FIA Asia eMarketBeat
Futures Industry Association Asia

Vol. 2, No. 1, February 3, 2009  

Please direct all feedback on the FIA Asia eMarketBeat to Nick Ronalds

Top Stories

South Korea Puts KRX Under State Control
            South Korea’s Finance ministry announced on Jane 29 that it would put the Korea Exchange (KRX) under state control, according to news reports. The action is the result of a recommendation by the Board of Audit and Control, a government agency, which conducted a study in December. According to news reports at the time, the basis for the recommendation is that KRX is a monopoly and government control would make it more efficient. The Finance Ministry has claimed that according to law, the government can nationalize a company if it gets more than half its revenues from a “monopolistic business.” The government also accused the exchange of lax management.
The KRX was a state-owned entity until 1988, when it was privatized. Earlier this decade it acquired the Korea Financial Futures Exchange (KOFFEX) and then the Kosdaq market. The move does not transfer ownership of the exchange’s equity to the government, which is still in the hands of its members, but the government will control staff salaries, trading and clearing fees, the exchange budget, and appointment of the CEO. The KRX will be one of 297 institutions under the control of the government.
KRX officials have been critical of the decision, arguing that the move would be a backward step and hamper efforts to internationalize via global alliances with international exchanges and to go public. KRX has been trying to go public since 2003 but has been stymied by conflicts with the government on how to use the proceeds for an IPO and how the exchange needed reforming. A KRX spokesman said “the decision will certainly be negative to our global business plans… our overseas peers will find it less advantageous to form meaningful alliance with us, since the decision weakens our management independence.” According to a story in the Korea Times, some law professors said the government’s action was illegal, and the exchange may challenge the move by filing a petition with the Constitutional Court, and the KRX employees union has said it would organize protests.
http://news.alibaba.com/article/detail/country-grouping/100029455-1-s.korea-considers-putting-exchange-operator.html
http://www.koreatimes.co.kr/www/news/nation/2009/01/123_38668.html

SGX Strengthens Derivatives Clearing Fund
            Singapore Exchange announced on Jan. 23 that it is proposing to "re-model" the clearing fund structure of SGX-Derivatives Clearing. Among other things, the proposal will increase the exchange's assessment powers, require clearing firms to contribute larger amounts to the clearing fund, and expand the range of acceptable collateral. The exchange said the changes will address increased risk exposure and reinforce the integrity of the clearing system, and invited comments on the proposal by Feb. 20. "With the significant increase in derivatives trading volumes and market volatility, the exchange is of the view that the SGX-DC clearing fund structure should be re-modeled for scalability with market activity and risks," the exchange said. "One such risk is SGX-DC's exposure to the possibility of the failure by a clearing member to discharge its financial obligations (i.e. a default)."
http://info.sgx.com/SGXWeb_RMR.nsf/NEWDOCNAME/PC_230109

China, Hong Kong SAR & Taiwan

Hedge Problems in China
Nanshan Power Station Company is refusing to pay losses to the Goldman Sachs affiliate J. Aron & Co., the Wall Street Journal reported on Dec. 19. The losses stemmed from a swaps or swap-like deals to provide protection against rising crude prices. According to terms of one of the deals struck in March of last year, for example, the Chinese power company received $300,000 per month so long as oil prices stayed above $63.50 a barrel. If the price fell below $62/barrel, the firm was required to pay the difference between the market price and $62 on 400,000 barrels. According to the Journal, local investment bankers said companies preferred these structures because they were cheaper than buying put options.
Other Chinese companies have suffered losses from similar structures. Air China claimed losses of about 3.1 billion yuan (about $454 million) through October 31 from trades entered into in July. Some local press accounts have portrayed the Western banks that served as counterparties to the various deals as predators that hoodwinked the unsuspecting Chinese traders.
http://online.wsj.com/article/SB122962379473718869.html

Some Banks Sell China Assets
Observers are wondering whether foreign firms who bought up Chinese banking assets a few years ago may soon sell them to beef up their balance sheets, and if so, what the response will be on the part of Chinese authorities, according to news reports. Foreign financial institutions with stakes in leading Chinese lenders include Goldman Sachs, Citigroup, HSBC, TPG, Temasek, Allianz and Royal Bank of Scotland. UBS sold an $835 million stake in Bank of China in the last week of December, but the 1.33% share of BOC was considered a portfolio investment rather than a strategic partnership. UBS said it was “committed” to its relationship with BOC and to its other mainland businesses.
According to a Wall Street Journal article, Bank of America sold $2.8 billion of its shares in China Construction Bank in January. The sale follows BofA’s exercise of options to buy shares in CCB in November, at a cost of $7.1 billion. Similarly, the Royal Bank of Scotland Group (RBS) will sell its entire 4.3% stake in Bank of China for as much as $2.37 billion, the Wall Street Journal reported. Despite a decline in the price of BoC shares over the last year, RBS could still make a profit of up to $794.3 million from the deal, analysts told the paper. The Li Ka-Shing Foundation sold 2 billion of its 5 billion shares in Bank of China for $511 million the first week of January, just days after UBS sold its stake in the Chinese bank.
http://www.ft.com/cms/s/0/c644f370-da7c-11dd-8c28-000077b07658.html
http://online.wsj.com/article/SB123127340392958319.html
http://online.wsj.com/article/SB123188358009478687.html

