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Global Market StructureAsia Pacific Newsletter

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Issue 19, 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 2SFC consultation on Electronic Trading 2011 Fund management survey released

China ..........................................................Page 5New QFII rules published Further cuts to trading fees approved

Taiwan ........................................................Page 8Taiwanese banks look for more business in mainland China TWSE propose new short sell control

India ...........................................................0Documentation for DMA trading relaxedNifty stocks attract record FII investment

Japan..........................................................Page 13TSE outage due to ‘systems error’ Draft changes to the Companies Act

South Korea ...............................................Page 15Hedge fund regulation eased KRX release Factbook 2011

Australia .....................................................Page 17ASX broaden definition of dark LCH apply to run clearing house

ASEAN .......................................................Page 19Singapore and Thailand establish a reciprocal cross border collateral arrangementSGX introduces dual currency trading for ETFs

Quant Fact Sheet .......................................Page 21


Global Market Structure Hong Kong Newsletter Issue 19

SFC release consultation on the regulation of electronic trading

On 24th July, the SFC released a paper considering the controls that the regulator feels will provide a framework for Direct Market Access (“DMA”), internet trading, electronic trading and algorithms. Much of the paper considers who should be responsible for such orders, the appropriate level of testing, record keeping and monitoring, and the due diligence that brokers should perform on their clients.

The paper proposes that all securities listed on an exchange would be in scope including shares, futures, options, ETFs, warrants and exchange traded certificates. It would seem from the current drafting that this would include securities listed overseas as well as in Hong Kong. Additionally, the paper considers leveraged FX and will update the Internet Guidance Note released in 1999.

Areas of particular note are that the paper suggests that brokers would be ultimately responsible for the order sent through by clients and that they will need to perform due diligence on their clients to ensure proficiency. The paper does not currently distinguish between professional and retail investors.

A brief overview of the proposals is presented below:

Electronic trading

Responsibility An intermediary is ultimately responsible for the for the orders sent through its electronic trading system (including compliance of said orders with regulatory requirements)

Management and Supervision

An intermediary is expected to manage and supervise the design, development, deployment and operation of electronic trading systems and establish written internal procedures

Adequacy of system

The intermediary must ensure that its automated trading system is adequate with regards to controls, reliability, security, capacity and contingency measures.

Record keeping The intermediary must ensure that its trading systems keeps audit trails and records of all system and trading activities for no less than 2 years.

Internet trading and DMA

Risk Management Intermediaries are responsible for pre-trade controls and post-trade monitoring of client orders

Minimum client requirements

Intermediaries need to conduct due diligence on clients with regards to proficiency, regulatory requirements and monitoring

Algorithmic trading

Qualification Persons involved in design and development of algorithms need to be suitably qualified.

Testing Testing procedures need to ensure that algorithms work as designed, take into account extreme situations and do not interfere with the operation of a fair market.

Risk Management Intermediaries need to have controls regarding the operation and error handling of algorithms, especially the prevention of manipulative, abusive or erroneous orders

Record Keeping Intermediaries must keep audit trail records as well as documentation on reviews and test for no less than 2 years

The same standards apply to all electronic trading systems, whether developed in-house or externally.

The deadline for submission is 24th September. Further information can be found here:

https://www.sfc.hk/sfcConsultation/EN/sfcConsultFileServlet?name=etradereg&type=1&docno=1

Conclusion and Supplemental Consultation on OTC Derivatives Regulation

In the second paper released on the topic, the SFC and HKMA have jointly released a paper on the proposed regime for OTC derivatives. The conclusions to the previous consultation focused on the licensing requirements introducing two new types of regulated activities – Type 11 RA for the activity of dealers and advisors and Type 12 RA for the activities of clearing agents – as well as introducing a requirement for positions over a specified threshold to be reported to the SFC.

The current consultation goes into further detail on the responsibilities and scope of the new regulated activities and thinks about the impact on the Type 7 – the Alternative Trading System license – definition which will be updated to include OTC derivatives.

Responses are to be submitted to the SFC by 31st August. For the full consultation click here:

https://www.sfc.hk/sfcConsultation/EN/sfcConsultFileServlet?name=otcregsupp&type=1&docno=1

Hong Kong Market Structure Update

Total (USD$) %loss/gain

Monthly ADT (July 2012) USD$4.12bn 3.94% Source: Thomson Reuters, 2012

Source: Thomson Reuters, 2012

Source: Bloomberg, 2012



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20112010 2012

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

Fig 2: Futures HKFE HSI monthly ADT

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Hong Kong Market Structure Monthly Newsletter 3

Fund Management Activities Survey 2011 released

An annual survey of the SFC showed that assets under management of Hong Kong’s fund management industry dropped by 11% or HK$1.2 trillion to HK$9 trillion in 2011. The proportion of overseas investors has remained steady over the past five years - they contributed more than 60% of the total fund management business. The below graph is taken from the SFC report:

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Combined Fund Management Business ($ bn)

Trailing three- year average ($ bn)

Further information can be found here:

http://www.sfc.hk/sfc/doc/EN/speeches/public/surveys/12/fmas_201207.pdf

Hong Kong Central Bank QFII quota increased

The QFII quota of the Central Bank of Hong Kong has been increased to US$1bn from US$300mn. This increase will allow greater investment in both the equity and bond markets.

Coverage of RMB equity trading support facility extended

The coverage of the Trading Support Facility (TSM) will be extended on 6th August to cover ETFs and REITS. The China AMC CSI 300 Index ETF and the Hui Xian REIT will be the first securities to be covered. The foreign exchange rates and fund balances can be found on the front page of the HKEx website for reference.

The TSF leaflet provides more information on the facility and can be accessed here:

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2012/120730news.htm

Venue News

HKEx takeover of LME

The ordinary shareholders of the LME approved the takeover bid of the HKEx on 25 July. Despite some concern from industrials, the majority of shareholders (99.24%) were in favor of the transaction. The LME, which handles more than 80% of world-wide metal futures trading, is the first overseas acquisition for the HKEx. As previously mentioned, the HKEx has committed to keep the LME’s structure, including the ring and open-outcry-system, warehousing network and contract date structure, unchanged until at least 2015. One way the HKEx is planning to generate new revenue from the takeover is to license the LME base metal index LMEX to partner stock exchanges in Brazil, Russia, India, China and South Africa. The HKEx also plans to introduce a new iron ore contract to cater to demand for industrial material in China. These steps are important as some in the market have voiced concern that the HKEx has overpaid for the LME.

Related to the acquisition, the HKEx intends to launch a new platform offering commodity trading and settlement within the Asian time zone.



Dividend futures market

Trading in dividend futures increased in the second quarter, with the HSCEI futures setting records in contracts traded and open interest. Volumes increased eight times compared to the previous year.

Guide on Enhancing Regulation of Listed Structured Products

HKEx published its “Guide on Enhancing Regulation of the Listed Structured Products Market” on 27th July. The guide covers several regulatory enhancements including issuer control enhancements, improvement of liquidity provider standards and management of issuer credit risk.

The guide can be found here:

http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/Documents/guideline0712.pdf

Trading halts proposal

The HKEx has published a paper on trading halts during market hours to allow companies to publish price-sensitive information (“PSI”). Currently, companies are not allowed to publish PSI during market hours; if disclosure is mandatory, trading stops and can only resume on the next trading day. An intermittent trading halt with a subsequent continuation of trading would enhance flexibility, maximize trading time and bring the HKEx in line with other international exchanges.

In detail, key proposals included are:

Securities market

— Timing for lifting of trading halts: Share trading will not resume until at least 30 minutes after the PSI announcement is published on the HKEx news website. Any trading resumption will take place on the quarter hour or the half hour.

— Mid-session auctions upon lifting of trading halts: To facilitate price discovery, a 10-minute single-price auction will take place in the securities market for the relevant shares and structured products upon the lifting of a trading halt

— Minimum trading time after lifting of trading halts: There must be at least 30 minutes of trading (10-minute auction and at least 20 minutes of continuous trading) after the lifting of a trading halt. Therefore, the latest trading resumption before the end of the trading day would be 3:30 pm on a normal trading day

— Order handling: All existing orders in the securities market (including orders for the company’s shares and any related structured products) entered before a trading halt are to be cancelled automatically by the Stock Exchange at the time of halt

Derivatives market

— HKEx’s stock options / stock futures order handling practices will remain unchanged. All outstanding orders will be purged automatically by the trading system at the time trading of the underlying shares is halted.

— There will not be a mid-session auction for stock options / stock futures. Trading of related stock options and stock futures will resume upon the completion of the mid-session auction for the underlying shares (the mid-session auction is described above).

Responses are due by 8th October, the full paper can be accessed here:

http://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp201207.pdf

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

Hong Kong Market Structure Monthly Newsletter 4

Market Share Report

The HKEx have released a summary of the market share between the difference participants. The categories are defined as follows:

— Category A: Position 1 – 14

— Category B: Position 15 - 65

— Category C: Over 65

Short selling

HKEx issued a change of designated securities for short selling on 27th July. 17 stocks have been added to the list while 104 have been removed.

For the full list of securities, click here:


RQFII ETF listing

The first RMB Qualified Foreign Institutional Investor (RQFII) A-share exchange traded fund (ETF) has listed on the HKEx. It provides direct exposure in A-shares to outside investors and is the first A-share ETF to trade in RMB outside mainland China. The market sees this ETF as the beginning of a development to further strengthen the position of the financial market of Hong Kong as an access point to trade mainland A-shares. The ETF raised 6 times the assets of synthetic products tracking the same index.



