Market Infrastructure Developments Impacting Equities Markets. Insights for institutional clients

Transcription

1 Market Infrastructure Developments Impacting Equities Markets Insights for institutional clients

2 2 Citi Securities and Fund Services Equities Markets The rapid economic growth in Asia Pacific and the accumulation of wealth across societies within the region continue to attract international investors, putting greater demands on stock markets but also acting as a catalyst for constructive change. Individual countries have responded by merging exchanges in order to achieve efficiencies and scale, enabling the formation of new platforms and increasing regional cooperation for cross-border share transactions, including renminbi (RMB) denominated equities. Investor protection and market transparency are the major concerns of regulators throughout the world, and the authorities in Asia Pacific are also keen to promote better safeguards and corporate governance. and settlement processes have been enhanced in several markets, notably through the deployment of the latest technology, while electronic applications are increasingly available to make investor access easier and cheaper. Asia Pacific is a vast, diverse region and its stock markets also vary significantly. However, cooperation is leading to a greater convergence of trading and administrative practices that are continuing to make national exchanges more competitive, as well as secure. and settlement processes have been enhanced in several markets, notably through the deployment of the latest technology, while electronic applications are increasingly available to make investor access easier and cheaper. Some key examples of recent developments in the equities markets: Mergers and Consolidation Improves Efficiency and Access Bursa Malaysia, Singapore Exchange Limited (SGX) and the Stock Exchange of Thailand (SET) connect on the Association of Southeast Asia Nations (ASEAN) Link, where crossborder trades are transacted through local brokers via the main platforms developed by the exchanges. In a move that should improve efficiency and reduce cost, the countries securities regulators announce the implementation of disclosure standards for multi-jurisdiction offerings of equity and plain debt securities in ASEAN. The Philippines Stock Exchange (PSE) confirms its intention to join the link and the Ho Chi Minh City Stock Exchange (HOSE) discusses its potential for Vietnam. Tokyo Stock Exchange and Osaka Stock Exchange merge to form the Japan Exchange at the start of 2013, which is developing new stock price indices, enhancing its corporate governance, reducing execution latency and extending its trading hours. PSE and the Philippine Dealing System begin discussions to merge their stock and bond exchanges. State Securities Commission submits its plans to merge the Hanoi Stock Exchange and HOSE to form the Vietnam Stock Exchange. Cross-Border Cooperation within the Region is a Recurring Theme Qualified Foreign Investors can invest directly in the Indian equities market. The China Securities Depository and Corporation allows Hong Kong, Macau and Taiwan residents living in Mainland China to open domestic securities accounts to trade A shares. China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) join the China Securities Regulatory Commission (CSRC) in approving Qualified Domestic Institutional Investors to invest in the Taiwan securities market, further opening their capital markets to each other under the Economic Cooperation framework. Hong Kong Monetary Authority (HKMA), Bank Negara Malaysia (BNM) and Euroclear Bank launch a pilot platform for the cross-border investment and settlement of debt securities. Hong Kong Exchanges & (HKEx), Shanghai Stock Exchange, and Shenzhen Stock Exchange sign an agreement to establish a joint venture in Hong Kong to develop financial products and related services. HKEx Information Services Limited (HKEx-IS) obtains approval to set up a Hong Kong and financial information services business subsidiary in Shanghai.

3 Market Infrastructure Developments Impacting Equities Markets 3 Bank of Thailand (BOT) and the HKMA announce the creation of a cross-border Payment versus Payment link. RMB-Denominated Share- Spreads Further China s CSRC announces that the renminbi (RMB) Qualified Foreign Institutional Investor (RQFII) scheme will be expanded to allow Hong Kong-based financial institutions to apply for licenses to offer RMB fund products to foreign investors. The Central Bank of the Republic of China (Taiwan) also grants approvals to Taiwanese banks to launch onshore RMB accounts. The first RMB-denominated shares on the SGX s dual currency trading platform started trading in August Introduction of Competing Platforms Korea s Financial Services Commission brings the Korea Exchange s monopoly to an end after approving the creation of alternative trading systems in a move designed to lower trading costs, ensure best execution and expand the activities of its nascent investment banks. India s Bombay Stock Exchange and National Stock Exchange launch trading platforms for small- and medium-sized enterprises, and the country s third stock exchange MCX Stock Exchange Limited opens for cash equities and equities derivatives trading. Electronic and Processing Continues to Evolve PSE launches PSETradex, an internet-based trading platform that aims to increase the number of online investors in the market, and Hanoi Stock Exchange implements an electronic auction system for government and municipal bonds. China s CSRC launches a Qualified Foreign Institutional Investor (QFII) and RQFII online application platform, and Indonesia s Bapepam-LK introduces an online system called the E-Government Bapepam-LK that enables participants to submit reports and requests for licenses electronically. The Securities and Exchange Board of India (SEBI) issues guidelines for algorithmic trading, the Australian Securities & Investments Commission refines its rules on dark liquidity and high-frequency trading and Hong Kong s Securities and Futures Commission proposes to improve the regulatory framework for electronic trading. Security and Risk Management Enhancements to Raise Investor Confidence Singapore Exchange s post-trade settlement system migrated from the mainframe to the open platform Linux system, which should enhance the security of post-trade infrastructure and data transmission, improving safeguards for client confidentiality and data integrity. Australian Securities Exchange House insists that its clearing participants must supply daily call margins on their unsettled cash market transactions in the Australian market. Bapepam-LK creates an Indonesia Investor Protection Fund. In April 2013, SEBI issued a discussion paper on the enhancement of risk management frameworks on stock exchanges recommending measures such as T+1 settlement in cash equities and evaluation of methods to mitigate risk to client collateral. Citi is active in all the local markets covered in this regional overview, where our wellestablished presence and reputation means that the bank has successfully built partnerships with investors, regulators and other market participants over many years. In several countries, Citi has helped the financial authorities and stock exchanges devise and implement initiatives that improve the efficiency, security and transparency of their markets. We regularly provide advice and always monitor developments, recognizing that robust and safe capital markets are beneficial to both investors and the countries themselves. Of course, stock markets are dynamic institutions, constantly adjusting to and responding to the needs and demands of their constituents. Any static picture can quickly be overtaken by events, but it is important for all participants in Asia Pacific s rapidly growing markets to be aware of the latest developments in order to increase and consolidate their knowledge and understanding. We hope you will find this snapshot of key market infrastructure changes and trends in the region, and their impact on equities useful and informative.