China Lets Some Foreign Banks Trade Corporate Bonds
China’s banking regulator, the China Banking Regulatory Commission, told certain  foreign banks on Jan. 8 that it would allow trades in some corporate bonds for the first time, according to a Reuters article. The move is likely intended to boost liquidity at a time when regulators are encouraging new issuance. The expanded trading authority applies only to bonds traded in the interbank market, not exchange-traded issues. The new policy was communicated to the banks verbally and no formal, written policy has been issued, Reuters reported. At the Strategic Economic Dialogue talks in December, China had said it intended to allow foreign banks to trade on behalf of clients as well as for their own accounts, but no timetable for that was announced.
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSSHA32816920090108

Hong Kong Reviewing Financial Regs in Lehman Bros Aftermath
Hong Kong announced on Jan. 9 the launch of a thorough review of its financial regulatory structure, prompted in large part by the losses suffered by thousands of investors from the bankruptcy of Lehman Brothers, according to news reports. Hong Kong authorities said the main focus will be to see if retail investors can be protected better and if enough information on financial products is being disclosed under current rules.

Deutsche Bank JV with Shanxi Securities China Approved
Deutsche Bank and Shanxi Securities announced on Jan. 6 that their securities joint venture had been approved by the CSRC. Ownership of the JV, “Zhong De Securities Company Limited,” is split one-third and two-thirds between Shanxi and Deutsche Bank, respectively. This development comes a year after Deutsche Bank became incorporated in Beijing. Deutsche also owns stakes in Harvest Asset Management and Hua Xia Bank.
http://www.db.com/presse/en/content/press_releases_2009_4271.htm?month=1

Shenzhen Stock Exchange Launches New Platform
On Dec. 1 the Shenzhen Stock Exchange launched a new block-trading platform. The exchange said in a press release that the new system, which replaces its previous system, adopts best-practices used by leading international exchanges. The new system provides “richer” quotation methods and better deal and search functions.
http://www.szse.cn/main/en/AboutSSE/MarketNews/2009011239739112.shtml

CME Seeks Better Risk/Reward in China Ventures
The CME would like to achieve a “definitive business arrangement” with China “that benefits both parties,” according to Robert Ray, a CME managing director overseeing international sales according to a MarketWatch article. So far, however, their hopes have been frustrated. Plans for a “superclearing” arrangement with CFETS, an affiliate of China’s central bank, were abandoned last year, with no successor projects in sight thus far, MarketWatch reported. Another alliance, with the Dalian exchange, was also allowed to lapse because it failed to produce value for both parties, according to Ray. The CME still has cooperative agreements with the Shanghai Futures Exchange and the Zhengzhou Commodity Exchange. Euronext-Liffe and NASDAQ-OMX have also been seeking opportunities for cooperative ventures with Chinese exchanges.
http://www.marketwatch.com/news/story/cme-plots-new-china-approachother/story.aspx?guid=%7BE692D015-256C-41EE-AEE4-CDD4CF1096C5%7D&dist=msr_1

HKEx Signs Deal with Shanghai Exchange
The Hong Kong Exchange and Shanghai Stock Exchange on Jan 21 signed an agreement aimed at providing the Hong Kong Exchange with greater access to the Chinese market while giving the Shanghai Exchange the benefit of Hong Kong’s considerable international experience, the Wall Street Journal reported. There has been speculation for years that over the long term Hong Kong would gradually lose market share in financial products to the mainland. So far the Hong Kong Exchange has been able to stay nimbler, innovating with new products and reaching out to other exchanges in Asia and Canada for listings. Its special relationship with China, however, represents a unique opportunity as well as a potential threat.
http://online.wsj.com/article/SB123255361816002693.html

Japan

Tocom Extends Trading Hours
In a bid to attract more overseas participation, the Tokyo Commodity Exchange will extend its trading hours into the evening starting on May 7, the exchange announced on Jan. 20. The shift to a longer trading day will coincide with the installation of a new trading platform provided by Nasdaq OMX, the exchange said. Currently, all Tocom contracts start trading at 9:00 a.m. and end at 5:30 p.m., with a lunch break between 11:00 a.m. and 12:30 p.m. Under the new schedule, the day session will run continuously from 9:00 a.m. to 3:30 p.m., followed by a night session from 5:00 p.m. to 11:00 p.m., with the exception of rubber futures which will cease trading at 7:00 p.m. “Our purpose of extending trading hours is to increase liquidity, inspire more hedging needs and invite more participants from abroad,” Tocom President Masaaki Nangaku said at a press conference, according to a report on Reuters.
http://www.mondovisione.com/pdf/090120torihikijikanen_E.pdf
http://uk.reuters.com/article/oilRpt/idUKT34520620090120?pageNumber=1&virtualBrandChannel=0

Tocom Appoints Special Advisor to the Board
Tokyo Commodity Exchange appointed Tadashi Ezaki as special advisor to the board. From 2000 to 2008 Ezaki served as the president of Shoko Chukin Bank, a government owned bank that provides financing to small and medium-sized companies. Before that he served for many years as a senior official at the Ministry of International Trade and Industry. 

