Mr Utama worked with Standard Chartered Bank for 15 years. He was on the Executive Board of Directors of PT Bank Permata Tbk, the 8th largest Bank in Indonesia [majority owned by Astra International (44.5%) and Standard Chartered Bank (44.5%)] and the Head of Wholesale Banking Operations of the Global Shared Services Centre of Standard Chartered Bank based in India.

“We are pleased to welcome Mr Utama to our management team. His diverse and global experience and knowledge will help further improve our operations and technology capabilities. We look forward to his contribution towards ensuring that SGX stays ahead in the dynamic marketplace.” - said Mr Magnus Bocker.


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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Liquidity

Historical Volatility

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

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


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


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24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

03-S

ep

04-S

ep

05-S

ep

06-S

ep

07-S

ep

10-S

ep

11-S

ep

12-S

ep

13-S

ep

14-S

ep

17-S

ep

18-S

ep

19-S

ep

20-S

ep

21-S

ep

24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

03-S

ep

04-S

ep

05-S

ep

06-S

ep

07-S

ep

10-S

ep

11-S

ep

12-S

ep

13-S

ep

14-S

ep

17-S

ep

18-S

ep

19-S

ep

20-S

ep

21-S

ep

24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

Sources:Deutsche Bank AG estimates and calculations


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

23Quant 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


18.0

16.0

12.0

8.0

10.0

14.0

20.0

22.0

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


03-S

ep

04-S

ep

05-S

ep

06-S

ep

07-S

ep

10-S

ep

11-S

ep

12-S

ep

13-S

ep

14-S

ep

17-S

ep

18-S

ep

19-S

ep

20-S

ep

21-S

ep

24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

03-S

ep

04-S

ep

05-S

ep

06-S

ep

07-S

ep

10-S

ep

11-S

ep

12-S

ep

13-S

ep

14-S

ep

17-S

ep

18-S

ep

19-S

ep

20-S

ep

21-S

ep

24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

03-S

ep

04-S

ep

05-S

ep

06-S

ep

07-S

ep

10-S

ep

11-S

ep

12-S

ep

13-S

ep

14-S

ep

17-S

ep

18-S

ep

19-S

ep

20-S

ep

21-S

ep

24-S

ep

25-S

ep

26-S

ep

27-S

ep

28-S

ep

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% 84.9% 88.5% 85.3% 92.0% 81.1% 71.4% 81.2% 87.9% 86.1% 74.6% 74.2% 80.2% 78.0% 49.3% 68.5% 67.1%84.9% ##### 92.7% 84.5% 91.3% 92.2% 78.9% 82.1% 90.3% 88.3% 73.3% 87.2% 83.2% 83.1% 70.0% 78.7% 79.4%88.5% 92.7% ##### 88.7% 94.6% 90.5% 80.7% 86.1% 87.8% 88.8% 72.0% 83.1% 82.3% 85.9% 69.3% 80.2% 75.4%85.3% 84.5% 88.7% ##### 93.4% 84.6% 74.1% 83.4% 83.9% 86.1% 58.8% 74.5% 78.7% 84.7% 61.7% 75.2% 65.1%92.0% 91.3% 94.6% 93.4% ##### 89.4% 73.8% 83.6% 89.4% 89.9% 71.5% 79.4% 84.5% 87.9% 60.8% 77.5% 72.3%81.1% 92.2% 90.5% 84.6% 89.4% ##### 72.8% 82.7% 87.1% 83.3% 75.1% 82.2% 80.8% 90.0% 63.6% 77.9% 75.2%71.4% 78.9% 80.7% 74.1% 73.8% 72.8% ##### 72.5% 70.2% 67.6% 64.4% 70.7% 82.9% 71.4% 75.1% 68.3% 68.5%81.2% 82.1% 86.1% 83.4% 83.6% 82.7% 72.5% ##### 86.3% 82.8% 68.9% 82.6% 76.2% 82.5% 72.3% 75.3% 59.7%87.9% 90.3% 87.8% 83.9% 89.4% 87.1% 70.2% 86.3% ##### 90.4% 78.8% 76.0% 80.6% 82.5% 61.6% 70.2% 71.2%86.1% 88.3% 88.8% 86.1% 89.9% 83.3% 67.6% 82.8% 90.4% ##### 68.5% 76.7% 77.6% 76.0% 57.4% 78.3% 63.6%74.6% 73.3% 72.0% 58.8% 71.5% 75.1% 64.4% 68.9% 78.8% 68.5% ##### 66.6% 76.0% 72.4% 59.3% 63.5% 64.2%74.2% 87.2% 83.1% 74.5% 79.4% 82.2% 70.7% 82.6% 76.0% 76.7% 66.6% ##### 73.9% 73.9% 72.4% 73.4% 61.2%80.2% 83.2% 82.3% 78.7% 84.5% 80.8% 82.9% 76.2% 80.6% 77.6% 76.0% 73.9% ##### 80.0% 67.7% 74.8% 72.3%78.0% 83.1% 85.9% 84.7% 87.9% 90.0% 71.4% 82.5% 82.5% 76.0% 72.4% 73.9% 80.0% ##### 65.9% 76.6% 71.4%49.3% 70.0% 69.3% 61.7% 60.8% 63.6% 75.1% 72.3% 61.6% 57.4% 59.3% 72.4% 67.7% 65.9% ##### 63.7% 57.9%68.5% 78.7% 80.2% 75.2% 77.5% 77.9% 68.3% 75.3% 70.2% 78.3% 63.5% 73.4% 74.8% 76.6% 63.7% ##### 53.5%67.1% 79.4% 75.4% 65.1% 72.3% 75.2% 68.5% 59.7% 71.2% 63.6% 64.2% 61.2% 72.3% 71.4% 57.9% 53.5% #####

24

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