ASEAN harmonizes to become globally competitive

Thirachai: We must pave the way for funds to go cross border within Asean  
The global financial crisis has awakened a sense of urgency among ASEAN financial ministers to make the region more competitive vis-à-vis its regional and global neighbours. For Thirachai Phuvanatnaranubala, chairman of ASEAN Capital Markets Forum (ACMF) and secretary-general of the Securities and Exchange Commission (SEC), Thailand, harmonization of ASEAN capital market standards is just the first step. He hopes to raise ASEAN standards to global levels by 2015.


On June 12 2009 Malaysia, Singapore and Thailand agreed to jointly implement the ASEAN and Plus Standards Scheme (ASEAN Plus) as part of a harmonization initiative by the ASEAN Capital Markets Forum (ACMF) to facilitate cross-border offerings of securities within the ASEAN region. The agreement is considered a landmark development. Is this the forerunner of a UCITS-type system − the single passport type collective investment scheme for investors in Europe − for the ASEAN financial markets?


Generally, what the single standard system tries to do is make sure the rules are harmonized regionally. The single passport or, as in the EU, the UCITs passport system or the collective investment single passport system, is the next step. At the beginning, of course, we first have to make sure that everybody adheres to one single standard which can be done through harmonization. Of course, it is hard to harmonize all the rules in the markets; therefore the concept of mutual recognition can also be used in some areas. In ASEAN perspective, we are still in the early stage. The ASEAN  Plus is our first harmonization efforts. Therefore, it may take a while before the single passport system, not only for collective investment schemes but also for other investment products and services, can be used in the ASEAN countries.


The ASEAN  Plus standards that ASEAN  securities regulators have agreed aims to benefit issuers who do the multi-jurisdictions offerings by the ability to use almost the same set of disclosure documents. In June this year, three countries, Malaysia, Singapore, Thailand, have announced they are ready to implement the standard.  Indonesia, the Philippines, Vietnam are currently working out their respective timetable for implementation.


From the announcement up to now, there has not been any commercial use of the standards yet.  But you have to remember that this is the first harmonization initiatives that we announced so I think it takes some time for the private sector to familiarize with it. I am sure that they will soon understand that the ASEAN  Plus will allow them to tap the markets more easily.


When do you expect the Philippines, Indonesia, Vietnam to implement the ASEAN Plus?


I’m hoping to have these countries in within the next two to three years. In some countries like Indonesia, certain parts of the legislation have to be amended to incorporate ASEAN Plus into their framework. So the delay is only in the process of law amendments.


What about non-ASEAN countries becoming part of ASEAN plus?


When we examined the standard requirements for disclosure in the ASEAN countries, we were surprised to find that the requirements for disclosure were too numerous in almost all of the countries that we examined, that they exceed the minimum requirements set by international standards, by IOSCO (International Organization of Securities Commissions). We found that the problem was caused by the fact that participants in the ASEAN capital markets − either investors or the intermediaries − used to be not as well educated as their counterparts in the more advanced countries. This is why we have to try to persuade all the ASEAN countries to adopt this plan, the ASEAN plus standards. Basically, these standards aim to reduce the excessive protection of the investors over time.


We are trying to tone down excessive protection. In addition, we would like to find where the standards in ASEAN are still below international best practice. When we find such areas, we’ll elevate the standards to make them closer to international best practice. Once we’ve accomplished that, hopefully by 2015, the standards we’ll be using in ASEAN will be the international standards. So there will be no point in bringing any other non-ASEAN country onto the ASEAN standards. But ASEAN companies will be able to market to the more established markets like Japan or Hong Kong on the grounds that the standards and practices as used in ASEAN meet international best practice standards. It will thus be safe for foreign investors of both countries to come to ASEAN and be assured that they will be accorded the same protection as the international standards.


Realistically, when would you expect the first commercial use of the single passport?


That’s a bit difficult. Our aim really is to make sure the obstacles and difficulties each ASEAN government has in assisting one of their companies that is trying to tap funds across borders are removed within two or three years. These are obstacles that exist on the official side. However, the commercial practicality of using this will depend on the private sector and the market situation. This is not something that we can predict accurately.


The concept of using the single passport in ASEAN is included in a road map for ASEAN capital market integration that I have proposed to the ASEAN finance ministers. This road map sets out a goal whereby capital markets in the ASEAN countries will draw closer and closer together, step by step, year by year, up to 2015. The year 2015 is the timeline set by the ASEAN leaders to set up ASEAN community.  Such road map, known as the ACMF’s Implementation Plan, has been endorsed by the ASEAN finance ministers in April this year. We are going to continue to work on the initiatives set under the plan.


Harmonization of standards will not have much impact unless it is accompanied by both improved market access to ASEAN capital markets and liberalized capital account restrictions. What has been the progress in this space?