Initiatives

The HKEx published an update to the following initiatives:

— Possible changes to the requirement for listing of overseas companies

— Consultation on the placing of IPO shares

— Reporting on environmental and sustainability issues

— Simplification of prospectuses

— Study on after-hours futures trading

— Exploration of new financial products and services

— Consultation on a scripless securities market

— Establishment of clearing house for OTC derivatives

— Next generation market data system

— Technology upgrade for derivatives market system

— Central gateway facility

— New Cash market trading system



Personnel changes

The contract of Mark Dickens, Head of Listing, has been renewed by HKEx for one year to 2013. Apart from his role he is expected to identify a successor for his role.

Sourceswww.reuters.com

www.sfc.hk

www.bloomberg.com

www.hkex.com.hk

http://uk.reuters.com

http://www.chinadaily.com.cn

www.ft.com

http://derivative-news.fincad.com/

http://www.metalbulletin.com/

http://in.reuters.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)

JUL 11 6.85 - 2.59 54.80 2.27 - 0.23 34.41 0.22 - 0.00 10.79 1,344.50 67,224.81

AUG 11 7.62 - 2.43 55.25 2.38 - 0.21 34.36 0.20 - 0.00 10.39 1,825.18 79,355.45

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 5,990.09

Past 12 Months Total ($ Bil) 15,310.46

Monthly Average ($ Bil) 1,275.87


CSRC published the finalised new QFII rules

Further to our report last month on the public consultation of new QFII rules by CSRC, on 27th July 2012, CSRC published on their website the finalised version of “Provisions Concerning Issues Related to the Implementation of the Administrative Measures for Securities Investments in China by Qualified Foreign Institutional Investors” (合格境外机构投资者境内证券投资管理办法). The main points are summarised below.

— Each QFII should open sub-accounts for its prop trading activities and client trading activities. When QFII opens accounts for its customer the name can be “name of QFII + name of customer”. While the customers are long term investors such as mutual fund, insurance companies, pension funds, endowment fund, charitable foundation, and sovereign funds, the assets should be segregated from QFII and its custodian. In terms of how the “sub-account” can be opened and how to allocate the QFII quota to each sub-account, CSRC is expected to lead a conversation with CSDCC and SAFE shortly.

— Each QFII can appoint 3 brokers in each market, up from the current one broker requirement. However, the practical implementation depends on the account opening framework which is still being finalized by CSRC and SAFE.

— As per the summary in Issue 18 of the newsletter, lower requirements for applicants are:

— Investment scope for QFII expanded to include exchange traded stocks/bonds/warrants and Interbank market’s fixed income instruments.

— Limits for QFII relaxed, the holding limit for all QFIIs in each individual stock has been raised to 30% from 20%, can exceed this limit given special approval related to strategic holdings.

— Application process eased by adding online documentation features,

Chinese Market Structure Update


Monthly ADT (July 2012) USD$17.78bn 4.65%





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

Fig 2: Equities Daily Turnover per venue - July 2012

Fig 3: Futures HKFE HHI monthly ADT

Fig 4: Futures Daily Turnover per venue - July 2012

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Global Market Structure Chinese Newsletter Issue 19

Investor Current Rules Drafted New Rules

Securities Companies

Years of Business Experience > 30 years

AUM >= USD 10 billion

Net Asset >= USD 1 billion



Net Asset >= USD 500 million

Fund Managers




AUM >= USD 500 million

Insurance Companies





Commercial Banks

Globally top 100 in terms of total Assets




Tier-1 asset >= 1billion

Other Institutional Investors





6Chinese Market Structure Monthly Newsletter

for application process details please contact us and happy to direct to our custodian department for further information.

Currently, hedge funds are not included in the language of the regulation meaning they are neither explicitly able to or prevented from applying for a license.

A copy of the official CSRC rules (Chinese only) can be found here:

http://www.csrc.gov.cn/pub/zjhpublic/G00306201/201207/t20120727_213211.htm

Two new QFIIs licenses approved by CSRC in June

On CSRC’s website, it has been announced that the following 2 entities have been granted approval for QFII licenses:

1. ING Investment Management Aisa Pacific (Hong Kong) Limited

2. Mitsubishi UFJ Asset Management Co.,Ltd

The exact amount of quota is yet to be approved by SAFE.

US$1.2 billion quota approved by SAFE for 10 QFIIs

The following 10 entities have gained quota from SAFE reaching a combined value of US$1.35 billion.

1. Van Eck Associates Corporation (US$100 million)

2. William Blair & Company, L.L.C. (US$100 million)

3. Hong Kong Monetary Authority (Additional US$700 million)

4. Templeton Investment Counsel, LLC (Additional US$ 100 million)

5. Korea Investment Trust Management Co., Ltd (US$100 million)

6. Manulife Asset Management (Hong Kong) Limited (US$100 million)

Currently a total quota of US$28.53 billion has been granted to 149 QFIIs including Hong Kong’s central bank that now has US$ 1 billion to invest in equity and bond markets.

CSRC issued public consultation paper on listed company’s employee equity enrollment plan; stock markets react positively

On 4th August 2012, CSRC published on their website the public consultation paper on listed company’s employee equity enrollment plan.

According to the drafted rules, employees of listed companies can receive incentives in stock forms for no more than 30% of total compensation. The shares must be purchased through secondary market. The restricted selling span shall be no shorter than 36 months and limit of total employee stock plan shall not exceed 10% of total company capital while for individual employee the limit is 1% (excluding shares acquired through pre-IPO allocation, employee’s self action in secondary market and management equity incentive plan).

According to Bloomberg, this change has contributed to the near recent market rise of nearly five weeks.

“More listed companies and their employees are likely to buy their own shares as stocks are attractive in terms of valuations and have long-term investment values”, said Wu Kan, a fund manager who oversees over RMB 1bio.

A copy of the official CSRC public consultation paper can be found here (Chinese only):

http://www.csrc.gov.cn/pub/zjhpublic/G00306201/201208/t20120805_213497.htm

Deutsche Bank listed the first China CSI300 ETF in London

Deutsche Bank’s market leading ETF platform “DB X-trackers” has listed the first China CSI300 Index ETF on the London Stock Exchange, becoming Europe’s largest China A-shares ETF by AUM.

The DB X-trackers CSI 300 Index ETF currently is listed on HKEx and SGX while the London listing will be adding a new, additional share class. The ETF has around £220 million in AUM.

China further cuts interest rates and injects money to promote liquidity

Further to our report last month on China rates cut, the People’s Bank of China (“PBOC”) announced that they would cut the one-year benchmark interest rate by 25 basis points. After the cut, the interest rate for current deposits has reduced to 0.35% from 0.4%, while the deposit rate has fallen to 3% from 3.25%. The new rates became effective from 6th July, 2012.

It’s the second rate cut by the central bank this year since 8th June, with the aim to stimulate economic growth. The Global Times said that PBOC injected RMB 80 billion into the country’s money market fund with 7-day reverse repos at 3.35% on 19th July 2012, as a measure to promote market liquidity.

Bank of Korea (“BOK”) approved to invest in RMB bond market

The South Korea’s central bank has been approved by China to invest in RMB bond market for up to RMB 20billion (around USD 3billion) and the process has already started. In addition to that, BOK was recently granted QFII quota worth US$300million, which can also been invested in China’s domestic stock market.

“We want to diversify our investment portfolio and the RMB is a good choice compared to other currencies.” A BOK official said.

China to open doors for hedge funds

As reported by Financial Times, China has indicated they will give foreign hedge funds permission to raise funds from onshore China.

The program, called the Qualified Domestic Limited Partner program will provide a new channel for domestic capital to flow abroad, and also an opportunity for Chinese wealthy citizens and institutions to seek alternative returns such as arbitrage and short selling strategies.

Like other reforms in China, this hedge fund reform will start cautiously. Licenses to operate in China will be issued in Shanghai only to the world’s largest hedge funds with AUM over US$10 billion, and there will a limit of US$5 billion of total quota which can be raised collectively by licensed funds.

It has also been reported that hedge funds are already queuing to apply, as the US$5 billion will not be split evenly between funds but divided competitively.

SAFE to relax the Foreign Direct Investment rules

SAFE is planning to simplify the Foreign Direct Investment (“FDI”) foreign exchange rules, as a further step for RMB to become a global currency. Under the proposed changes, opening or adding to foreign exchange accounts and transfers between different FX accounts for FDI will no longer be subject to regulatory examinations.

The change follows previous comments in Issue 16 that regulators are pledged to loosen controls over the foreign direct investment that have a “genuine” background.

SAFE to invest US$500 million in Blackstone property fund

The China Daily stated that China is diversifying its foreign reserves with SAFE putting US$ 500 million into a property fund managed by US based firm Blackstone. China is currently the largest foreign holder of

7Chinese Market Structure Monthly Newsletter

US Treasuries, with around 30% of its foreign reserves allocated to these bonds with a further 20% invested in euro-denominated assets.

“It’s always welcome that SAFE could set different layers to its investment of foreign reserves, and setting aside such a small proportion for high-return but high-risk investment is necessary,” said Chen Daofu, policy research chief of the Financial Research Institute at the State Council’s Development Research Center.

