China leads 2012 Asian market structure reforms
A further move to open up Chinese markets to foreign
investors highlights a series of changes across Asia that will dictate the
continuing evolution of market structure in the region during 2012.
China – the rise of
Foreign investors seeking access to China have received a
boost, with Hong Kong regulator the Securities and Futures Commission granting
renminbi qualified foreign institutional investor (RQFII) status to a further
four fund managers.
The four newly approved firms comprise: CSOP Asset
Management; Da Cheng International Asset Management; China Universal Asset
Management (Hong Kong); and Guotai Junan Assets (Asia).
The latest move followed the approval of RQFII status for 21
companies on 22 December 2011 – of which nine were for fund management firms –
and marks an expansion of both the country’s ambitions for the renminbi, as
well as a milestone for foreign investors, who have traditionally found it
difficult to obtain QFII licences, with few issued in recent years.
The RQFII program builds on the original QFII program, which
is denominated in US dollars. The RQFII initiative will allow foreign firms to
bring investments of offshore renminbi deposits back into China. It will also allow domestic Chinese brokerages
and fund companies to raise money offshore for investment in the domestic
The RQFII scheme is also expected to be particularly
attractive to Hong Kong-based firms, since China’s interest rate is higher than
that in Hong Kong, potentially easing the cost of investment in mainland China
for Hong Kong-based firms. Banks
in Hong Kong offer a range of RMB-denominated retail banking services, such as
deposit-taking, currency exchange, remittance, debit and credit cards, cheques,
and the subscription and trading of yuan bonds, as well as yuan trade
China’s State Administration of Foreign Exchange stated on
30 December 2011 that it had granted RMB 10.7 billion (US$0.159 billion) in
RQFII quotas so far, out of a planned RMB 20 (US$3.17 billion) in total.
Korea gets tough
Meanwhile in Korea, the Financial Services Commission (FSC)
and the Financial Supervisory Service (FSS) have taken a tough stance to shore
up confidence in the country’s securities markets, following an incident in
which rumours of an explosion at the Yongbyon nuclear facility in North Korea
caused local stocks and the Korean won to fall dramatically.
Korean regulators stated that they will not allow market
participants to use groundless rumours to manipulate the market, and announced
their intention to do whatever is necessary to limit the potential for
irrational financial market movements based on such rumours.
The FSS confirmed that it would set up a special team to
examine unfair trading of stocks, bonds and derivatives based on rumours about
North Korea and domestic political events.
“If any detect unfair transactions that take advantage of
bad rumours, we’ll instantly report related suspects to the prosecution for
investigation,” stated the FSC and FSS in a joint release. “If urgent, we can
drop the usual internal reviews of such cases and directly report them to
Japan plans OTC
In Japan, OTC derivatives took the spotlight, as the
Japanese Financial Services Agency (FSA) held a discussion last Friday to
discuss the creation of specialised electronic trading platforms for OTC
derivatives, including yen-denominated interest rate swaps.
The FSA proposes that exchange-traded product (ETP) market
operators will be required to register as Type 1 Financial Instruments Business
Operators (FIBOs). ETP market operators will be required to record and disclose
trade data publicly and to regulators, and will also need to implement rules
that ensure fair trading.
Foreign ETP operators may operate in Japan without
registration as a Type I FIBO, as long as they are regulated by their own home
country and a framework for cooperative oversight exists.
The FSA confirmed that it expected the new framework to be
in place within three years.
Australia - A new
In Australia, the federal government has introduced an
A$22.8 million (US$23.28) tax aimed at recovering the supervisory costs
incurred by regulator the Australian Securities and Investments Commission
The tax would be paid by market participants and operators,
and will be used to help ASIC pay for its assumption of supervisory powers from
the Australian Securities Exchange (ASX) in August 2010. Some observers have
already pointed to the similarity between the Australian tax and the financial
transaction tax that is currently at the centre of fierce debate in Europe.
France recently announced that it would take the lead in that initiative, which
is intended to cut back on speculative trading and restore confidence in
However, in Australia critics have countered that the ASIC
tax may push some brokers into the OTC markets, which is less regulated and
therefore more exposed to dangerous financial disasters. In December, ASIC sent
market operators and brokers invoices, estimating the amount payable from each
firm in 2012 for the service of market supervision. Smaller firms’
contributions were estimated at A$40,000 (US$40,836) to A$60,000 (US$61,254),
while larger brokers may have to pay more than A$1.5 million (US$1.53 million)
The tax charges partly based on message traffic – meaning
that high-frequency trading firms, which send out a high proportion of messages
to orders, will be particularly affected.