Debt Capital Markets Reform – Introduction
Financial Market Research
Dictum meum pactum
Debt Capital Markets Reform
Financial market reform in Asia relates not only to efficient fundraising and financing patterns among governments, enterprises and investors. It addresses important aspects of resource allocation and is significant in the promotion of greater financial stability. Partly to avoid dislocations of the kind that followed the 1997-98 financial crisis, these questions are the subject of considerable official concern and attention.
AIIFL’s research includes detailed analysis of legal systems and financial regulation, including aspects of comparative legal origins, and the effectiveness of enforcement. Active, liquid markets would help lessen contagion risk arising from an over-reliance on the banking sector, and improve the efficiency of allocating savings.
Contacts
Douglas Arner, Professor, Faculty of Law, The University of Hong Kong. Telephone +852 3917 2923.
Paul Lejot, Visiting Fellow, AIIFL. Telephone +852 3917 1890.
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Will markets evolve in sophistication through an organic process of development, or is deliberate reform necessary? |
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Are active Asian debt capital markets infeasible due to factors in corporate culture, patterns of finance, or weaknesses in law? |
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Do weak markets indicate underdevelopment? Is a benchmark yield curve essential to market growth? |
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How best to assist SME funding and the recovery on ban non-performing loans? |
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Do potential gains in economic welfare justify the costs of strengthening Asia’s debt markets? |
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Impediments to growth in market activity: |
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Financial structure and system architecture |
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Use and enforcement of regulatory guidelines |
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ssues of national law, operation of law, differences between national laws that influence investor behaviour |
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Political, fiscal and special interest factors |
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Agreement for essential legal, fiscal, systemic and regulatory measures to remove identified impediments to market participation and growth, and introduce reforms to encourage harmonisation and regional usage |
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A collaborative regional public debt market for domestic and major currency issues, monitored by confederal regional regulation in an established Asian financial centre |
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A regional body allowing credit enhancement to support credit risk transfer, encourage securitisation and create new sources of well-rated risk |
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Standardise bonds and notes as to issuers and maturities |
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Establish benchmarks and debt issuance programmes |
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Remove restrictions on trading techniques |
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Standardise settlement practice to encourage confidence |
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Remove obstacles to securities financing |
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Market-makers must provide trading liquidity in benchmarks |
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Day-to-day central bank operations must not hinder liquidity |
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Seek an open price discovery mechanism, rather than a closed circle of central and commercial banks |
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Promote securitisation legislation to allow pooling of risks (to enhance weak credits and assist risk and liability management by banks) |
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Remove investment restrictions on non-bank institutions |
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Remove barriers preventing investors establish a legal basis for trading, ownership and settlement |
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Remove (or as a minimum standardise and simplify) withholding taxes on securities |
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Support common portfolio accounting standards among investor groups |
Obstacles | Omissions | Disparities | |
Legal | Enforcement issues Rights in bankruptcy Bars to true sale |
Certainty of title Rights of transfer Notice issues |
Creditor status Risks of set-off Unpredictable review |
Fiscal | Withholding taxes Duties & stamp taxes |
Clear debt issuance Transparent rates Tax neutrality |
Taxes on repurchases, foreign parties, issuer or investor classes |
Regulatory | Restrictions on instruments, investors & issuers Competing authorities |
Disclosure Reporting Derivatives |
Ratings; Capital controls Mark-to-market Reserve requirements |
Systemic | Bank cartels & moral hazard. Credit rating methodology Trading practices |
Price visibility Price mechanism in primary bond sales |
Variable practice for settlement & custody Fragmented government issuance |