Venue News

CSRC announced further trading cost reduction

On 12th July, CSRC announced it was given approval by the National Development and Reform Commission and Ministry of Finance (MoF) to reduce the CSRC fee charged on securities and futures trading activities by 50%. Please find the details below:

1. CSRC fee levied on Shanghai Stock Exchange and Shenzhen Stock Exchange is reduced from 0.004% to 0.002% of annual trading value for stocks. In addition, securities investment funds and bonds are exempted from CSRC fee.

2. CSRC fee levied on Shanghai Futures Exchange, Zhengzhou Commodity Exchange, and Dalian Commodity Exchange is reduced from 0.0002% to 0.0001% of annual trading value. The same fee standard also applies to CSRC fee levied on China Financial Futures Exchange.

The validity of the above new fee standard is three years.

A few media sources such as China Post reported a further trading cost reduction is still possible and to be announced in September, the reduction rate will be in the range of 20%. Reuters estimates that the reduction will result in savings of RMB 15.5 billion this year.

SSE and SZSE announced further details on delisting rules

Shanghai Stock Exchange (“SSE”) announced the details of proposed delisting guidelines as below:

— Listed companies operating at losses for two consecutive years will be labeled “ST shares” (special treatment) and those operating at losses for three consecutive years will be marked “*ST shares”.

— It is proposed that the daily price upper limit of “ST shares” will be adjusted to 1%, while the price down limit will be narrowed to 5%.

— For A shares with closing price below RMB 0.5, the daily price upper limit will be proposed to 2%, while for B shares market stock with closing price below RMB 0.05, the upper limit will be capped at 20%.

— On the risk warning board, the daily price change limit for “*ST shares” will remain at 10% (same as ordinary shares).

— “*ST shares” under delisting procedures will be delisted after being traded on the risk warning board for 30 trading days.

The new measures are proposed to better protect investors and prevent market speculation.

The Shenzhen Stock Exchange (“SZSE”) announced on their website for completion of the technical preparations to ensure smooth delisting procedures (“做好上市公司退市技术准备”).

The delisting system will adopt a so-called ‘rectification period’ system. After trading of a company’s stock is suspended, the company will be given a 30-day delisting ‘rectification period’ on a delisting rectification board, after which, the stock will exit the stock exchange.

H-shares ETFs approved to be listed in SSE and SZSE

Further to Issue 18 where the first two cross-border ETFs listed in Shanghai and Shenzhen Stock Exchanges were detailed, The Hong Kong’s Securities and Futures Commission (“SFC”) made the announcement on 29th June that “The SFC welcomes the China Securities Regulatory Commission’s approval today of two ETFs to be listed on the Shanghai and Shenzhen stock exchanges that will invest directly in Hong Kong listed stocks, each tracking a HK stock index”. The two ETFs are China AMC’s HSI ETF listed on SZSE and E Fund’s HSCEI ETF on SSE. In addition to RMB purchases, the two ETFs can also be purchased / redeemed by foreign currencies.

The SFC has also approved the so-called “RQFII ETF” to be listed in Hong Kong which will track China A-shares index. The first RQFII ETF is said to be launched on 9th July, targeting CSI300 index managed by China Asset Management.

Source:www.szse.cn

www.sse.com.cn/

www.csrc.gov.cn/

www.reuters.com

www.chinadaily.com.cn

www.tax-news.com

www.safe.gov.cn

www.marketwatch.com

www.reuters.com

http://www.globaltimes.cn

www.bloomberg.com

www.etfstrategy.co.uk

www.derivative-news-fincad.com

www.newstatesman.com

www.ft.com

www.usa.chinadaily.com.cn

www.businessweek.com

www.chinapost.com

www.china.org.cn

www.english.cri.cn

www.chinascopfinancial.com


Taiwanese banks looking for more business in mainland China

Further to our earlier issues, Taiwan officials are in talks with mainland counterparties to open the market for Taiwanese banks.

Samuel Hsu, the president of TWSE, said Taiwanese banks are well experienced at SME loans which can help to serve the real business industries in China. According to Hsu, there are about 1.2 million small-and-medium companies in Taiwan, and “if China allows more Taiwanese banks to provide services in its market, I am sure that the banks will be able to share their experiences with their Chinese counterparts and grow with the mainland market”.

The Bank of China, a mainland firm, has opened a branch in Taipei while the Bank of Communications is scheduled to open one in July. The largest Taiwan lender, Bank of Taiwan, has recently been allowed to open branch in China. The cross-strait bilateral trade reached US$ 160 billion in 2011 and Taiwan’s investment in mainland exceeded US$ 100million.

Taiwan’s capital gain tax proposal may raise NT$ 11 billion

On 15th July 2012, the parliament approved a controversial bill relating to tax capital gains on securities investments for local investors, which will take effect in January 2013. FINIs are exempt from the CGT.

Under the plan, a two phase scheme will be adopted - the first phase is to tax on withholding basis. For 2013 and 2014, only if the benchmark index rises up 8,500 or higher, investors will need to pay the withholding tax at a rate between 0.02% and 0.06% on stock trade. And for investors who sell more than 10,000 initial public offering shares, over 100,000 shares in emerging stocks, unlisted companies and non- Taiwan-residents are subject to the second track of taxation. Investors will have to pay a 15% tax on capital gains, but they will get a 50% tax discount if they hold on to their shares for more than a year.

The second phase starts in 2015 when individual investors with transaction volume over TW$ 1 billion will also be subject to CGT of 15%. Domestic Institutions are subject to minimum tax of 12-15% with an exempt amount of TW$ 500,000. Stock retained for the holding period of over 3 years gets 50 % discount on tax rate.

According to Taiwan’s Ministry of Finance, the proposed capital gain tax may affect 10,000 investors and raise around TW$ 11 billion. There have been constant modifications to the proposed plan previously, while 13% (nearly TW$ 3 billion) of the stock exchange’s market value has evaporated since the first government panel tax discussion on 28th March, 2012. The former finance minister Christina Liu resigned as a result of the tax plan.

Taiwan Market Structure Update




Global Market Structure Taiwan Newsletter Issue 19





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

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9Taiwan Market Structure Monthly Newsletter

Venue News

TWSE reiterates FINI’s 30% rule on non-equities investments

On 30th July 2012, the TWSE on its website reiterates FINIs should monitor their non-equities investments on a daily basis to ensure the ratio of FINI’s non-equities investments does not exceed 30% of their net remitted-in capital.

TWSE proposed new short sell control enhancement

One 17th July 2012, the TWSE announced the proposed short sell rule with the outline below:

1) After the short sale trades are executed, the execution brokers shall check with the lending parties and confirm that the Stock Borrow Loan (“SBL”) can be transferred into the client’s TDCC/custodian account on the same day. The lending parties shall ask for the client’s consent that the execution brokers are allowed to check and verify the SBL information as to the short sale orders they received.

2) Lending parties shall accept execution brokers’ checking requests for SBL information and confirm whether or not the short sale quantities exceed the borrowed positions. If the lending parties receive checking requests on a same stock loan from different execution brokers, they shall monitor whether or not the aggregated numbers of the checked SBL exceed the numbers of the real positions borrowed by the client, in order to provide the correct information.

3) If the FINI borrower defaults trade settlement with the same securities firm; or fails to repay loans/financing from the same securities firms; or fails to complete settlement on futures contract, the securities firm shall notify the FINI to liquidate its outstanding SBL transactions on the following business day, and then close the FINI’s SBL trading account accordingly.

4) If the FINI borrower fails for repay loans/financing or defaults at another securities firm, securities finance enterprises or futures commission merchant (FCM), the FINI will be suspended from SBL trading with all securities firms or securities finance companies. However, the borrower is still able to rollover existing loans, return borrowed securities or swap SBL collaterals.

Appendix:

Below is a Deutsche Bank translation of the Chinese original version. This is for general information purposes and should not be considered legally reliable. An English translation of the TWSE letter has been done by our Taiwan colleague for your easy reference.

1. When brokers receive clients’ short sale orders as described by the subject Sub-paragraph 10: “Brokerage orders to sell securities the borrowing of which has been confirmed but that have not yet been remitted in.”, the brokers need to prior confirm which day the borrowed position will be transferred into the client’s TDCC/custodian account, i.e. on T or T+1, and ask the clients to provide “Relevant SBL Information” and agree the broker to verify the information provided.

2. If the transferred day is T+1, then Article 13-1 of “Operating Rules for Securities Lending by Securities Firms” and Article 24 of “Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules” shall be followed.

3. If the transferred day is T, the rules are listed as below:

3.1. After the short sale trades are executed, the execution brokers shall check with the lending parties and confirm that the SBL can be transferred into the client’s TDCC/custodian account on the same day; the lending parties shall ask for the client’s consent that the execution brokers are allowed to check and verify the SBL information as to the short sale orders they received; and

3.2 Lending parties shall accept execution brokers’ checking requests for SBL information and confirm whether or not the short sale quantities exceed the borrowed positions, and, if yes, notify the execution brokers to control the potential risks; if the lending parties receive checking requests on a same stock loan from different execution brokers, they shall monitor whether or not the aggregated numbers of the checked SBL exceed the numbers of the real positions borrowed by the client, in order to provide the correct information.

4. Brokers must retain the “Relevant SBL Information” as below:

4.1. voice recording for those provided through telephone calls;

4.2. electronic archived if they are provided via electronic media, e.g. email, Bloomberg, etc.