4 4 6 APAC Major Markets Equities Australia (GMT+10) DST Hong Kong (GMT+8) Japan (GMT+9) Singapore (GMT+8) Stock Capitalization 1 (USDBn) 1,300 2,803 4, Market Infrastructure ASX* Chi-X NSX SEHK* GEM TSE* Chi-X OTC SGX* ASX Clear HKSCC JSCC JDCC CDP CHESS (Dematerialized) CCASS (Immobilized) JASDEC (Dematerialized) CDP (Immobilized) *main bourse Note: GEM is run by SEHK Note: JSCC clears exchange traded equities, JDCC clears OTC equities Relationship between Exchange, CCP, CSD ASX is a listed company, and owns ASX Clear and CHESS. The Hong Kong government is the single largest shareholder in HKEx, a listed company. HKEx owns SEHK, HKSCC and CCASS. Remote Membership Offshore brokers from any markets may apply for remote membership with ASX. This was under consideration, but is now on hold due to poor support from local brokers and other priorities such as RMB initiatives. Short Selling Naked short selling is not permitted unless approved by the ASIC. Covered short selling is allowed with specific disclosure reporting requirements at both the transactional and positional level. Naked short selling is not permitted. Covered short selling of designated stock is allowed with some restrictions including up-tick rule. JPX is the holding company of TSE, OSE and JSCC. JASDEC is owned by JPX, JSDA and participants. JDCC is wholly-owned subsidiary of JASDEC. Hong Kong brokers may apply for remote membership with TSE, OSE and TFX. New permanent regulations on short-selling should be implemented in Nov 2013, which include the removal of the current up-tick rule requirement. Cycle T+3 (True RVP/DVP) T+2 (Cash settles at 6:45pm) T+3 (True RVP/DVP) T+3 Developments and Outlook Chi-X Australia advised the market maker rules and procedures of consultation paper CP02/2013 released Jun 26, 2013 have received regulatory approval, and the first day of trading under the Market Maker Regime is targeted for Nov 1, This timetable depends on the finalization of operational features and negotiation with ASIC on the short sale relief to which market making firms may be entitled. In Aug 2013, ASIC refined its proposed rules on dark liquidity and high-frequency trading after discussions with market participants that began with the release of a consultation paper in Mar High frequency traders will not have to leave small orders on the market for a set time or need to meet a minimum size requirement for dark pool trades. The rules are scheduled to come into force in stages over nine months. Effective Sep 2013, ASX extended its trading day by up to two hours in the event of a systems failure. This applies to equities and exchanges traded options, but not the futures market. On Sep 18, 2013, ASX released a consultation paper on issues and proposed changes to the methodology for allocating ISINs issued by ASX over listed equity and other products, through its role as National Numbering Agency. The proposal aims to replace the ASX Code with a unique number that does not include the ASX Code. Existing ISINs will remain unchanged if the proposal proceeds. On Feb 13, 2013, the Australian Federal Treasurer announced that competition in the clearing and settlement of cash equities will be deferred for two years following advice from the CoFR. ASX will therefore maintain its monopoly in clearing and settlement. The RBA Payments System Board released new FSS for clearing and settlement facilities, with most new FSS come into effect on Mar 29, They apply to licensed clearing and settlement facilities, including the ASX Clear, ASX Clear (Futures), ASX and Austraclear. ASX Clear introduced a Cash Market Margining (CMM) initiative on Jun 7, participants must supply daily call margins on their unsettled cash market transactions. Citi implemented CHESS Release 8.0 on Jun 11, 2013, this enhancement resolved CHESS settlement mismatches as Free of Payment settlements with similar units, stock and counterparties previously can be incorrectly matched in CHESS and settled to the incorrect account since CHESS does not recognize reference codes. The Australian Federal Treasury aims to prevent dividend washing by inserting a specific integrity rule in the Income Tax Assessment Act It targets the four-day period between an ex-dividend date and the record date of a membership interest, when a company closes its share register to determine shareholder s dividend entitlements. The revision applies retroactively from Jul 1, ASX proposed to reduce the ex-dividend date to and including the record date from 5 to 3 business days. The change will apply to all relevant corporate actions with an ex period, and is expected to be implemented in Q ASX is advancing a project to automate the process of receiving company announcements, which will also include the distribution of corporate action announcements to the market in a format conducive to STP. ASIC implemented its best execution rules on Mar 1, 2013, which compel Australian brokers to provide clients with the best price achievable on available market platforms. ASX proposed to broaden the range of international securities listed on the ASX by quoting unsponsored depository receipts, which will allow investors in the Australian market to obtain an equitable interest in international securities through an instrument traded, cleared and settled on ASX. On Jul 25, 2012, the SFC enhanced the regulatory framework for electronic trading, which includes internet trading, direct market access, and algorithmic trading. On Mar 22, 2013, the SFC published a consultation conclusions paper on proposals to improve the regulatory framework for electronic trading. Key aspects include management and supervision, adequacy of system, record keeping and risk management. With the introduction of reform measures on Nov 5, 2012, clearing participants are subject to new funding and settlement arrangements, as well as apportionment of bank guarantees. Citi is leading discussions with the HKEx to implement the Participant Dealer Agent model in Hong Kong, an extension of the third party clearing model to allow non-clearing participants to become a Participant Dealer of ETF and to appoint Citi as their agent in order to close the gap that results from the requirement that they must be a CCASS participant. Hence, the third party clearing model will be promoted in Hong Kong. HKMA, BNM and Euroclear Bank jointly launched a pilot platform for the cross-border investment