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ôWe need to explore various avenues for a regional clearing centre and need to work together as a region to chart the progress,ö says Professor Lee Jong-Wha of the office of regional economic integration at the ADB in Manila. ôThe ADB will stimulate dialogue on this issue as we realise that a regional clearing and settlement infrastructure is fundamental to the Asian bond market.ö
Individual markets have made dramatic improvements in domestic clearing and settlement infrastructure since the Asian financial crisis of 1997.
ôMuch progress has been made since 1997, wherein most countries in Asia have been able to provide a more transparent and well regulated bond clearing and settlement system and work in an environment where settlement cycles have come down,ö says Ong Chong-Tee, deputy managing director at the Monetary authority of Singapore. ôHowever, there has been less progress made in integrating into a central clearing and settlement depository [CSD] across the region.ö
In the keynote address of the ADBÆs one-day conference, Ong was one of several speakers pushing the idea of a CSD for the Asian bond markets. He called on the clearing and settlement community, rather than the government, to take the lead in promoting this initiative. He also explained that the establishment of a centralised body would not be without cost, but would bring far more efficiencies to the regional market in the future.
ôFor an Asian CSD or an international central securities depository like Euroclear or Clearstream, the heaviest investment will be up front,ö says Ong. ôA homogenous system will clearly make bond clearing and settlement easier for Asian and international investors in this market and although there will issues regarding hardware and software, the national CSDs need to seriously weight up the efficiencies of a hub versus the cost.ö
Since the financial crisis, AsiaÆs bond market has grown from $400 billion to $2.8 trillion in 2006. Credit upgrades have also been occurring regionally at a drastic pace since the financial crisis, which has meant that investment, both pan-Asian and internationally, has followed suit.
ôSince the crisis, AsiaÆs attractiveness to bond investors has grown substantially, which is demonstrated through the broadening of the investor base in this market,ö says Foong Hock-Meng, the Singapore-based president and director at Pimco. ôInflows are coming in at a very rapid rate. We would welcome a better and more efficient settlement structure. Settlement and clearing needs to keep pace with the development of the market, and as the Asian bond market develops it really needs a central clearing and settlement system to cope with inflows.ö
Although an operational CSD in Asia appears well off, there are some models that the proposed bond-processing hub could look at. Other than going for the CDS model, there were also some suggestions that Asia could model Euroclear or by developing a more international system.
ôOn the regulatory side, we believe that Asia should look at the European model,ö says Jeffrey Tessler, CEO at Clearstream. ôIn Asia, boundaries of infrastructure are going to change and competition is going to increase and more can be achieved through building cooperation with partners.ö
Some participants believe that discussion must come before practical action. ôWe know we cannot force this initiative in the near future but factors like peer pressure and more dialogue between the domestic CSDs will help,ö says Yoshinobu Takeuchi, president and CEO at Japan Securities Depository Centre in Tokyo. ôThis idea is the right one, but it may seem a little ambitious for this to happen now.ö
Others believe that an independent regional bond market clearing and settlement institution needs to be established before this initiative can fully get off the ground.
ôCurrent infrastructure in Asia is lagging behind compared to the US and Europe and we need to establish an independent clearing and settlement system for bonds in the region,ö says Chung Eui-Dong, chairman and CEO of the Korea Securities Depository in Seoul. ôClearing and settlement infrastructure is one of the key factors to determine the competitiveness of capital markets. We recommend that the Asian CSDs set up a consultative body to help establish this infrastructure comprising of members from each Asian CSD to determine how best to support personnel and decide on financial resources to set up the institution.ö
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