4.3. hard copy retention for those provided by written format (including fax).

5. Brokers shall follow the below rules:

5.1 brokers shall make relevant internal policies to review and rate clients’ risk for short sale trades in very prudential manner; if a client short sells the number of shares over the numbers of the borrowed, the broker shall reinforce the control on such client’s trading activities, for maintaining market order.

5.2 brokers shall retain the “Relevant SBL Information” for a minimum period of 1 year, but in case of any client dispute, the information shall be retained till the dispute is settled.

6. The letter issued on 17 January 2009, with Ref. No. of 0980200259 is abolished with immediate effect.

Source:www.twse.com.tw/ch

www.focustaiwan.tw

www.taipeitimes.com

www.bankingtechnology.banking-business-review.com


Documentation requirements for DMA trading relaxed

In a circular released on 2nd August, SEBI have removed the requirement for brokers to require their clients to sign an India specific set of documents before they can commence trading via Direct Market Access (or “DMA”). The change has been made ‘in light of feedback received from the market participants’ to the effect that the requirement to sign a two way document was inhibiting the take up of the electronic trading service.

Going forward, brokers will need to provide a ‘Terms and Conditions’ notification to the client, the detail of which is set out in the circular. The exchanges will be able to specify which categories of investors are able to use DMA, currently it is restricted to institutional only.

The exchanges have been directed to implement the new requirements and to communicate to SEBI on a monthly basis the status of implementation.

For the full SEBI Circular see here:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1343901076513.pdf

Government sets up a review committee, starts industry consultations to finalise GAAR proposals

The new finance minister Mr. P. Chidarambram has appointed an expert committee under Dr. Parthasarathi Shome, a former adviser to the finance minister to reevaluate the GAAR proposals. The committee is currently holding consultations with the industry representatives to discuss their concerns and provide clarifications on areas where transparency could be improved. FIIs are seeking an exemption for portfolio investment from applicability of GAAR.

Dr. Shome is expecting to finalise the guidelines by 30th Sep. The committee is also tasked with the evaluation of the retrospective taxation and indirect transfer of assets amendments proposed in the budget.

“We have already begun the consultation process quite intensively and it will be more intensified as we go ahead. We have to put up our views by the end of August and by the end of September, we should finalise it.” Dr. Shome said.

http://profit.ndtv.com/News/Article/pm-refers-gaar-on-foreign-institutional-investors-to-expert-committee-308566

http://www.moneycontrol.com/news/cnbc-tv18-comments/gaar-committe-to-look-into-taxationportfolio-investment_737444.html

http://www.moneycontrol.com/news/economy/gaar-guidelines-will-be-finalised-by-sept-30-shome_733682.html

SEBI revises eligibility criteria for stocks in the F&O segment

SEBI has issued a circular revising the criteria for stocks to be eligible for trading in the derivatives segment of the Indian market in a bid to curb manipulation by disallowing illiquid stocks to trade in the Futures and Options (“F&O”) segment. Only those stocks with a minimum trading volume of Rs 10 lakh and market wide position limit (“MWPL”) or market

Indian Market Structure Update




Global Market Structure Indian Newsletter Issue 19





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

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11Indian Market Structure Monthly Newsletter

capitalisation of Rs 300 crore would be allowed entry into the F&O segment.

For the existing stocks in the segment, the stock will cease to trade if the minimum Median Quarter Sigma Order Size (“MQSOS”), indicating its liquidity falls below Rs 5 lakh (down from 10 lakh) or the scrip fails to maintain a minimum MWPL of Rs 200 crore (up from 60 crore) or its not able to maintain an average monthly turnover of Rs 100 crore in the last three months.

“In order to improve market integrity, it has been decided, in consultation with Stock Exchanges, to tighten the eligibility and exit criteria for stocks in derivatives segment.” SEBI said.

Following the revision in the criteria, NSE has excluded 51 stocks from its derivatives segment and the BSE, 52 stocks.

The SEBI circular can be found here:


Sourcehttp://articles.economictimes.indiatimes.com/2012-07-24/news/32827798_1_derivatives-segment-illiquid-stocks-stock-futures

http://www.business-standard.com/india/news/sebi-tightens-fo-eligibility-criteria/481243/

http://business-standard.com/india/news/bse-to-exclude-52-stockstrading-in-slb-segment/180755/on

SEBI Mutual Fund Advisory Committee submits recommendations

The Mutual Fund advisory committee set up by SEBI to study and provide recommendations in order to revive the ailing industry has provided its inputs to the board. In the board meeting held on 17th July, the following recommendations were discussed

— Bring the exit load back into fund investments instead of putting it in the P&L account of the fund house

— Increasing the expense ratio for funds by 25 bps to 2.5% and enhance fungibility of its use including making payments to distributors

— Incentivising the expansion of funds in tier 2 and tier 3 cities

The board is yet to decide on the recommendations and is expected to announce some of the measures to be implemented soon.

http://business-standard.com/india/news/sebi-for-routing-back-exit-load-into-schemes/480740/

SEBI issues disclosure norms for general insurance IPOs; to release guidelines on e-IPOs soon

SEBI has released the disclosure rules governing the public issuance of equity by general insurance companies. Following are the highlights: -

— The company must have a record of profitable operations for at least 3 years prior to the launch of IPO

— Risks related to the industry in general and specific to the company raising capital must be declared including the maximum possible loss ratio

— Data pertaining to cross-selling and claims must be declared. Investors must also be informed about regulatory restrictions on investments and the impact of any possible default by any re-insurers which could materially affect the financial condition and results of their operations

Additionally SEBI has also announced that it will be issuing guidelines for e-IPOs soon which will enable prospective investors to apply and purchase the shares of a public issuance electronically. This will help in expanding the reach of public offerings and is expected to boost the IPO responses.

SEBI and stock exchanges are also planning to modify the listing agreement to include a provision for imposing financial penalties ranging from Rs 5,000 to Rs 100,000 on the listed companies which are found non-compliant with the conditions mentioned in the listing agreement. There are also suggestions to debar companies and promoter-directors responsible for non-compliance from the capital markets, freeze their accounts, or file criminal complaints against them.

http://articles.economictimes.indiatimes.com/2012-07-25/news/32848565_1_offer-document-irda-catastrophic-risk

http://www.thehindubusinessline.com/markets/article3687541.

ece?homepage=true&ref=wl_home

http://articles.economictimes.indiatimes.com/2012-07-06/news/32566425_1_e-ipos-sebi-board-issue-guidelines

http://articles.economictimes.indiatimes.com/2012-07-26/news/32869458_1_capital-market-regulator-sebi-penalty-structure

SEBI cuts time-line for registration of transfer of shares; issues comprehensive OFS guidelines

SEBI has brought down the time-line for registration of transfer of shares from the date of lodgment to 15 days from the existing one month. The timeline will also be applicable to debt securities.

SEBI has also issued a comprehensive set of guidelines related to the Offer-For-Sale (OFS) mechanism for promoters looking to offload their stake to comply with the 25% maximum shareholding norm. These guidelines have replaced the circular issued to this effect earlier.

The SEBI circulars can be found here:


Sourcehttp://www.thehindubusinessline.com/markets/article3658487.ece?homepage=true&ref=wl_home

http://articles.economictimes.indiatimes.com/2012-07-05/news/32551833_1_sebi-act-transfer-process-exchanges-and-market-participants

http://www.thehindubusinessline.com/markets/article3658487.ece?homepage=true&ref=wl_home

SEBI resets price band for 6 scrips to 5%

SEBI has revised the trading price band for 6 midcap counters to 5% (from 20%) after it observed high selling activity on these stocks during the market events on 27th July. SEBI suspects market manipulation activity behind the >20% decline in the prices of these stocks and is investigating the matter further. The following are the stocks impacted:— Glodyne Technoserve Limited — Radico Khaitan Limited — Pipavav Defence and Offshore Engineering Company Limited — Parsvnath Developers Limited —Tulip Telecom Limited — Era Infra Engineering Limited

http://timesofindia.indiatimes.com/business/india-business/Sebi-probes-Thursdays-crash-in-mid-cap-segment/articleshow/15219843.cms

SEBI asks exchanges to seek undertakings from brokers / clients to curb market manipulation

The Securities and Exchange Board of India has asked the stock exchanges to seek an undertaking from brokers and their clients in cases where the trading activity of an investor or group looks irregular or suspicious. The clients associated with the suspected trades will have to state to the market authorities that they are not linked to the promoters of listed companies they are buying into.

http://www.firstpost.com/investing/suspicious-trading-sebi-seeks-declaration-from-brokerages-384155.html

http://indiatoday.intoday.in/story/sebi-cracks-whip-on-rogue-bulls-to-curb-market-manipulation/1/209521.html

Personnel Changes

SEBI appoints Mr Muralidhar Rao as Executive Director; transfers 140 officers internally

SEBI has announced the appointment of Mr Muralidhar Rao as an Executive Director to fill the vacancy created when Ms Usha Narayanan demitted her office. Mr Rao will be in charge of the Investment Management Department (mutual funds, foreign institutional investors and custodians and Collective Investment Schemes) which were earlier handled by S Ravindran, another Executive Director. Ravindran will now

12Indian Market Structure Monthly Newsletter

assume responsibility of the corporate finance department vacated by Ms Narayanan earlier.