and settlement of debt securities on Mar 30, On Jun 28, 2012, HKEx, SSE and SZSE signed an agreement to establish a joint venture in Hong Kong to develop financial products and related services. HKEx implemented clearing houses risk management reform measures in Q3 2012, to strengthen investor protection. HKEx invested USD380 million in technology to launch HKEx Orion, a transformative program of technology initiatives to boost the market platform s connectivity and capacity, and also increase market liquidity. In Mar 2013 the CSRC announced the RQFII scheme will be expanded to allow Hong Kongbased banks, insurers and fund houses to apply for licenses to offer RMB-denominated fund products to foreign investors. In May 2013, HKEx said it will launch its MMDH Founding Members Programme in Shanghai by the end of It is designed to allow information vendors and other interested parties to participate in the early set-up of the market data hub HKEx. Effective Jul 26, 2013, the HKMA announced two enhancements in the provision of RMB liquidity to Authorized Institutions participating in RMB business effective Jul 26, One day funds will be available on the next day (T+1) and overnight funds will be available on the same day (T+0). Citi is in progress to request the HKSCC to review the existing limitation on the application for buy-in exemption in accordance to CCASS Operational Procedure Section and , with the objection to provide flexibility in the application for buy-in exemption by short clearing brokers and custodians. SFC is planning to introduce a Mainland-Hong Kong mutual recognition of funds platform to expand and to develop the asset management industry, to be complimented with legal and policy support from both Chinese and Hong Kong regulators. JSDA introduced new guidelines for the suspension of off-exchange trades in Apr 2012, to bring more clarity and flexibility to the off-exchange trading of listed instruments. The TSE changed its rules in Jun 2012 to provide more flexible third party clearing solutions for its local broker/dealer clients who are or will be trading participants of the exchange. On Dec 27, 2012, the OSE obtained authorization for remote trading from the SFC. The TSE and OSE merged to form the JPX in Jan 2013, as the exchange integrate trading systems and clearing functions of both exchanges and revitalize its equities and derivatives markets. As the next step, OSE has transferred its cash product listing to TSE in Jul 16, 2013, while TSE will transfer its derivatives product listing to OSE in Mar Chi-X Japan, a subsidiary of Chi-X Global, plans to launch a new service for cross order investors in Q The service, Chi-Net, will allow Chi-X Japan PTS participants to submit single stock cross orders. The phased introduction of small tick trades at the TSE is scheduled for Jan 14, 2014 for Phase I, and July 22, 2014 for Phase II. The small tick is expected to enhance the liquidity and trading process of the TOPIX 100 stocks, a core part of the Japanese equities universe. Citi is working closely with the JPX to activate a remote trading system to provide direct access for broker-dealers abroad. On Mar 27, 2012, the TSE amended its trading participant criteria for inclusion in the clearing process in response to a request by Citibank Japan Ltd. to provide more third party clearing solutions for its local broker/dealer clients who are or will be trading participants of the exchange. Effective Oct 1, 2013, JSCC which is engaged in on-exchange equities and OTC derivatives clearing, merged with JGBCC which is engaged in OTC JGB clearing. On Jun 21, 2013, the FSA gave an update on its settlement risk reduction initiatives, in a joint statement with the JSDA. One of the two initiatives relates to the JGB market, and includes a further reduction in the settlement cycle, from the current domestic T+2 to T+1. The JASDEC will introduce ISO20022 compliant messages in its PSMS scheduled for Jan Effective from Jul 16, 2013, the cash equities markets operated by TSE and OSE were integrated within TSE. OSE-listed stocks will be newly listed on TSE, and cross-listed stocks will be assigned to a market section, either automatically or elected by the issuer. On Sep 24, 2013, JPX announced that one of its subsidiaries, the OSE, reached a decision to change its corporate name to Osaka Exchange, Inc. effective Mar 2014, when the derivatives market at the TSE is integrated into OSE. JPX and Nikkei are together developing a new equity market index scheduled for introduction at the end of The new index should help promote the Japanese market and its listed companies to both local and international investors. SGX is a listed company and owns both SGX-ST and the CDP. SGX announced plans, and awaits MAS approval. No specific rules prohibit short selling, but fails are subject to automatic buy-in and short sales are reported to SGX which publishes the statistics. Effective Mar 11, 2013, the SGX-ST requires its trading members to mark all sell orders as to whether or not they are part of a short sale. The first RMB-denominated shares on the SGX s dual currency trading platform started to trade on Aug 5, SGX will enable post-trade open access in Nov 2014, and to launch a new settlement depository, corporate actions, and SBL systems in Q On Jan 21, 2013, the SGX introduced margining of securities transactions cleared by members of the CDP, replacing the previous practice of maintaining a clearing fund to cover any losses. Effective Apr 22, 2013, SGX enhanced the clearing and DVP rules of the CDP to provide greater transparency and clarity on its default management and buy-in procedures. On Oct 21, 2012, SGX s post-trade settlement system migrated from mainframe to the open platform Linux system. The new system will enhance security of the post trade infrastructure and data transmission to better safeguard client confidentiality and data integrity, and is a part of a wider project to improve security and allow SGX securities trading members a choice of back office systems. SGX announced that the settlement of securities transactions becomes final when the securities are either credited to or debited from a member s clearing account at the end-of-day batch cycle on T+3. Currently, trades settled under enhanced DVP which, amongst others, guarantee cash payments with securities settlement processed via the PSMS, are not done on a