Asian Bond Clearing and Settlement Conference by qov12652

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									  Asian Bond Clearing and Settlement Conference




      RSI Options: Background


               23 June 2009, Hong Kong

                     Inseok Shin




Contents

  1. Preceding Work: ADB TA Study (2007)

  2. GoE Pre-feasibility Study




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1. ADB Technical Assistance(TA) Study (2007)




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ADB TA Study (2007)

Project objectives
 Risk reduction in clearing and settlement
 Removing the barriers to cross-border bond
  investment

Project outcomes
 Suggestion of three RSI Options
 To conduct feasibility study of RSI options with
  more private sector involvement



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Three RSI options

           Option 1: Asian ICSD
           Option 2: Pan-Asian CSD
           Option 3: Asian Payments Bank

             All are aimed at reducing settlement risk
             and cost, harmonizing infrastructure,
             regional ownership of regional utilities




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Option1: Asian ICSD
   Custody and settlement
       3 business lines
         ASEAN+3 investors investing in other ASEAN+3 bond markets
         ASEAN+3 investors investing in US/European bond markets
         US/European investors investing in ASEAN+3 bond markets
       US$ bonds issued by Asian governments can be 'seed' business
   Direct users
       Banks and securities dealers
   Bridge to both European ICSDs
       Book entry settlement, securities vs cash
   Settlement geared to Asian time
       3 possible mechanisms (described in Final Report):
        Model A: Using local custodians
        Model B: Using direct links to local payments
        Model C: Direct links + special link to CLS


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Option1: Asian ICSD
Custody and settlement for cross-border bond transactions


                   Custodian          Euroclear /                  Securities
Investor
                     Bank             Clearstream                   Dealer

                                   DvP settlement bridge


                   Custodian                                       Securities
Investor                              Asian ICSD
                     Bank                                           Dealer

                                      Settlement links
                                (direct or via local custodians)

                     CSD                  CSD                         CSD
                                                                             etc
                     China              Indonesia                  Singapore
                                                                                   6




Option2: Pan-Asian CSD

    Depository for all debt securities issued in ASEAN+3
        Existing national CSDs could be sub-depositories
        Possible model: Euroclear Single Settlement Engine in Europe
    Direct users
        Banks, securities dealers, possibly institutional investors
    Link to local payments systems
        Settlement in central bank money




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Option2: Pan-Asian CSD
 Depository for all debt securities issued in ASEAN+3



                            Bond market           Bond market
                             Indonesia               Korea



                     Custodian          Pan-Asian         Securities
Investor
                       Bank               CSD              Dealer



                            Bond market           Bond market
                                                                etc
                             Malaysia               Vietnam


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Option3: Asian Payments Bank
    Assured payments versus payments
          PvP ASEAN+3 currencies vs US$
          PvP ASEAN+3 vs ASEAN+3
    Final settlement of US$ in Asian time zone
          Cash Settlement Model – ‘Asian CLS’
    Direct users
          Banks
    Link to ASEAN+3 local payments systems
    Special link to CLS Bank
          Enables PvP with participants of CLS




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                                                                           5
Option3: Asian Payments Bank
Assured payments versus payments, settlement in Asian time

                        USD (Fed)              Euro (ECB)


                  Member                               Member
     Investor                       CLS Bank
                   bank                                 bank
                              PvP settlement bridge

                                     Asian
                  Member                               Member
     Investor                      Payments
                   bank                                 bank
                                     Bank
                               PvP Settlement links

                  Phil peso        "Asian time"        Thai baht
                                      USD
                                                                   10




RSI - arguments for:

1.     Reduce risks and costs of cross-border bond and
       FX settlement
2.     Single gateway for whole region
3.     Consolidated holdings of collateral will help
       develop repo and derivatives market
4.     Jump-start the integration of regional markets
5.     Local ownership of regional infrastructure




                                                                   11




                                                                        6
RSI - arguments against:

 1.   Infrastructure is not the main barrier to
      development of bond markets
         Lack of price transparency, lack of yield curve,
          currency controls, withholding taxes…
 2.   Current volumes low, can be handled
      by existing providers
 3.   Is it feasible?  GoE Work




                                                             12




2. GoE Pre-feasibility Study :
   Exclusion and Addition of Options




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          Pre-feasibility Study
          (Aug 2008 – Dec 2008)

Objective
 Exclusion of options among the three* given by
  ADB TA report (2007) for the in-depth feasibility
  study
     *Asian ICSD, Pan-Asian CSD, Asian Payment Bank


    Addition of new options based on GoE members’
     suggestion and deliberation


                                                             14




          Pre-feasibility Study
          (Aug 2008 – Nov 2008)
Result
 Excluded ‘Pan-Asian CSD’ and ‘Asian Payment Bank’ option



On the ground that
1.    Focus on realistic options
2.    Focus on securities settlement model




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                                                                  8
          Pre-feasibility Study
          (Aug 2008 – Nov 2008)
Result
 Added ‘CSD Linkage for Asia’ as a new option for study



On the ground that
1.  Possibly Doable option
  - historically one of the evolutionary path for cross border settlement infra
2. Existing model (proven to work)
 - ‘Link up markets’ (multiple CSD linkage among European CSDs) is
    about to begin operating




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                                                 Contacts
           GoE Website operated by ADB
             GoE web: http://asean3goe.adb.org
      For further information, please contact:


           GoE Chair
              Inseok Shin (Dr.), Advisor to Korea Securities Depository
                  E-mail: ishin@cau.ac.kr
           Asia Development Bank
              Satoru Yamadera(Mr.) Economist
                  E-mail: syamadara@adb.org




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