SEBI has also undergone an internal reshuffle of roles and responsibilities amongst the officers who were in the same role for more than 3 years. This is done as a measure to avoid any wrong doings by any of the internal staff by virtue of holding a position of authority for a long period.

http://articles.economictimes.indiatimes.com/2012-07-23/news/32804972_1_stock-exchanges-and-depositories-collective-investment-scheme-sebi

http://www.thehindubusinessline.com/markets/stock-markets/article3635878.ece?homepage=true&ref=wl_home

http://articles.economictimes.indiatimes.com/2012-07-04/news/32537016_1_voluntary-retirement-regional-offices-usha-narayanan

Venue Updates

Stock exchanges to levy charges for Algorithmic Trading

The two major stock exchanges NSE and BSE have announced that they will be charging a levy between 1 paisa and 5 paise for each algorithmic order or modification. The move is expected to curb speculative trading and manipulation in the stock markets through the use of High Frequency Trading where the traders seek to take advantage of thin spreads. Both RBI and SEBI had earlier expressed apprehensions on the HFT techniques and their impact on the markets.

http://www.business-standard.com/india/news/exchanges-step-in-to-curb-algo-speculation/479178/

MCX-SX approval increases Indian competition

MCX-SX has been given approval to start operations in the equities, derivatives (equities and interest rate F&O) and whole sale debt segments and become the third full fledged nationalised stock exchange. The SEBI approval comes with a condition that the two major promoters MCX and Financial Technologies will reduce their holding including warrants to the permissible level of 5% within 18 months.

The new bourse is planning to launch the currency derivatives first followed by the equity trading platform by October this year, MCX-SX also intends to launch both equity and interest rate derivatives. The enrolment for members in the equities space is expected to commence very soon.

“We would go live with equity trading in a couple of months before Diwali. But the decision will be taken in the soon-to-be-held board meeting. We have the technology and infrastructure in place but have to enroll members.” - Joseph Massey, MD and CEO of MCX-SX, said.

http://www.business-standard.com/india/news/mcx-sx-to-go-live-by-oct/480162/

http://articles.economictimes.indiatimes.com/2012-07-11/news/32633151_1_mcx-sx-mcx-stock-exchange-mcx-sx-permission

http://in.reuters.com/article/2012/07/11/india-mcx-sebi-idINDEE86A02U20120711

BSE launches two new derivative products CFS (cash-future spread) and BSE 100

BSE has introduced two new derivative products to be launched in the first week of August. Both of these products will also be added to the ongoing market making incentive scheme for BSE derivatives.

— Cash-Future Spread – This product is aimed to reduce the risk in arbitrage between the cash and futures segments by allowing investors to take positions in both cash and future segments for a stock through a single trade. The product will be made available for all stocks trading on the BSE F&O segment. The trade will have two legs, one for each segment and will be settled separately by delivery mechanism (T+2 for cash, T+3 for futures if open till expiry).

— BSE 100 derivatives – BSE is launching derivatives based on its broad based index BSE 100 to compete with the Nifty derivatives. BSE 100 has 99.4% correlation with both Nifty as well as MSCI India indices and therefore is expected to offer the same dynamics at a much lower cost to the traders.

BSE touched a record high of Rs 1000 crore in July, the market views this as a result of the incentive scheme.

http://www.business-standard.com/india/news/bse-100-derivatives-to-takenifty-50/481332/

http://www.indianexpress.com/news/bse-to-launch-cash-future-spread-to-derisk-arbitrage/980862/

http://www.thehindubusinessline.com/markets/stock-markets/article3696426.ece?homepage=true

NSE Nifty stocks attract record FII investments

A number of stocks included in the NSE’s Nifty index have witnessed their FII shareholding rise to the highest level during the past 20 quarters. FIIs have invested around $10 billion (Rs.55,000 crore) as of 31st July and may touch $17.14 billion by the year-end at the same pace.

http://www.livemint.com/2012/07/30221822/FII-holdings-in-Nifty-firms-at.html?atype=tp

Nifty futures trading on SGX declines; Nifty options off to a slow start

The trading activity for NSE’s Nifty futures on SGX experienced a decline while the activity increased on NSE’s derivatives segment reversing the trend of foreign institutions moving to the SGX platform in the wake of taxation issues. The Open Interest on SGX for the month of July was just 5% higher than that of NSE compared to 47% in the previous month.

Meanwhile, the options contracts on NSE Nifty offered by SGX are trading a daily average of about 6000 contracts.

http://www.business-standard.com/india/news/nifty-futures-trading-shifting-back-to-india-/481957/

http://www.business-standard.com/india/news/nifty-options-make-slow-startsgx/481760/

LSE picks up 5% stake in DSE

In a bid to tap the opportunity provided by emerging markets, the London Stock Exchange has picked up a 5% stake in the currently dormant Delhi Stock Exchange and aims to provide it with the fastest trading technology through Millennium IT (a subsidiary of LSE) and revamp its platform.

http://business-standard.com/india/news/british-bourse-lse-buys-5-stake-in-delhi-stock-exchange/479423/


Administrative action recommended against Nomura

The Securities and Exchange Surveillance Commission recommended that administration action be taken against Nomura due to the following findings:

— Problems related to the compliance system

— Provision of information across the ‘Chinese Wall’

— Aggressive attempts by sales personnel to obtain information from internal analysts

— Information sharing within the institutional equity sales department

The FSA action requires that Nomura:

— Ensure the implementation and integration of the recurrence measures specified in the report on the internal investigations as part of the internal control system in the company

— Periodically submit reports on the implementation status and the results of examination

— Periodically examine the effectiveness of the recurrence prevention measures

Draft outline of amendments to the Companies Act

Updated drafting of the Companies Act was released on 1st August by the Ministry of Justice as it was felt that ‘there is a need to establish discipline in the rules and regulations of financial instruments exchanges to the effect that listed companies shall strive to secure at least one independent board member that is an outside director”. The draft act provides for the following requirements:

— Listed companies without outside directors will be required to disclose the reason why appointing an outside director would be inappropriate.

— Measures to encourage rights issues

The TSE’s President Atsushi Saito released a statement notifying the market that the exchange will be reviewing their listing procedures once the draft text is finalised. The TSE is in favour of listed companies appointing outside, independent directors and will be encouraging companies to consider transitioning to the new “Company with Audit and Supervisory Committee’ structure.

Venue News

TSE outage due to ‘system error’

On Monday 6th August, the TSE halted trading in derivatives trading in the TOPIX futures and the JGB futures for 95 minutes. In a scenario reminiscent of the previous outage in February, the back-up system failed due to a fault in the switch that should automatically activate it.

Japanese Market Structure Update




Global Market Structure Japanese Newsletter Issue 19





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14Japanese Market Structure Monthly Newsletter

The market was relatively quiet when the breakdown was in effect with no major data releases, however, share trading volumes fell as the ability to conduct index arbitrage business and hedging was limited.

The issue related to the Tdex+ system used for derivatives rather than Arrowhead, the cash equity platform. Investors were able to continue trading on the Osaka Securities Exchange but it has resulted in various press sources questioning if the disruption will have an effect on the merger bid.

Monthly trading data for TSE

Trading volume in the equities market remained consistent at just over ¥1 trillion although the TOPIX fell by 4.4%, the first fall in two months.

Sources

www.fsa.go.jp

www.tse.or.jp

www.bloomberg.com

www.wsj.com

www.reuters.com

Trading Volumes

Trading Value Change

from lastDaily average

Domestic Stocks 96,761 109,423 -26,187 5,211

TOPIX 65,001 48,944 -22,557 2,331

Nikkei 225 5,033 44,524 -4,504 2,120

Other 26,727 15,955 +873 760

REIT 2,649 2,615 +1,098 125

Foreign Stocks 4,788 1,852 -515 88

Foreign Bonds 7 212 +50 10

Commodities 8,417 8,160 -670 389

Total 112,622 122,263 -26,224 5,822

Sources:www.tse.or.jp

www.yomiuri.co.uk

www.wsj.com

www.risk.net

www.marketwatch.com

www.ft.com

www.bloomberg.com

www.nytimes.com

Trading Volumes

Trading Value Change

from last month

Change from month last year

Daily average

1st Section 36,855 216,481 -24,063 -35,959 10,308

2nd Section 401 469 -36 -299 22

Mothers 191 2,803 +703 -1,294 133

ETF 112.6 1,222 -262 -278 58

REIT 1.0 2,627 +231 +820 125

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 997,602 -1,307,771 +255,963 47,505 442,504

(TOPIX Futures) 882,577 -1,259,769 +170,821 42,027 390,433

JGB-Futures 559,700 -398,384 +68,587 26,252 87,538

(10-year JGB Futures) 559,249 -397,025 +68,137 26,631 87,319

Index Options 11 -629 +11 2,049

Options on JGB-Futures 146,729 -38,559 +7,633 6,987 22,826

Individual Options 42,041 -10,377 +9,505 2,002 86,811

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

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


Korea to loosen hedge fund regulation

The Financial Services Commission (“FSC”) announced on 29th July that it is looking to loosen regulations on hedge funds to enable asset managers and brokers to more easily setup hedge funds. Under current rules, asset managers with asset under management (“AUM”) of over KRW 10 trillion (approximately US$8.8 billion) are eligible for the setup and management of hedge funds but the new rule will cut the minimum AUM requirement down to KRW 1 trillion (US$880 million).