real-time basis. Securities are settled at an end-of-day batch basis. Citi is working to bring forward the end-of-day batch settlement to intraday, close to the cash settlement timeline. On Apr 1, 2013, the securities regulators in Malaysia, Singapore and Thailand announced the implementation of the ASEAN Disclosure Standards Scheme for multi-jurisdiction offerings of equity and plain debt securities in ASEAN. From Jul 1, 2013, SGX revised its main board listing fees. The revision reflects the extensive resources spent by the SGX to improve the fund-raising, trading and risk management systems and processes for the benefit of listed companies and investors. SGX has introduced long dated orders for securities in Aug 2013, allowing investors to specify the number of days they want their buy or sell orders to stay active up to a maximum 30 days. In Aug 2013, SGX introduced new listing rules on poll voting and general meetings. The rules aim to strengthen corporate governance practice in Singapore for all SGX-listed companies and trusts, by increasing transparency and encouraging shareholder participation. Effective Sep 2013, SGX and Clearstream to jointly offer collateral management services to customers. SGX customers will be able to use Clearstream s Liquidity Hub Global Outsourcing service, which will allow them to use assets held at SGX s securities depository, CDP, for their collateral needs on a fully automated and real-time basis.

5 7 9 ASEAN Markets Equities Vietnam (GMT+7) Indonesia (GMT+7) Malaysia (GMT+8) Philippines (GMT+8) Thailand (GMT+7) Stock Capitalization 1 (USDBn) Market Infrastructure HOSE* HNX* IDX* MYX* LFX PSE* SET* MAI KPEI Bursa Securities SCCP TCH VSD (Immobilized) KSEI (Dematerialized) Bursa Malaysia Depository (Immobilized) PDTC (Immobilized) TSD (Immobilized) *main bourse Relationship between Exchange, CCP, CSD Vietnam government owns the HOSE, HNX and VSD. IDX is privately held and owns the Indonesia and the KPEI. KSEI is owned by IDX, KPEI, custodian banks, brokers and securities registrars. Citi is a 5% shareholder of KSEI. Bursa Malaysia is a listed company and owns the Bursa Securities and Bursa Malaysia Depository Sdn Bhd. PSE is a listed company and owns SCCP and partly owns PDTC. SET is privately held and owns TSD and TCH. Remote Membership Not permitted. Not permitted. Not permitted. Not permitted. Announced plan to offer. Short Selling Naked short selling and covered short selling are not allowed. Covered short selling is allowed, but limited to the list of securities published monthly by IDX. Regulated short selling is allowed provided the cover trade has been made through the SBL Central Lending Agency or SBL Negotiated Transaction frameworks. Covered short-selling will be allowed but be limited to a list of qualified securities. Cycle T+3 for equities and fund certificates; T+1 for fixed income. T+3 (True RVP/DVP) T+3 (True RVP/DVP for ISS mode) T+3 T+3 Developments and Outlook On Mar 19, 2013, SSC inaugurated the MSS for HNX and HOSE in order to improve market transparency and management. Effective from Jul 22, 2013 for HOSE and Jul 29, 2013 for HNX, the trading hours of both exchanges were extended by 45 minutes to close at 15:00. On Jul 24, 2013, HNX issued Decision 345/QD-SGDHN revising the regulations on the trading of listed securities and Decision 343/QD0SGDHN revising regulations on the UPCoM in order to enhance its trading systems. On Jul 29, 2013, HNX launched an upgraded trading system with the capacity to handle 20 times the previous trading order volume. The enhancement will also help to facilitate the periodic order matching session and new types of trading orders, and to allow investors to amend prices and volumes. Effective Aug 15, 2013, the Ministry of Finance issued new rules to improve the efficiency, transparency and security of electronic transactions in the stock market. SSC confirmed its plans to merge HNX and HOSE to form the Vietnam Stock Exchange. The proposal will be submitted to the Prime Minister in Q Effective from Sep 4, 2012, VSD shortened equity settlement and clearing timelines, with cash funding to be available by 16:00 on T+2 and securities to be settled by 8:45 on T+3. On Nov 22, 2012, VSD held a roundtable to discuss the idea of a CCP for the Vietnam market. The CCP is expected mainly to serve the derivatives market which will be launched in VSD is scheduled to have the STP solutions for operational processes covering registration, depository, settlement and clearing, corporate action, account opening and closing, and reconciliation for the securities market to go live on Jan 1, SSC announced revised regulations governing the activities of foreign investors in the stock market, which reduce administrative burdens on STC applications, shorten the timeframe for STC approval from 10 days to 5 days. Effective from Feb 15, 2013, the regulation also requires foreign investors to appoint a representative for reporting and information disclosure. SSC issued a regulation on the establishment and management of ETF which is effective from Sep 1, VSD is developing the infrastructure and a SBL system to support the trading of ETF certificates. As part of the MOF and SSC action plan for 2013, HOSE plans to introduce new investment products and indices to be launched in 2014, such as mid cap and small cap indices, ETFs, covered warrants and non-voting depository receipts. HOSE is expecting to become an official member of the WFE by the end of On Sep 28, 2012, the Bapepam-LK launched a new online system called the E-Government Bapepam-LK. It allows market participants to submit reports and requests for licenses electronically. IDX issued a revised regulation on Nov 14, 2012 on equity-type securities trading. It consisted of several changes such as the extension of IDX trading hours, the implementation of pre-closing and post-closing sessions for trading in the regular market, as well as other improvements. Effective Jan 2, 2013, IDX started trading 30 minutes earlier at (GMT+7). Bapepam-LK improved the STP mechanism between brokers and KPEI. On Dec 28, 2012, Bapepam-LK issued two regulations for the establishment of the Indonesia Investor Protection Fund. The regulations are expected to improve protection for investors in the event of the insolvency of their broker custodian. In Jan 2013, the Indonesia Financial Services Authority began to consider allowing