FIA Asia eMarketBeat–with new free book chapter
Futures Industry Association Asia
Vol. 1, No. 5 - July 11, 2008
With this issue FIA Asia is pleased to announce the second free chapter from a significant new book likely to be of interest to our members. The book, just published on July 10, is India's Financial Markets: An Insider's Guide to How Markets Work, by Ajay Shah, Susan Thomas, and Michael Gorham. Members get a free chapter on India's commodity markets and a 25% discount on the book itself. http://www.fiaasia.org/free-book-excerpts-.asp
China
India
Japan
Other Asia Pacific
China
Chinese Regulators Approve Credit Suisse Joint Venture
Credit Suisse Group has won approval from Chinese regulators to set up a joint-venture securities firm with Founder Securities. This would be the first such joint venture to get approval under new rules covering joint venture securities firm deals announced in December. Credit Suisse will own 33.3% of the joint venture, the maximum allowed under the rules. The joint venture is authorized to engage in certain investment banking activities, such as the sponsoring and underwriting of A-shares, foreign investment shares and government and corporate bonds.The approval came just days ahead of a new round of meetings between the U.S. and China known as the "Strategic Economic Dialogue," or SED, which targets financial and economic barriers for foreign firms in China. The securities industry has been asking for some time for the one-third ownership limit to be raised or eliminated altogether. UBS was the last major foreign investment bank to win approval for a Chinese securities venture, in mid-2006.
CSLA China Venture Wins Brokerage Licenses
The China Securities Regulatory Commission has granted licenses to CLSA Asia-Pacific Markets to engage in securities brokerage through its Chinese joint venture, China Euro Securities Ltd. This is the first time that the CSRC has granted permission for a foreign joint venture company to offer brokerage services for A-shares traded domestically in China, and to offer Chinese-language research and investment advice to Chinese clients. The joint venture is 33.3% owned by CLSA, with the rest owned by Fortune Securities Co., Ltd. CLSA, based in Hong Kong, is 65% owned by Credit Agricole with the rest owned by its employees.
China May Let Foreigners Trade Commodities
China is considering changing its investment rules to allow foreigners to trade in its commodity markets, according to a Bloomberg report on May 28. The report quoted officials from the Shanghai Futures Exchange as saying they are studying an expansion of the qualified foreign institutional investor, or QFII, program to include commodities. Under existing QFII rules, foreign institutions can trade Chinese securities up to a specified quota, but not commodity futures.
Big Increase in China's Futures Volume in First Half
CITIC Calyon reports in its newsletter, "China Futures Market," that Chinese futures trading in the first half of 2008 is up 148% by contract volume compared to the first half of last year. In terms of the value of trading, volume topped 35 trillion RMB ($5.1 trillion), a 142% jump over last year. Turnover at the Shanghai Futures Exchange was up only 36%, but the Zhengzhou Commodity Exchange and Dalian Commodity Exchange, both of which benefited from the volatility in agricultural prices, shot up 450% (7.49 trillion RMB) and 381% (13.49 RMB) respectively. Volumes also benefited from the introduction of three successful new contracts based on zinc, palm oil, and gold.
China Battling Stock Market Plunge
Chinese regulators have been trying to stop or reverse the stock market plunge that cut the market averages in half by the end of June from its October highs, according to a June 19 story in the Financial Times. Authorities reportedly pressured funds and brokerage firms to buy shares, delayed further issuance of IPO's and are considering additional steps, such as permitting margin buying. The stamp tax was already cut by two-thirds in April. The China Securities Regulatory Commission (CSRC) has been under enormous pressure to do something about the declines, according to the story.
New Commodity Futures Market Formed in Hong Kong
The newly created Hong Kong Mercantile Exchange announced at a press conference on June 25 that it plans to launch its first product, fuel oil futures, by early next year. Fuel oil futures already trade at the Shanghai Futures Exchange, but the deliverable product is domestic oil that has already been imported and is subject to tariffs domestic pricing restrictions. "For oil traders or importers into China, these contracts do not meet their needs," Barry Cheung, HKMEx chairman, said at the press conference. The ownership structure of the exchange is still in formation. The exchange is the initiative of Titan Petrochemicals, the Hong Kong-listed subsidiary of a Singapore company. Among the institutions that have expressed interest in becoming strategic partners are Barclays Capital, Citic Group, Lehman Brothers, and Nasdaq OMX Group.