Similarly, equity capital requirements for hedge fund setup for brokers will be eased; brokers with KRW 500 billion (US$440 million) equity capital will also be qualified for setting up hedge funds which is eased from the current minimum requirement of KRW 1 trillion. The new measure will take effect starting November this year.

The changes in regulation come after a six month trial period initiated in December 2012 with 12 funds investing around US$130 million. According to the Asian Investor, this figure had risen to US$625 by 25th July, managed by 19 funds. Asian Investor also states that around 70% of the funds are using long/short strategies, nine of which are domestic and four global managed by 57 active hedge fund managers.

These funds have been largely made up of entities affiliated with hedge fund managers and prime brokers; the FSC is reported to be looking to encourage investment from non-affiliated institutional investors and high net worth individuals. The rules will also support the development of prime brokers who will be able to service a wider range of institutions such as pension funds.

Venue Updates

KRX release 2011 Factbook and a Listing Guide for Foreign Companies

The Korea Stock Exchange published “KRX Fact Book 2011” on August 3rd 2012. The annual factbook includes multiple facts and figures on the performance of Korean equity, bond and derivatives market in 2011. Areas of interest include:

— Market Overview of KOSPI and Kosdaq, new developments for 2011 — A summary of the trading rules, market operations, order types and limits— Price ranges, volumes, growth rates and liquidity — Sector breakdowns of dividends, yields, trading volumes and value and

market capitalisation — Listing fees, annual dues and transaction costs (including taxes and

exchange fees)— Description of the clearing and settlement system and procedures for

KRX— Summary of listings and delistings.

South Korean Market Structure Update




Global Market Structure South Korea Newsletter Issue 19





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16South Korean Market Structure Monthly Newsletter

Also available is the investor breakdown. The below summary table can be found on page 36 and shows that for 2011, individuals make up approx 55% of the KOSPI market with around 18% coming from foreign investment, 3% from the government and the remaining 24% coming from institutionals.

For full report (English):

http://eng.krx.co.kr/coreboard/BHPENG08004/view.jspx?bbsSeq=19794&secretYn=N

KRX also published an updated listing guide for foreign companies on 3rd July 2012. This guide details the procedure and requirements for listing on KRX and other regulatory, accounting, and legal details.

For full report, click here (English):

http://eng.krx.co.kr/coreboard/BHPENG08004/view.jspx?bbsSeq=19793&secretYn=N

Korea’s ETF market expanded sharply

The Korea Stock Exchange stated on 27th July that Korea’s Exchange Traded Fund (“ETF”) market has been growing rapidly. According to the bourse, Korea along with Japan topped in terms of number of ETFs in December last year (up 141% YoY) and in terms of AUM Korea ranked 4th with US$8.5 billion (up 64% YoY) last year.

KRX added that this rapid expansion is mainly due to a sharp increase in derivative-type ETFs which accounted for 75% all ETF trades last year.

Sourceswww.krx.co.kr

www.koreatimes.co.kr

www.yonhapnews.co.kr

www.asianinvestor.net


Trading Value by Investor Group(KRW bil., %)(KRW bil., %)

YearTotal

Trading Value

Institutional Investors

Securities Cos. Insurance Cos. Asset Mgmt Cos.Private Equity Funds Banks

Sales Purchase Sales Purchase Sales Purchase Sales Purchase Sales Purchase

2007 1,362,877(100)

36,880 (2.7)

39,874 (2.9)

17,340 (1.3)

18,664 (1.4)

143,657 (10.5)

148,256 (10.9)

0 (0.0)

0 (0.0)

14,663 (1.1)

12,945 (1.0)

2008 1,287,165 (100)

35,928 (2.8)

46,073 (3.6)

21,188 (1.7)

25,661 (2.0)

156,978 (12.9)

154,713 (12.0)

8,655 (0.7)

9,237 (0.7)

10,866 (0.8)

11,606 (0.9)

2009 1,466,275 (100)

43,202 (3.0)

50,303 (3.4)

28,530 (2.0)

29,033 (2.0)

191,520 (13.1)

169,767 (11.6)

11,699 (0.8)

11,110 (0.8)

12,770 (0.9)

9,594 (0.7)

2010 1,410,562 (100)

62,898 (4.5)

63,918 (4.5)

38,798 (2.8)

39,292 (2.8)

131,640 (9.3)

112,950 (8.0)

22,068 (1.6)

20,015 (1.4)

15,680 (1.1)

14,238 (1.0)

2011 1,702,060 (100)

72,314 (4.3)

74,225 (4.4)

48,231 (2.8)

48,193 (2.8)

142,925 (8.4)

140,047 (8.2)

20,468 (1.2)

23,015 (1.4)

18,140 (1.1)

16,047 (0.9)

Year

Institutional InvestorsGovernment &

municipalityIndividuals ForeignersMerchant & Mutual

Savings Banks Pension Funds

Sales Purchase Sales Purchase Sales Purchase Sales Purchase Sales Purchase

2007 4,248 (0.3)

3,727 (0.3)

31,586 (2.3)

35,388 (2.6)

43,742 (3.2)

54,003 (4.0)

721,266 (52.9)

727,712 (53.4)

345,624 (25.4)

320,911 (23.5)

2008 2,771 (0.2)

2,818 (0.2)

31,522 (2.5)

41,059 (3.2)

36,837 (2.9)

45,331 (3.5)

636,106 (49.4)

638,940 (49.6)

343,898 (26.7)

31.294 (24.1)

2009 4,229 (0.3)

4,035 (0.3)

44,555 (3.0)

36,334 (2.5)

12,577 (0.9)

13,436 (0.9)

856,830 (58.4)

854,868 (58.3)

233,243 (15.9)

265,630 (18.1)

2010 4,580 (0.3)

4,048 (0.3)

37,392 (2.7)

46,401 (3.3)

22,040 (1.6)

21,725 (1.5)

772,747 (54.8)

767,364 (54.4)

273,757 (19.4)

295,330 (20.9)

2011 3,827 (0.2)

3,489 (0.2)

50,143 (3.0)

62,948 (3.7)

53,317 (3.1)

53,354 (3.1)

944,793 (55.5)

942,973 (55.4)

316,098 (18.6)

308,103 (18.1)

ASX appears to broaden definition of ‘dark’ to include futures expiries

The Australian exchange has submitted a public response to the ASIC CP 179 which makes a number of strong statements against competition and dark trading. The exchange submits that between 14% and 43% of trades are now executed as ‘dark execution [that] takes away liquidity from the lit market’. From the data provided, it would appear that these numbers include trades that resulted from the futures expiry date on 21st June. However, investors are not able to interact with expiry trades as they are the result of a right previously paid for through the derivative contract and not for the open market. Expiry trades are not executed in automated crossing systems commonly referred to as dark pools.

There have been a number of inaccurate press reports that have since taken the figure as indicating the volumes crossed in dark pools demonstrating the confusion that can be caused by unclear data sourcing.

For the full report click here:

http://www.asxgroup.com.au/media/PDFs/asx-submission-to-asic-cp-179-august-2012.pdf

ASIC seeks end to ‘takeovers by stealth’

ASIC is seeking to overhaul so called ‘’creep’’ provisions where corporate raiders can ramp up their shareholdings by 3 percentage points every six months once they surpass 19.9% without paying a premium for a formal takeover bid.

ASIC has written to the Treasury requesting that ‘creep’ provisions need to be reviewed by the government , with a view to reducing gradual ownership to 1 percentage point per six months, rather than the current 3 percentage points.

ASIC’s chairman Greg Medcraft told AM that the legal but destabilizing use of ‘creep’ tactics by corporate raiders needed to be overhauled:

“I think the current creep provisions are an anachronism. It is basically allowing takeover by stealth which I think is inconsistent with the takeover law in terms of making when there is a change of control and there is a premium to be paid that all parties can share in.”

Many have interpreted Mr. Medcraft’s comments as a warning to James Packer and fellow billionaire Gina Rinehart, as the current corporate manoeuvres by Fairfax Media and Echo Entertainment has caused consternation where the respective chairmen have been subjected to public criticism. Mr. Medcraft commented that “where there are means other than legal or other means used to take control of a board, then I believe that needs to be looked at in terms of the spirit of the takeover laws.”

Australian Market Structure Update

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

Total market ADT AUD$3.24bn 11.69%

Lit ADT AUD$3.07bn 12.22%

Dark ADT AUD$0.13bn 6.07%

OTC ADT AUD$0.04bn 16.16% Source: Thomson Reuters, 2012


Global Market Structure Australian Newsletter Issue 19





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Fig 4: Equities Spreads (bps) - July 2012

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In an interview with The Australian, Mr. Packer questioned ASIC’s reform proposals and said of Mr. Medcraft:“I think the guy’s job is to implement law, not make law. When was he elected to make law? Who elected him to make law?”

Venue News

ASX faces new clearing challenge London based LCH Clearnet has applied to run clearing facilities for derivatives, cash and shares, which if successful would end ASX’s monopoly over the clearing of securities trades.

Representatives of the Council of Financial Regulators, which include the Reserve Bank of Australia, ASIC, the Australian Competition and Consumer Commission and Treasury, met with market participants last week to discuss the prospect of allowing rival companies to settle trades. During the talks with securities exchange representatives and stockbrokers , it was resolved that there was scope to open up the local market to providers that can clear cash equity trades which have been executed on the ASX or Chi-X.

LCH Clearnet has made at least three applications to relevant regulatory bodies, including the Reserve Bank and ASIC. The company is waiting for a response from key regulators.