Tokyo Stock Exchange and Options Industry Council Sign Licensing Agreement
The TSE signed an agreement on Jan. 9 with the Option Industry Council, a group funded by U.S. options exchanges to provide marketing and educational material on options for the public. The TSE will introduce its new trading platform for options, “Tdex+,” in July and under this latest agreement, TSE has the ability to connect Japanese investors with an array of educational materials on options.
http://www.tse.or.jp/english/news/200901/090109_a.html

Tokyo Outlines Plan for New Exchange
A joint venture between the Tokyo Stock Exchange and the London Stock Exchange came a step closer to fruition with the release of a rulebook for the exchange, which is slated for launch in June, according to a Financial Times article. The Alternative Investment Market is intended to slash much of the red tape and costs that have made Japan an unattractive market for small firms seeking to launch IPO’s. Japan has fared poorly compared to London and New York in attracting listings not only of foreign companies but also fledgling Japanese companies who are instead drawn to the London’s AIM.  Key features of the Japanese AIM will be a system of “nominated advisors,” “Nomads,” to guide companies through the listing process, as well as a light regulatory touch. The flip side is that the market will be restricted to professional investors.
http://www.ft.com/cms/s/0/734f49ea-edd7-11dd-b791-0000779fd2ac.html

India

Indian Futures Volume Post Big Gains in ’08
The three Indian national commodity exchanges ended 2008 with healthy volume growth even as volume has been falling off elsewhere, according to Business Standard article.The Multicommodity Exchange (MCX), the National Commodity & Derivatives Exchange (NCDEX) and the National Multip Commodity Exchange (NMCE) collectively notched a 40% jump in turnover, measured by value.  Leading the pack by a wide margin was the MCX with a volume jump of 86% from ’07.  NCDEX was up a modest 12.7%, and NMCE only 1.5%
http://www.business-standard.com/india/news/futures-trade-helps-comexes-surpass-1-trillion-turnover/00/16/345177/

Other Asia

SGX Profits Halved by Slowdown
Bloomberg reported on Jan. 15 that SGX profits had dropped 52% in the last quarter of 2008 relative to a year earlier, with net income at $50 million (US equivalent), S$6.97 cents a share.  The value of average daily stock trading was about $1.07 billion.
http://info.sgx.com/webnewscentre.nsf/b9c790d0d5ba5d2548256dcf0049ce28/48256838002f07b14825753f0028c852?OpenDocument

Asia-focused Hedge Funds Hard Hit By Dismal Performance
Asian hedge funds have been hard hit by their 2008 underperformance relative to their Western peers, Reuters reported. Only a quarter of the 1,150 Asian-focused hedge funds ended the eleven months of ’08 in the black, compared to 38% for global hedge funds. Many of the smaller players have closed and more are expected to follow.
http://www.reuters.com/article/hedgeFundsNews/idUSLNE50D00D20090114

CFTC Finalizes Conditions on Foreign Access to U.S. Customers

The Commodity Futures Trading Commission issued a final rule on Jan. 21 that will set conditions on foreign exchanges seeking permission to offer electronic access to U.S. customers. The rule will apply only when the foreign exchange offers direct U.S. access to contracts that are linked to contracts traded on U.S. exchanges and is intended to close what is perceived to be a gap in its market surveillance. The final rule is based on the conditions agreed to last year by ICE Futures Europe with respect to its WTI crude oil futures contract, which settles on the price of the crude oil futures contract traded on the New York Mercantile Exchange. The purpose of the conditions, the CFTC said, is to ensure that foreign boards of trade such as ICE Futures Europe and the Dubai Mercantile Exchange apply “comparable principles or requirements” regarding the daily publication of trading information and the imposition of position limits or accountability levels for speculators on any linked contracts, and ensure that the exchange provides to the CFTC “comparable” information regarding the extent of speculative and non-speculative trading in the linked contracts. The CFTC rule also clarified the notification procedures applicable to listing an option on a futures contract for direct access from the U.S.

http://www.cftc.gov/lawandregulation/federalregister/finalrules/index.htm

FIA Asia News

FIA Asia Expands Board of Directors
At its annual meeting on Dec. 22, FIA Asia expanded its board to nine from five and elected the following directors: Paul Davies, Goldman Sachs Futures, Nicholas Forgan, J.P. Morgan Securities Singapore; Pierre Gay, NewedgeGroup (Hong Kong Branch); Foo-Shiung Ho, Yuanta Futures; Damian Kelly, Citigroup Futures; Kesara Manchusree, Thailand Futures Exchange; and Rama Pillai, SGX. The directors then elected Forgan as chairman, Gay as treasurer, and Pillai as secretary. In addition to the directors, John Damgard, president, FIA, and Nick Ronalds, executive director, FIA Asia, are ex-officio members of the FIA Asia board.

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