shelf registration for stocks during public offerings in the IDX. Issuers would able to use the same prospectus published during the initial public offering for future corporate events, such as the additional offering of securities. Bursa Malaysia enhanced its trading system in Jul 2012 through the introduction of new order and validity types, allowing market participants to execute a greater variety of trading and risk management strategies. The changes form part of wider initiatives to improve the market s framework and efficiency. The SC announced a conceptual framework for an unlisted market at the end of May 2013 called MyULM, it would be Malaysia s first online platform to trade unlisted securities and alternative investment products. Bursa Malaysia implemented the CMF on Jul 9, 2012, an infrastructure which facilitates the automation and electronic matching of trade and settlement details for institutional trades between brokers and custodian banks. Currently the CMF is applicable for transfers and turnaround trades settled via ISS. On Sep 18, 2012, Bursa Malaysia and SGX connected on the ASEAN Link, offering investors new access to both markets. Crossborder transactions are through local brokers via the main platforms developed by the exchanges. Malaysia amended its capital market laws and issued new guidelines in Jan 2013 to enable investors to access a new asset class, and to allow public-listed companies and banks to sell bonds to retail investors. On Mar 28, 2013, Bursa Malaysia implemented NRS, an e-service made available to Bursa Depository Members to have an option to subscribe rights issue electronically and pay the subscription amount directly to the issuer s rights issue account. It improves current paper-based process, and to improve on time needed to apply for rights issue. Citi is working closely with Bursa Securities Malaysia to explore CMF recommendations: 1) Introduce additional matching cycle and flexibility of file uploads to facilitate auto-matching in CMF for late hour processing; and 2) Introduce enhancement of transfer mode. Effective Jan 2013, PSE started the OSB to enable local investors to place and monitor their trade orders electronically with their brokers. On Jan 1, 2013, PSE introduced trading suspensions for listed companies that are non-compliant with the minimum public ownership requirements (10% public float). Market liquidity is not affected. On Apr 2, 2013, PSE launched PSETradex, an internet-based trading platform that aims to increase the number of online investors in the market. On Aug 19, 2013, PSE announced that Philippines is not yet ready to join ASEAN bourses cross-border trading. It intends to launch more products ahead of its planned participation to join ASEAN Link whose founding members Singapore and Malaysia followed by Thailand. On Sep 28, 2012, SCCP revised the list of PSEi securities eligible for collateral. In order to reduce settlement risk, the clearing house stipulates that only securities of good standing may be used. In Feb 2013, SCCP received a provisional license to operate as a securities depository by the Securities and Exchange Commission based on its application in Oct Only equities listed in the PSE, which raised capital to support the SCCP, will be accepted by the SCCP depository. Citi expects to be able to offer true DVP settlement of equities transaction for clients and potential brokers clients in applying as a settlement bank with the SCCP. On May 22, 2013, PSE signed separate agreements with the BAP and the SGX that lead to BAP and SGX to sell their shares PDS Group to the PSE. The agreements also provide the framework for a plan to consolidate the operations of PSE and PDS. The merger is expected to close by the end of 2013, and may be further delayed. PSE partnered with the Korea Exchange to use its technology for PSE EDGE, the local bourse s new disclosure system. Investors can easily access disclosure information real-time through the PSE website, trading terminals and the systems of other data vendors and analysts. PSE EDGE is also available via mobile platform. In Sep 2013, the BAP has placed on hold the planned merger of the PSE and the PDEx, the equities and fixed income exchanges respectively, due to the filing of the antimonopoly lawsuit against PDEx. Covered short selling is allowed, but limited to SET approved securities (that is, equities in the SET100 index, ETFs, ETF-linked funds and debt securities). The TSD launched a new service in May 2013 to offer securities lending to investors in the market as an alternative service provider. In 2013, SET developed a Operational Master Plan for post-trade service enhancements. The measures are expected to reduce costs, increase market efficiency and straight-through processing, as well as to support front office initiatives such as the ASEAN Link and cross-listings. SET announced that effective Mar 1, 2013, listed securities with highly speculative trading patterns must be backed by 100% cash funding. SET collaborated with the SEC Thailand and announced 3 latest developments in derivatives warrant trading: shorten the listing process of the derivatives warrant from 15 days to 3 days, change the derivatives warrant ticker symbol by adding the last trading date into the symbol, and add more underlying securities for the derivatives warrant by expanding from existing underlying SET50 to SET100 as well as others from SET index series e.g. SETHD. BOT is considering to allow foreign investors to participate in onshore securities borrowing and lending activities. Foreign investors may be required to open a special Blocked Account for management of the SBL cash collateral. Effective Jul 6, 2012, non-resident investors domiciled in ASEAN market trading Thai stock through the ASEAN linkage are exempt from the CGT. Effective Sep 9, 2013, SET will reduce the period of releasing news of newly registered securities to one day prior to first trading by 09:00 from the current period of 2 days. The depository and clearing house has expanded its post-traded services to FCY denominated securities with Phase 1 TSD completed in Sep 2012 for FCY debentures registered in Thailand, and other types of securities will be rolled out in the upcoming phase. BOT and the HKMA jointly announced the establishment of a crossborder PvP linkage between the BAHTNET and the USD CHATS. The link will be launched in July 2014.