The trend that is going to change first is the liberalization of the capital account. The accumulation of foreign exchange reserves in ASEAN countries continues to be strong. The authorities will have to push the foreign assets out of the hands of the central banks and into the hands of the citizens and private sector to allow them to increasingly make portfolio investments abroad. This is the trend we see in ASEAN. We feel we must stay ahead of this trend and pave the way for funds to go across borders within ASEAN with equal protection.


Do you see any of the ASEAN countries relaxing capital account restrictions?


Yes. If you look at Malaysia and Indonesia, the restrictions on capital account outflows for portfolio investment have been liberalized, where such countries used to be subjected to substantial foreign exchange outflows at the height of the global crisis. In Singapore it is non-existent. In Thailand we have received notice from the Bank of Thailand that it now allows individuals to invest abroad and the Bank will keep doubling the amount for investment abroad year after year.


The access to capital markets is something that we need to push. This is why − from the point of view of the authorities and the regulators − we are trying to push the stock exchanges to be more competitive and at the same time to be more aware of the need to allow more access.


The ASEAN exchanges have firmed up a plan to set up this electronic trading link that will allow foreign participants to link directly with the computers of the various ASEAN Exchanges that have joined, so that the transaction can be done at the speed of nanoseconds and with more convenience. Obviously it will allow more access and more competition in the ASEAN markets. 


Earlier this year, five ASEAN stock exchanges have signed the MOU on this. It has been understood that the first linkage between Malaysia and Thailand’s exchanges will be implemented soon. After that, we may be seeing more countries joining.


After harmonization, how do you see the ASEAN markets relating to other markets in Asia, like the North Asian markets of China, Korea, and Japan?


It’s more a matter of complementation than competition because of the types of business in each country. The business that will survive, thrive and be profitable in each ASEAN country will be somewhat different. It will still appeal to investors from other countries who want to come into the ASEAN because there are certain industries which can become weaker or stronger. But in the long run there are certain businesses that are unique to each country which will be good for investors within ASEAN itself or even for investors from outside ASEAN to come in and invest, because it will diversify their holdings. It will also open up to the opportunities in these countries for them.


By linking the capital markets in the ASEAN countries closer to one another, we are looking at making the level of standards in the ASEAN countries stronger in relation to international standards so the investments can come in. In fact, if you look at the current environment, the ASEAN capital markets are an island of integrity and of strength in the current turmoil.


What exactly do you hope to achieve by 2015?


It is like a chess game, where each piece represents a section of the work that needs to be done, concurrently and across the board. Obviously, some pieces will move faster than others but hopefully, by 2015, a company that wants to raise funds can do it more conveniently and at lower cost in any of the ASEAN capital markets. In addition, investors in the region will also be able to conveniently invest and diversify their risks in the ASEAN capital markets with confidence and also at lower cost.


What are the principal challenges that may delay this process?


That’s a good question. The challenge is the response from the private sector. There will be some sectors that will lose out and some sectors that will gain. The investors may gain but people in the middle like the brokers and some intermediaries may lose out, unless they adapt to make sure they survive and prosper in the changing markets. The harmonization and market integration will force everybody to change. Even the regulators will have to change. Change always brings with it costs, human costs, monetary costs, intellectual costs. There is also the risk of falling back, the risk of resisting change.


Is the global crisis helping provide the conditions for harmonization?


I think the global crisis has made us better aware of the need to become more integrated, more quickly because only by doing can we have the critical mass of the liquidity to withstand rapid capital movements across borders. Yet, it hurts the private sector in some segments and it is understandable that they’ll be looking back at it for time.


What is the ASEAN Capital Markets Forum (ACMF)?


The ACMF is a forum for ASEAN regulators. Through ACMF, the regulators will be able to look ahead and formulate policies that will benefit the ASEAN countries and the region. Through ACMF, the regulators as a whole will hopefully continue to have the same vision. Naturally, a lot will depend on the political will. We have been working with the ASEAN regulators for five years now, it had always been on the narrow scope of regulations. This is, however, the first time that we have drawn up a large road map covering all aspect for capital markets integration.


Importantly, during the drafting process, I have invited some prominent people from the private sector to provide us with expertise. These people contributed a great deal to the road map so the ACMF saw the need to continue to engage them along the course of implementing all the works. The ACMF is also assisted by the Asian Development Bank (ADB). The ADB has been instrumental in providing financial and technical assistance throughout the process.


We have also voiced out to the ASEAN Ministers the need for the more active role of the ASEAN Secretariat.  We need the political set up as in Europe for example. The European commission had more regional power, human resources and head count to ensure that other countries towed the line and made progress as promised. So these are the issues we try to push to ensure that our plans keep going ahead.