HKEX Streamlines Admission and Registration Procedures
The Hong Kong Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited announced measures to streamline admission procedures for exchange participants and the registration and approval procedures for member firm staff and major shareholders. The measures took effect June 20.
Hong Kong Arrests 29 in Warrant Probe
Hong Kong's independent commission against corruption said it arrested 29 people May 30 in a bribery probe related to fraudulent warrant trading that may have generated more than $200 million HK dollars in profits. The value of warrants traded in Hong Kong surged to HK$4.7 trillion in 2007 from HK$1.8 trillion the prior year.
China Bank to Buy Hong Kong Bank Wing Lung
The Wall Street Journal reported May 31 that China Merchants Bank clinched a deal to buy Hong Kong-based Wing Lung Bank in a deal valuing Wing Lung at $4.7 billion. The deal will be the second largest by a Chinese bank.
Hong Kong Regulator Warns of Electronic Trading Risks
Martin Wheatley, the CEO of the Hong Kong Security and Futures Commission, said in an interview with Asian Investor June 4 that regulators need to be alert to the risks of new electronic trading technologies. In particular, the emergence of "alternative" trading venues, such as "dark pools," and the increasing speed of execution, now measured in milliseconds, pose regulatory challenges, he said.
BofA to Raise Its Stake in CCB
Bank of America is exercising an option to raise its stake in China Construction Bank by $1.86 billion, according to a May 28 report in the Wall Street Journal. BofA made an initial $3 billion investment three years ago for a 9% stake, which has turned out to be highly profitable. The new investment would bring its stake up to about 10.75%. CCB is China's second largest lender by assets after Industrial and Commercial Bank of China Ltd.
China Toughens Capital Control Rules
China is toughening the enforcement of capital controls as part of its intensifying anti-inflation efforts, according to a July 3 report in the Wall Street Journal. The State Administration of Foreign Exchange (SAFE) said in a statement on its Web site that exporters will have to park their revenues from overseas sales in a special bank account for auditing before they exchange it into local currency. The system is intended to give authorities time to verify that currency amounts match invoices and have not been inflated to import unauthorized capital.
India
India Delays Plans for Credit Derivatives
Bloomberg reported June 19 that India is delaying plans to allow trading in credit derivatives because of the global credit crunch. "The entire dimensions of the recent credit market crisis have not yet been gauged," the Reserve Bank of India (RBI) said in a statement. The RBI had preliminary rules last year that would allow local banks and primary dealers to trade in rupee-denominated credit-default swaps for the first time. No new launch date for the products has been announced.
Japan
Japanese Exchanges Seek to Standardize Platforms
Two Japanese commodity exchanges, the Central Japan Commodity Exchange and the Kansai Commodity Exchange, have concluded a memorandum of understanding with the Osaka Securities Exchange agreeing to adopt the OSE trading platform. No timetable has been announced yet. The OSE platform is supported by Hitachi. If and when the link takes place, it would be the first such venture between commodity exchanges and a financial exchange.
Merrill Lynch Appointed Topix Option Liquidity Provider
The Tokyo Stock Exchange announced on June 23 that Merrill Lynch Japan was appointed Topix Option Liquidity Provider, as part of a program to enhance the exchange's options liquidity introduced in June.
Daiwa launches London-based derivatives division
Daiwa Securities SMBC announced July 2 it was launching a new, global derivatives division based in London. The firm said the move was part of its strategy of targeting growth in Asia and internationally by offering a "full range of high quality fixed income, equity and hybrid products." Japanese banks have been looking for opportunities for expansion outside Japan because of weak domestic capital markets and the low prices of financial services firms due to the subprime-related problems and the credit crunch.
TFX Accepts U.S. Treasuries as Collateral
Seeking to make trading more convenient for overseas investors, the Tokyo Financial Exchange on June 2 added U.S. Treasury securities to the list of eligible securities for meeting margin requirements. Treasuries may be used for exchange margin, market entry deposit and clearing deposit for the exchange interest rate futures contracts, TFX said. In addition, FX margin clearing members may deposit U.S. Treasuries for FX margin market entry deposit and FX margin clearing deposit.
Tocom Eases Rules Governing Position Transfers, Introduces FIFO Order Method
The Tokyo Commodity Exchange received regulatory approval on June 16 to change its requirements for transfer of positions. According to a notice issued by the exchange, the conditions under which position transfers can be implemented have been expanded to include customer requests. Previously transfers were limited to cases of defaults or discontinued business.