6 10 12 Major Registration Markets Equities China (GMT+8) India (GMT+5½) South Korea (GMT+9) Taiwan (GMT+8) Stock Capitalization 1 (USDBn) 3, , Market Infrastructure SSE* SZSE* BSE* NSE* MCX-SX KRX* TWSE* GTSM CSDCC ICCL NSCCL MCX-SX CCL KRX TWSE GTSM CSDCC (Dematerialized) NSDL and CDSL (Dematerialized) KSD (Dematerialized) TDCC (Dematerialized) *main bourse Note: TWSE and GTSM clear their own trades Relationship between Exchange, CCP, CSD SSE and SZSE are privately held and they jointly own the CSDCC. BSE and NSE are privately held. ICCL is a wholly owned subsidiary of BSE. NSCCL is a wholly owned subsidiary of NSE. MCX-SX CCL is jointly promoted by MCX-SX, MCX and FTIL. KRX is privately held and owns KSD with 39 others financial institutions. TWSE is privately held and owns 50.43% of TDCC. Remote Membership Not permitted Not permitted. Not permitted. Not permitted. Short Selling Naked short selling is not allowed Covered short selling is allowed on a limited number of stocks through the margin trading and securities lending program, but QFIIs are currently not eligible to participate in the program. Covered short selling is allowed on a limited basis provided the cover trade has been made using the securities lending and borrowing platform offered by the local CCP. Covered short selling, except on listed financial stocks, is allowed but is subject to validation check and compliance with FISCMA7. Cycle A share T+0 shares, T+1 cash; B share T+3; ETF/Warrants T+1 T+2 T+2 (True RVP/DVP for InSet mode) T+2 Developments and Outlook The CSDCC released revised Rules on Securities Accounts and Business Guidelines on Apr 1, 2013, which allows residents from Hong Kong, Macau and Taiwan who are living in Mainland China to open domestic securities accounts to trade A shares. On Jul 28, 2013, the SZSE revised its trading rules. Three major amendments were made, including the lowering of thresholds for block trading, adding new pricing methods for block trading and allowing same day turn around trade for bond ETFs. The CSDCC released revised detailed implementation rules on QFIIs securities registration and settlement on Feb 21, 2013, to enable QFIIs to open multiple securities accounts in each stock exchange. In Jan 2013, the CSRC and the FSC discussed measures for further open their capital markets to each other under the framework of the cross-strait ECFA. On Feb 18, 2013, the CSRC published new rules to authorize qualified securities companies, insurance assets management companies and securities investment private equity firms to directly engage in mutual fund management businesses. The rules took effect on Jun 1, The CSRC released provisional rules on the securities investment fund custody business by non-bank financial institutions in Mar Non-bank financial institutions such as securities companies, can now apply for a license to provide custody services for securities investment funds. The PBOC revised RQFII rules in May 2013 to give clear guidance on RQFII account management and custodian bank appointments, and enable RQFIIs to implement more flexible investment strategies by removing the 20% in equity and 80% in fixed income investment allocation restriction. The CSRC launched a QFII and RQFII online application platform on May 20, QFII and RQFII applicants now need to submit their license applications via the online platform as well as submitting hard copy applications. China has agreed to allow Taiwan-based financial institutions to invest in the China securities markets through the RQFII scheme as part of the cross-strait service trade agreement signed between the two countries. The investment quota and effective timeline has not been disclosed yet. On Jul 12, 2013, the CSRC raised the investment quota of QFII from USD80 billion to USD150 billion. On Sep 29, 2013, CSRC announced several measures to promote capital market openness and reforms within the Shanghai FTZ. The measures will relax controls on both inward and outward investments, explore introduction of new investment instruments, and provide easy access for financial institutions to set up branches within the Shanghai FTZ. India s third stock exchange, MCX-SX, began to trade cash equities and equities derivatives on Feb 11, In Feb 2013, SEBI permitted stock exchanges to introduce LES to the cash equity market. Effective Apr 2013, trading in illiquid stocks in the equity market is conducted only through a periodic call auction mechanism. Effective Jul 2013, a wider range of scrips are available for trading on the securities lending and borrowing segments of the exchanges. From Mar 2013, FIIs are permitted to use corporate bonds as collateral in the cash equity segment and Indian Government securities and corporate bonds as collateral in the equity futures and options segment in addition to already allowed collateral forms. In Apr 2013, SEBI issued a discussion paper on the enhancement of risk management frameworks on stock exchanges. Key measures proposed include T+1 settlement in cash equities, evaluation of methods to mitigate risk to client collateral and incentivizing internet