ASX chief executive Elmer Funke Kupper, has said that ASX would “compete strongly” and “adapt” if more newcomers entered the local market. Chi-X chief executive Peter Fowler said he supported competition in clearing and argued that it would make the market more efficient and transparent.

Chi-X allow participants to remove instruction for trade to be sent to clearing houseAs of 2nd July, Chi-X has enabled FIX tag 8177 RemoveCrossingFromClearing to allow brokers to indicate if they do not wish the trade to be sent to the clearing house. Tag 76 ExecBroker will also need to show the same value as it indicates that the same broker is on both the buy and the sell side of the trade.

Brokers will still need to ensure that they have appropriate arrangements in place for the settlement and processing of the transaction.

For the full notice click here:

http://www.chi-x.com/resources/au/file/Market%20Operations%20Notice%200011-12.pdf

ASX plans data centre with Singapore Exchange In a statement ASX said that it and Singapore Exchange Ltd will host hubs belonging to each other in their own data centres from September, with the aim of increasing the flow of future activity between the two exchanges.

Around 6% of futures and options volume on the ASX 24 market is generated from the Australian exchange’s global hub network across the US, UK and Hong Kong as well as Singapore, said ASX’s General Manager of Trade Execution Information Services David Raper.

In an interview Mr Raper said :

“Our Chief Executive has been out there saying it’s much more likely that we’ll see this kind of cooperation between exchanges. The real value for us and SGX is seeing how we work together on this. Assuming this model works, we would look to extend this to other centers.”

Changes to Centre Point Crossings Following consultation with ASIC, the hold period for the price at which Centre Point Priority has been lowered. Crossings undertaken from 16th July 2012 now only need to apply a hold period of 1 second.

Since the inception of Centre Point Priority Crossings in June 2010, a hold period of 30 seconds has applied the mid-point price to facilitate a participant determining whether it wishes to cross the Centre Point orders at that price.

Sourceswww.asic.gov.au

www.asx.com.au

www.foxbusiness.com

www.theaustralian.com.au

www.afr.com

www.theaustralian.com.au

www.smh.com.au

Australian Market Structure Monthly Newsletter





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Fig 6: Futures SFE-ASX SPI 200 monthly ADT

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SEC Philippines consults on draft rules for ETF listing

The Securities and Exchange Commission, Philippines has released a public consultation on Rules and Regulations for Exchange Traded Funds (“ETF”) that will allow listing of ETFs on the local bourse. The draft includes provisions that classify ETFs as a new investment product allowing issuers to hurdle old rules that only recognised more traditional financial instruments.

The draft rules can be found at

http://www.sec.gov.ph/notices/notices/RPD_Draft_Rules_on_ETF%20-%20July%204_2012%20Version%206.pdf

Thailand waives off capital gains tax for ASEAN securities

In a bid to promote the upcoming ASEAN link and facilitate the joint initiative, an exemption from capital gains tax has been announced for traders (both domestic and foreign) who sell stocks listed in the ASEAN stock markets through the Stock Exchange of Thailand.

“The Finance Ministry has issued a ministerial regulation on capital-gains-tax exemption for those who sell shares listed in Asean stock markets via the Thai bourse.” said Vorapol Socatiyanurak, General Secretary of the Securities and Exchange Commission.

Link-up of SGX and Bursa Malaysia delayed

The linkup between the Singapore Exchange (SGX) and Bursa Malaysia as the first phase of ASEAN trading link implementation has been delayed according to a press report. The link was scheduled to go live by end of July this year. The exchanges are reported to be ready technologically but are finalising the operational aspects before the link is made operational.

An exact time frame for the final go-live for the link is not yet available.

Indonesia looks to reduce IPO approval time amid resilient primary markets

Bapepam-LK, the Indonesian regulator for the financial sector is looking to speed up the time taken for the evaluation of companies that want to raise public funds. Currently it takes upto 45 working days to approve an IPO application and the regulator is planning to cut this short by at least 10 days to 35 working days.

“If there are no obstacles and all requirements are fulfilled, then in the future, we could clear the evaluation process faster.” – said Anis Baridwan, head of corporate finance bureau at Bapepam-LK.

Indonesian primary markets have been doing well even amid the global financial crisis with the following seven firms launching their IPOs in July:

— Bank Pembangunan Daerah Jawa Timur Tbk

— Gading Development Tbk

— Tri Banyan Tirta Tbk

— Global Teleshop Tbk

— MNC Sky Vision Tbk

— Toba Bara Sejahtra Tbk

— Kobexindo Tractors Tbk

ASEAN Market Structure Update




Global Market Structure ASEAN Newsletter Issue 19






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Venue News

SGX strengthens risk management framework for derivatives

Following up on the public consultation in Sep 2011, the Singapore Exchange has strengthened its default management framework to protect its derivatives market against systemically destabilising events, including the possibility of multiple member defaults. Highlights include:

— Establishing the Clearing Member’s liabilities in circumstances of multiple defaults (i.e. where several defaults occur in quick succession) if the Clearing Member resigns.

— Allowing SGX-Derivatives Clearing (“SGX-DC”) to apply the Clearing Fund continually to meet the losses arising from all defaults which occur within a fixed period of 90 days.

— Clarifications and refinements to SGX-DC’s powers in managing a default, including clarifying SGX-DC’s authority to transfer and manage customer positions and margins from the defaulted Clearing Member to a non-defaulting Clearing Member.

The enhanced rules will be effective 7th August.

SGX and ASX partner to enhance market connectivity; SGX commences Nifty options trading

In a bid to enhance customer connectivity to international markets, the Australian Stock Exchange and Singapore Exchange have announced a partnership to host each other’s trading hubs. SGX will host an ASX hub at its co-location centre at Singapore by Sep giving customers direct connectivity to the ASX 24 futures market, while an SGX hub will be hosted by ASX at the ASX Australian Liquidity Centre, Sydney. The partnership will attract more global participants to the Singapore market through a commitment to better connectivity, allowing SGX customers to easily access international markets.

SGX also started trading in the SGX S&P CNX Nifty Options which is based on the benchmark Indian stock index and aims to enhance offshore investors’ access to the Indian economy.

SGX and LSE sign cross trading deal; SGX denies merger talks with LSE

The Singapore Exchange has inked an agreement with the London Stock Exchange to allow the top stocks from both venues to be available on their respective platforms for local investors. The top 36 stocks on SGX and all stocks of FTSE 100 index will be made available for cross trading on the international boards of both exchanges. Trading hours for the most actively traded stocks in both markets will be extended to about 15 hours a day. The relevant SGX securities will be quoted on LSE by early next quarter while the LSE securities will be quoted on SGX by the first half of next year.

“We are excited to be partnering with LSE to offer customers in our respective markets a platform for investing in some of the world’s largest companies.” - Mr Magnus Bocker, CEO of SGX, said.

“As two of the world’s most international stock exchanges, we are committed to bringing global capital and investors to London, as well as raising the profile of companies listed on our markets.” – Mr Xavier Rolet, CEO of LSE Group, said.

SGX has announced that it was not involved in any discussions with LSE on a possible merger between the two exchanges after there were reports that the two were mulling a US$11 billion merger.

“SGX has not engaged in talks with the LSE on a potential merger. However, we are open to collaborations and partnerships which may

benefit our shareholders and the company. Hopefully we can do more between London and SGX, like I can see us doing more with NYSE Euronext, and Eurex and Nasdaq. SGX is more focused on products and services and less on the M&A side.” - Mr Magnus Bocker, CEO of SGX, said.

SGX announces readiness for end-to-end renminbi securities trading

The Singapore Exchange has announced that it has all systems and processes in place to list, quote, trade, clear and settle securities denominated in the Chinese currency in a bid to reinforce its eligibility as an offshore renminbi trading hub.

“SGX, as the Asian gateway, is committed to being the exchange of choice for issuers with RMB fundraising needs and for investors who are keen to participate in the China growth story . The listing and trading of RMB securities on SGX will also extend Singapore’s position as an offshore RMB centre.” said SGX CEO Magnus Bocker.

SGX raises eligibility criteria for mainboard listings to step up market transformation

The Singapore Exchange has announced an enhanced set of eligibility criteria for the companies seeking to list on the SGX’s mainboard. The new criteria will come into effect on 10th August and extend market transformation to the quality of the primary (IPO) market, making it attractive for larger companies seeking to list. Ongoing deals in the existing pipeline will have a nine-month window to list under the old rules.

According to the new criteria, the companies looking to list on SGX mainboard must:

— Have a market capitalisation at IPO of not less than S$150 million if they are profitable in the last financial year and have an operating track record of at least three years.

— Have a market capitalisation at IPO of not less than S$300 million if they only have operating revenue in the latest completed financial year.

— Have minimum consolidated pre-tax profit of at least S$30 million for the latest financial year and have operating track record of at least three years.

— Issue shares with a minimum price of SG$ 0.5.

SGX is also looking to increase the proportion of IPO tranches allocated to retail investors, particularly for listings which draw high retail subscription.

SGX proposes margins for stock trading

In a bid to strengthen the financial system, SGX has proposed to collect margins on equities trades cleared through its system. Margins will be imposed on members of its central depository (“CDP”) clearing house and will vary depending on the level of risk their portfolio poses to the clearing system in the event of a default. The proposed rules will also apply to other securities including structured warrants, real estate investment trusts and exchange traded funds.