Tocom also introduced a "first in, first out" method for placing orders. Previously customers were required to specify whether an order was intended to create a new position or offset an existing position. The exchange said customers will now be able to choose the FIFO method, which means that they will not be required to select "new" or "offset"when placing an order.
Other Asia Pacific
NYSE Euronext Adds Partners in Asia
Nyse Euronext announced a slew of partnerships and investments in June and July that widen the scope of its presence in the Asia-Pacific region. On June 24 it bought a 25% equity stake in Qatar's Doha Securities Exchange for $250 million. The deal also included a commitment for NYSE Euronext to help build a cash and derivatives exchange using NYSE Euronext technology. On June 26, it signed a memorandum of understanding with the Philippine Stock Exchange that provides a framework for cooperation on trading system architecture and technology, exchange traded products, market participant connectivity, and market data management. On June 30, it signed an agreement with the Tel Aviv Stock Exchange that establishes enhanced cooperation between the two exchange companies, in particular in the area of cross-listings. And on July 1 it closed its previously announced deal to acquire 5% of Multi Commodity Exchange, India's largest commodity futures exchange.
MCX to Launch Commodity Exchange in Singapore
India's largest commodity exchange, the Multi Commodity Exchange, will open a commodity exchange in Singapore, according to Commodity Online. MCX officials said the new exchange would be named the Singapore Mercantile Exchange and has already been granted approval by the Singapore government. MCX already established an exchange in the Middle East, the Dubai Gold and Commodities Exchange and has plans for MCX Africa and another exchange in Mauritius, the Global Board of Trade. MCX plans a formal announcement at a one-day event on July 9 sponsored by its holding company, Financial Technologies.
ASX to Launch Coal Futures
The Australian Exchange, ASX, has announced plans to launch a coal futures contract, though it has not given a launch date, according to a Reuters article published June 3 in the Sydney Morning Herald. The contract will compete head-to-head with GlobalCOAL, which said in March it would list coal futures on the ICE Futures Europe platform by the middle of the year. The ASX contract would be quoted on the basis of 6000 kcal/kg (GAR), a maximum of 13% ash and 0.6% sulphur. The volume of coal derivatives traded in 2007 was 1.2 billion tonnes.
Celent Study of Taiwan Retail Investors
Taiwan's retail investors are among the most active in the world, according to a report issued by consulting firm Celent on June 24. An estimated 15% of Taiwan's 6.5 million retail investment accounts, or 975,000 accounts, belong to active traders, according to the 34-page report, which also presents an overview of Taiwan's futures and options brokers as well as online brokerages.
Taiwanese Regulator: Hedge Funds are Welcome
A commissioner of Taiwan's Financial Supervisory Commission, Lee Shyan-Yuan, is actively courting hedge funds to participate in Taiwan's markets, according to a profile in Asian Investor. He touts Taiwan's "excellent environment for hedge funds," citing the country's undervalued but stable currency and reasonable equity valuations. Taiwanese regulators recently relaxed restrictions on foreigners investing in some Taiwanese assets, such as real estate.
Taiwan Stock Exchange Signs MOUs with Two US Exchanges
The Taiwan Stock Exchange signed two separate memoranda of understanding with U.S. exchanges in early June as a step towards closer financial linkages. The agreements were signed by the International Securities Exchange and the Philadelphia Stock Exchange. The agreement with ISE will facilitate the trading of exchange-traded funds based on Taiwanese stock on the ISE as well as options on those ETFs, according to a joint announcement.
Australia Targets Derivatives Trading
An Australian parliamentary committee recommended new disclosure requirements for derivatives trading and short-selling out of concern that hedge funds have added to selling pressures, according to the Wall Street Journal. The report said that "while short-selling is s legitimate trading tool," it needs to be "appropriately disclosed to the market to ensure that undesirable practices that potentially accompany short sales can be identified by regulators."
SGX Amends Rules to Admit Banks as Clearing Members of Its Securities Market
Singapore Exchange Limited (SGX) announced June 10 that it will admit banks as Clearing Members of its securities market with effect from 1 July 2008. New rules will allow banks in Singapore licensed by MAS under the Banking Act to become SGX Securities Clearing Members.
FIA Asia was formed by the Futures Industry Association to improve knowledge about Asian markets, increase education about derivatives products, promote standardization and best practices among markets and, when appropriate, present a unified industry voice to market officials. FIA Asia includes organizations across the entire Asia Pacific region from United Arab Emirates to Australia and New Zealand. For more information, contact Nick Ronalds at nronalds@fiaasia.org or Anna Lee atalee@fiaasia.org. 