based trading models. In Apr 2013, the new MCX-SX exchange began working to raise low volumes in cash equities and derivatives, including a move to strengthen its LES in order to incentivize market making and help challenge the duopoly of the NSE and the smaller BSE. On Jul 15, 2013, the Insurance IRDA allowed domestic insurance companies to participate as lenders on the SBL segment of exchanges and earn additional returns on their portfolios. Citi has worked actively with intermediaries including depositories and regulatory bodies to enable e-voting for businesses transacted through postal ballot. Shareholders/proxy will be able to cast votes on the e-voting platform hosted by the NSDL and CDSL, and will thus benefit through reduced cut off timings and significant cost savings on logistics. NSE introduced trading in ETFs from Sep 3, 2013 for the SLB segment of investors. Citi is working closely with regulators and exchanges to enable non-cash collateral for FII trades in cash equities, equity derivatives and SLB segments. In Sep 2013, the RBI permitted non-resident investors to acquire shares of a listed Indian company on the stock exchange under the Foreign Direct Investment scheme subject to fulfilment of certain conditions. SEBI approved regulations on the FPI framework in its Board meeting in Oct FII and QFI foreign investment routes will be merged into a new investor class termed as FPI with a more streamlined application process. Instead of registering as FII and subaccounts with SEBI, FPIs will register with a Designated Depository Participant subject to compliance with risk based KYC norms. On Jul 1, 2013, KONEX was introduced for the trading of SMEs to help tap into fresh funding sources. From Aug 2013, the ATS can compete with the KRX to lower trading costs instill best execution and expand the business scope of investment banks. Based on the announcement of FSC on Aug 19, 2013, the National Assembly passed the proposed amendments to the Enforcement Decree of the FSCMA, including the introduction of ATS. It has been effective since Aug 29, In Dec 2012, the FSS published an English handbook to help foreign investors better understand the Korean stock trading system and make investment registration quick and easy. It includes laws and regulations governing foreign investment, covering items from registration procedures, investment limits to trading of listed stocks, among other things. For more information, visit (Publications/Special Issues/Guide to investing in Korea). Effective Mar 8, 2013, KSD has amended the SBL regulations to change the application period of roll over requests for arranged SBL transactions. On Aug 21, 2013, the KSD launched an English version of the SBL web-based system showing detailed SBL related information. GTSM is a private non-profit organization. Covered short selling is allowed and all loanable stocks are now exempt from the up-tick rule. Note that an exception is when the stock price drops and hits the daily fluctuation limit (7%), the short selling of the particular stock shall still follow the up-tick rule on the next trading day. Starting from Jul 1, 2013, TWSE and GTSM imposed the altered trading method when the number of a company s TWSE or GTSM listed common shares is: 1) less than 25% of its total issued common shares; and 2) less than 60 million shares (TWSE), less than 5 million shares (GTSM). The intention is ensure a company s listed common shares don t become illiquid due to a private placement or capital reduction. The TWSE plans to replace the auction method with a continuous method for the trading of all securities, by shortening auction matching intervals from 20 seconds to 5 seconds through a three-stage implementation. The first stage took effect from Jul 2013, which reduced auction trading intervals from 20 seconds to 15 seconds. The continuous trading method is more in line with international practice. GTSM introduced a circuit breaker mechanism for securities traded on its automated trade matching system, which is intended to stabilize the Taiwan securities market in periods of extreme volatility. Citi and other market participants are working with the TDCC to launch the information exchange platform, which allows brokers, custodian banks and securities investment trust enterprises to exchange settlement details for trade matching purposes. The CBC is working with TDCC to simplify the current procedure of pledging securities to make it easier for foreign investors to borrow Taiwan dollars by using securities as collateral. On Feb 6, 2013, the CBC granted approvals to Taiwanese banks, including Citi, to launch onshore RMB accounts. The FSC plans to allow companies registered in Mainland China to list in Taiwan stock exchanges as T shares and to issue Formosa Bonds in Taiwan. Effective Sep 23, 2013, all loanable stocks are exempt from the up-tick rule in a short sell. TWSE plans to adopt a stock price stabilization measure for stocks whose price fluctuation reaches 3.5% in the second half of The FSC proposed to rule amendments to attract foreign investments in the Taiwan market.

