The successes and failures of European regional market infrastructure projects should be thoroughly examined by professionals embarking on similar initiatives in Latin America and Asia.
At a panel discussion at the Sibos conference in Boston, ‘Regional market infrastructure projects: lessons learnt’, the Single Euro Payments Area (SEPA) and TARGET2-Securities (T2S) were highlighted as projects worthy of study by the architects of the Latin American Integrated Market (MILA) as well as those involved in projects to align the equity and bonds markets of the Association of Southeast Asian Nations (ASEAN).
Ruth Wandhöfer, global head of regulatory and market strategy, treasury and trade solutions, Citi, said, “SEPA started off strongly with a set of common standards agreed by the industry, but soon it was realised that other areas of harmonisation were needed. But vested interests stood in the way and regulators were relatively late to join the initiative, which turned something that had seemed relatively simple into something much more complex.”
T2S, as an initiative of the European Central Bank, was a good example of the industry and regulators working very closely from the outset, Wandhöfer explained.
Alvaro Camuñas, regional head of Spain, Portugal and Latin America at BNP Paribas Securities Services, believed the MILA project, which seeks to integrate the stock exchanges of Chile, Colombia and Peru to enhance cross-border trade and investment in the region, may avoid some of the problems experienced in the construction of SEPA due to common underlying regulatory similarities.
“Latin America is easier to harmonise because the legal systems there stem from Spanish legal tradition so there are some similarities, though that’s not to say there are no legal and tax barriers to contend with in MILA,” he said. “Once we start to see the economic benefits that MILA can provide, I hope some of these concerns will start to fade away as the different countries realise they have a single, common objective in increasing investment in the region.”
Asia’s limited ambitions
In Asia, the market is seen as being far less homogenous, and Nico Torchetti, head of post-trade services at the Singapore Exchange, is doubtful that harmonization on the scale envisaged by MILA will ever be possible in the east.
“Asia is far from seeing any cross-border exchange mergers as levels of domestic protection are much higher. What we need to do in ASEAN is look at a way to convince the markets to come together to facilitate cross-border trade and reduce costs for investors, but there are still a lot of vested interests to content with,” he said.
The idea of a single regulator in either Asia or South America was also seen as highly unlikely, though panellists said that should deflect from attempts to harmonise rules across borders.
“There is absolutely no chance of a single regulator in Asia, but we can have a single broad rule book based on principles and this is how we need to drive the discussion today,” Torchetti asserted.
Wandhöfer added that lessons learned from Europe can help to inform Asia and Latin America over which initiatives are more attainable and can be driven through more easily.
“Coming up with these ideas is straightforward, but the execution is difficult,” she said. “T2S was very technical and run by regulators which has made it a success.”