The rules are expected to take effect in January 2013 and could raise overall trading costs, but will align SGX’s practices with new international standards proposed by the International Organization of Securities Commissions.

Comments close on 21st August, for the full text see here:

http://www.sgx.com/wps/wcm/connect/314dbe004c29b67cad5dff976e7f295d/Consultation+Paper_Securities+Margining+%2830+July+2012%29.pdf?MOD=AJPERES

21ASEAN Market Structure Monthly Newsletter

SET announces operational masterplan; selects KRX to enhance clearing and settlement systems

Stock Exchange of Thailand’s 5 year Operations Master Plan (advised by Oliver Wyman) has been introduced in order to strengthen its operations covering trading operations, depository, registrar, and clearing and settlement services and will be in continuation to the IT Masterplan released earlier.

As per the IT masterplan, SET has chosen the Korean Exchange to help improve the clearing and settlement system for equities, derivatives, and bonds traded in Thai capital markets to boost SET’s capacities to be comparable to global leading clearing houses.

“These two key developments are for increasing SET’s competitiveness, creating business opportunities for members, and boosting investment potential, as well as meeting demands of investors and market participants. These improvements reinforce our great efforts to continuously match the right financial opportunities for investors and all other market participants.” said SET President Charamporn Jotikasthira.

SET adjusts trading rules

The Stock Exchange of Thailand has adjusted the trading rules governing the calculation of ceiling and floor price, opening and closing prices and has increased the categories of market orders. Following are the adjustments applied:

— On their first trading day, the ceilings and floors of IPO prices and warrants, derivative warrants (DWs), and transferable subscription rights (TSRs) have to move in symmetric price bands

— For equities and investment units, ceilings will be set at 300% of IPO prices, while ceilings of warrants, DWs, and TSRs must be no more than double the previous closing price of their underlying security multiplied by the exercise ratio. Floors of all mentioned securities must be no lower than Bt0.01

— The opening and closing prices will be those which yield the highest volume of trading

— New categories of market orders will be made available such as special market orders, market orders, and market to limit orders

— The bid amount can be reduced before the trading system matches the bid with an offer without losing the bid’s place in the queue. This amendment will not apply to increasing the bid amount though.

SET has also expanded its Third Party Clearing (TPC) facility by allowing the give-up/take-up arrangement, enabling non-clearing members to outsource clearing and settlement to more than one clearing member. This will help reduce the risk of clearing and settlement by distributing transactions to more than one party.

Philippine Stock Exchange reaches an all-time high; proposes a new listing board

The Philippine Stock Exchange index (PSEi) closed at a new all-time high of 5,369.98 on 5th July after a sovereign credit rating upgrade for the country was announced by S&P. The net foreign buying in the local markets in 1H 2012 have crossed P 71 billion which is 380% higher than the net inflows in 1H 2011 (P 14.75 billion)

“The market’s run in the first half has been nothing short of historic, and there’s a good chance that we will be able to extend this forward momentum as we anticipate better first-half earnings from our listed firms.” - PSE president Hans Sicat said.

The PSE has proposed to create a new listing board to replace the existing second and SME boards which were suspended from listing any new companies earlier. The new board is also aimed to assist small cap companies to raise public funds. PSE has however proposed stricter rules for the new board to adequately protect investor interests. The companies applying for listing

— must have an authorized capital stock of P 100 million, with at least 25% subscribed and fully paid

— must have a cumulative pre-tax profit of at least P 15 million, excluding non-recurring and extraordinary income or loss in the last three fiscal years preceding the application for listing

— must demonstrate stable financial condition and prospects for growth by submitting among others, a five-year business plan

— cannot change its primary business purpose for five years from listing

— existing shareholders cannot dispose of their securities for a period of 2 years after listing

Bursa Malaysia touches record high, enhances its trading system and introduces central matching

Buoyed by a growing economy and capital markets, Bursa Malaysia recorded its all-time high of 1,635.96 on 16th July on the back of investor interest in selected finance and utility bluechips.

Bursa has released its enhanced trading system to improve the market’s framework and efficiency and allow market participants to execute a greater variety of trading and risk management strategies through the introduction of new order and validity types. Traders will now be able to use Market to Limit order, Fill and Kill, and minimum quantity as new order and validity parameters.

Bursa Malaysia has also introduced the enhanced Central Matching Facility, an automated settlement system offering end-to-end electronic matching of trade and settlement details between Trading Clearing Participants (stock broking companies) and Non-Trading Clearing Participants (custodian banks).

The Bursa is reported to be mulling to increase the tranche allocated to the retail participants in new public offers in a bid to increase retail participation in the local markets. This comes in the wake of successful listings of two of the world’s largest IPOs (Felda and IHH) and a strong pipeline of IPOs to come during the rest of the year.

Vietnam raises capital requirements for listing

Vietnam stock exchanges have raised the minimum capital requirement for companies looking to list on any of the two bourses. For Ho Chi Minh City Stock Exchange, the minimum registered capital requirement is raised to VND120 billion (from VND80 billion) while for Hanoi Stock Exchange it has been raised to VND30 billion (from VND10 billion).

Sources


www.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 - July 2012

Below is a selection of quantitative metrics, which provides additional analysis of the markets and liquidity during July 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

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

24.0

22.0

28.0

26.0

Intr

a-In

dex

Co

rrel

atio

n

60.0%

10.0%

10.0%

20.0%

30.0%

50.0%

40.0%

70.0%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

Liquidity

Historical Volatility

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

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


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

24.0

22.0

28.0

26.0

Intr

a-In

dex

Co

rrel

atio

n

60.0%

10.0%

10.0%

20.0%

30.0%

50.0%

40.0%

70.0%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

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

24.0

22.0

28.0

26.0

Intr

a-In

dex

Co

rrel

atio

n

60.0%

10.0%

10.0%

20.0%

30.0%

50.0%

40.0%

70.0%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

06-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

13-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

20-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

27-J

uly

30-J

uly

31-J

uly

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% 75.1% 83.0% 72.7% 89.7% 73.6% 75.4% 81.1% 82.5% 81.0% 77.2% 63.6% 72.6% 84.6% 72.9% 67.7% 70.3%75.1% ##### 83.7% 87.8% 84.6% 88.0% 84.8% 85.4% 85.2% 89.1% 86.6% 77.1% 79.2% 86.8% 85.4% 78.7% 87.3%83.0% 83.7% ##### 83.1% 94.5% 86.0% 81.9% 90.1% 87.0% 88.5% 86.9% 82.3% 80.4% 85.9% 80.7% 71.0% 82.4%72.7% 87.8% 83.1% ##### 80.6% 84.1% 82.0% 85.4% 83.6% 88.4% 80.4% 78.4% 84.1% 81.7% 75.1% 73.0% 76.0%89.7% 84.6% 94.5% 80.6% ##### 84.8% 81.9% 90.5% 87.6% 89.6% 87.4% 79.4% 79.9% 90.3% 83.6% 73.7% 79.7%73.6% 88.0% 86.0% 84.1% 84.8% ##### 89.1% 85.0% 89.2% 86.5% 87.2% 87.5% 76.7% 84.6% 81.3% 81.7% 85.1%75.4% 84.8% 81.9% 82.0% 81.9% 89.1% ##### 84.0% 83.4% 84.3% 83.1% 82.8% 82.2% 82.5% 81.5% 85.7% 75.5%81.1% 85.4% 90.1% 85.4% 90.5% 85.0% 84.0% ##### 91.6% 84.8% 81.4% 86.7% 90.3% 84.5% 82.6% 77.8% 82.9%82.5% 85.2% 87.0% 83.6% 87.6% 89.2% 83.4% 91.6% ##### 85.3% 84.4% 83.3% 82.0% 90.1% 76.9% 83.3% 80.8%81.0% 89.1% 88.5% 88.4% 89.6% 86.5% 84.3% 84.8% 85.3% ##### 86.3% 79.2% 77.3% 84.3% 82.5% 75.6% 77.4%77.2% 86.6% 86.9% 80.4% 87.4% 87.2% 83.1% 81.4% 84.4% 86.3% ##### 81.5% 75.9% 88.3% 82.7% 80.7% 86.4%63.6% 77.1% 82.3% 78.4% 79.4% 87.5% 82.8% 86.7% 83.3% 79.2% 81.5% ##### 75.7% 74.1% 81.2% 76.3% 82.0%72.6% 79.2% 80.4% 84.1% 79.9% 76.7% 82.2% 90.3% 82.0% 77.3% 75.9% 75.7% ##### 78.8% 75.2% 72.9% 72.0%84.6% 86.8% 85.9% 81.7% 90.3% 84.6% 82.5% 84.5% 90.1% 84.3% 88.3% 74.1% 78.8% ##### 78.3% 76.3% 78.7%72.9% 85.4% 80.7% 75.1% 83.6% 81.3% 81.5% 82.6% 76.9% 82.5% 82.7% 81.2% 75.2% 78.3% ##### 74.4% 81.6%67.7% 78.7% 71.0% 73.0% 73.7% 81.7% 85.7% 77.8% 83.3% 75.6% 80.7% 76.3% 72.9% 76.3% 74.4% ##### 76.5%70.3% 87.3% 82.4% 76.0% 79.7% 85.1% 75.5% 82.9% 80.8% 77.4% 86.4% 82.0% 72.0% 78.7% 81.6% 76.5% #####

24

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