7 13 Acronym Glossary ASIC ASX ATS BAHTNET BAP Australian Securities and Investments Commission Australia Securities Exchange Alternative Systems Thai Baht Real Time Gross System Banker s Association of the Philippines Bapepam-LK Indonesia Capital Market and Financial Institution Supervisory Agency BNM BOISL BOT BSE CBC CCASS CCP CDP CDSL CGT CHESS CMF CoFR CSDCC CSRC ECFA ETF FIIs FPI FSC FSCMA FSS FTIL FTZ GTSM HKEx HKEx-IS HKMA HKSCC HNX HOSE ICCL IDX IRDA ISINs ISS JASDEC JGB JGBCC JPX JSCC JSDA KONEX KPEI KRX KSD Bank Negara Malaysia Bank of India Shareholding Ltd Bank of Thailand Bombay Stock Exchange Central Bank of the Republic of China (Taiwan) Central And System Central Counterparty House The Central Depository (Pte) Ltd Central Depository Services (India) Limited Capital Gain Tax House Electronic Sub-Register System Central Matching Facility Council of Financial Regulators China Securities Depository and Corporation China Securities and Regulatory Commission Economic Cooperation Framework Agreement Exchange-Traded Funds Foreign Institutional Investors Foreign Portfolio Investor Financial Supervisory Commission Financial Investment Services and Capital Market Act Financial Stability Standards Financial Technologies India Limited Free Trade Zone Gre Tai Securities Market The Hong Kong Exchanges & HKEx Information Services Limited Hong Kong Monetary Authority Hong Kong Securities Company Hanoi Stock Exchange Ho Chi Minh City Stock Exchange Indian Corporation Ltd Indonesia Stock Exchange Insurance Regulatory and Development Authority International Securities Identification Numbers Institutional Service Japan Securities Depository Center Japanese Government Bond Japan Government Bond Corporation Japan Exchange Group, Inc. Japan Securities Corporation Japan Securities Dealers Association Korea New Exchange The Indonesian and Guarantee Corporation Korea Exchange Korea Securities Depository KSEI Kustodian Sentral Efek Indonesia KYC Know Your Client LES Liquidity Enhancement Schemes LFX Labuan International Financial Exchange MAI Market for Alternative Investment MAS Monetary Authority of Singapore MCX Multi Commodity Exchange MCX-SX MCX Stock Exchange Limited MMDH Mainland Market Data Hub MYX Bursa Malaysia Bhd NSCCL National Securities Corporation Ltd NSDL National Securities Depository Limited NSE National Stock Exchange NSX National Stock Exchange of Australia OSE Osaka Securities Exchange PBOC The People s Bank of China PDEx Philippine Dealing and Exchange Corporation PDS Philippine Dealing System Holdings Corporation PDTC Philippine Depository & Trust Corp. PSE Philippine Stock Exchange PSMS Pre- Matching System PvP Payment versus Payment QFI Qualified Foreign Investor RBA Reserve Bank of Australia RBI Reserve Bank of India RMB Renminbi RQFII RMB Qualified Foreign Insititutional Investor SBL Securities Borrowing and Lending SCCP The Securities Corporation of the Philippines SEBI Securities and Exchange Board of India SEC Securities and Exchange Commission SEHK Hong Kong Stock Exchange SET Stock Exchange of Thailand SFC Securities and Futures Commission SGX Singapore Exchange Limited SGX-ST Singapore Exchange Securities Limited SMEs Small and Medium Enterprises SSC State Securities Commission SSE Shanghai Stock Exchange STC Securities Code STP Straight Through Processing SZSE Shenzhen Stock Exchange TCH Thailand House Co. Ltd TDCC Taiwan Depository Corporation TFX Tokyo Financial Exchange TMI Tokyo Market Information TSD Thailand Securities Depository TSE Tokyo Stock Exchange TWSE Taiwan Stock Exchange USD CHATS US Dollar House Automated Transfer System VSD Vietnam Securities Depository WFE Word Federation of Exchanges

8 Contact Us Asia Pacific Jeffrey Williams Regional Head, Direct Custody & Asia Pacific Rudy Ingkiriwang Regional Head, Asia Network Management Judy Yip To Market Advocacy, Asia Pacific AUSTRALIA CHINA HONG KONG Martin Carpenter +61 (2) Kevin Sc Wong +86 (21) Cindy T Chen cindy.t.chen@citi.com INDIA INDONESIA JAPAN Aashish Mishra +91 (22) aashish.k.mishra@citi.com Daniel Wijono +62 (21) daniel.wijono@citi.com Yasuhiro Yanakawa +81 (3) yasuhiro.yanakawa@citi.com KOREA MALAYSIA PHILIPPINES Hee-Jin Kim +82 (2) heejin.kim@citi.com Benedict Ler +60 (3) benedict.ler@citi.com Theresa Reyes +63 (2) theresa.reyes@citi.com SINGAPORE TAIWAN THAILAND Alvin Goh alvin.nc.goh@citi.com Hsiao-Chi Wang +886 (2) hsiaochi.wang@citi.com Dol Watanasri +66 (2) dol.watanasri@citi.com VIETNAM Ha Thu Nguyen +84 (43) hathu.nguyen@citi.com

9 15 Footnote 1 August 2013 domestic market stock capitalization sourced from World Federation of Exchange. For India, only BSE market capitalization is included since all the companies listed on the NSE are already included in the BSE market capitalization figure. Disclosure IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the promotion or marketing of any transaction contemplated hereby ( Transaction ). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction. Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided. Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time. Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citigroup Global Markets Limited. Authorized and regulated by the Financial Services Authority. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citigroup Inc. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi s unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology, and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to evaluate and address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions. Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

10 Securities and Fund Services citi.com/securitiesandfundservices 2013 Citibank, N.A. All rights reserved. Citi and Arc Design is a registered service mark of Citigroup Inc. CTA /13