HKMA, Bank Negara and Euroclear Bank launches joint post-trade service

They aim to process cross-border Asian debt securities transactions centrally via a single link through the Common Platform.

Three organisations – the Hong Kong Monetary Association (HKMA), Bank Negara Malaysia (BNM) and Euroclear Bank – recently unveiled a joint post-trade service to deepen Asian debt market liquidity by processing cross-border Asian debt securities transactions centrally.

In June 2010, a group of Asian central banks and infrastructure service providers known as the Pan-Asian Bond Task Force published its blue-print for Asian debt market reform. HKMA, BNM and Euroclear Bank put these plans into action. The Task Force’s long-term goal is to deliver a Common Platform for Asian debt processing.

In order to deepen local bond market liquidity, attract investment and increase operational efficiency, an informal partnership among these entities was formed to leverage existing infrastructure in accomplishing these objectives.

Via a single link through the Common Platform, issuers and securities professionals with accounts in the central securities depositories of Hong Kong and Malaysia will be able to access 1,300 of the biggest names in finance spread over 90 countries and domestic securities from 45 domestic markets.

In today’s global marketplace, issuers are increasingly looking beyond their national borders for investors. However, the operational challenges of adapting to different local market practices and the cost of working through multiple intermediaries to settle cross-border transactions with counterparties across Asia and abroad are deterrents. For example, there are different requirements to fulfil when issuing a corporate bond in Kuala Lumpur, Manila or Hong Kong.

A corporate issuer usually needs to deal with multiple issuing agents, all sending corporate action information to the holder of record, usually the local depository, in different ways – fax, phone, proprietary communication channels and email. It is little wonder that bondholder reconciliation and corporate action processing, such as income collection, are often processing nightmares. To overcome these risks and inefficiencies, the early adopters of the Common Platform will employ a standardised electronic means of delivering corporate action information throughout the intermediary chain.

As Asian securities professionals increasingly trade with European and American firms, including those with offices in Asia, they will face more cross-border collateral management issues. Growing regulatory pressures and heightened robust risk management practices are steering firms to secure exposures arising from their trading counterparties, often by seeking securities (typically bonds) as collateral.

On the other hand, the administrative burdens that go hand-in-hand with collateral management, such as mark-to-market pricing, establishing eligibility criteria, and so forth, are not to be underestimated. The Task Force is considering ways to work together to develop collateral management facilities across Asia.

Other Asian markets can benefit from the joint Common Platform as it trail-blazes a path to efficiency, financial stability and growth. One of the many appealing aspects of this pragmatic and phased approach is that it does not place any pre-conditions on new joiners, nor does it add costs. On the contrary – the core ethos of the Task Force is ‘use what you’ve got to the fullest extent’.