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Global Market StructureAsia Pacific Newsletter

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Deutsche BankEquities

Issue 30, 2013Welcome to the APAC Market Structure Newsletter containing the news relating to market microstructure,exchange updates and regulatory developments.

Email: [email protected] Tel: +852 2203 5710 +44 207 547 5552 +1 212 250 4170

Hong Kong ................................................Page 2SFC notice on placementsLaunch of CES 120 contracts

China ..........................................................Page 5China Everbright error draws attention to risk control framework Shenzhen Stock Exchange revises trading rules

Taiwan ........................................................Page 8Securities firms permitted to establish off shore entitiesTWSE to change disclosure of market data

India ...........................................................0SEBI releases norms for AIFsSEBI empowered to search and sieze

Japan..........................................................Page 14JFSA confirms start date for short sell changes TSE to run pilot on new tick sizes

South Korea ...............................................Page 16KRX release algo management plan for derivatives

Chi-X and SBI Japannext in running for alternate platform technology

Australia .....................................................Page 19Summary of ASIC changes to MIR on dark pools and HFT

Changes to ASX and Chi-X order types

ASEAN .......................................................Page 23SGX consults on lowering standard lot size to 100 Bursa Malaysia allows an additional 71 stocks to be short sold

Quant Fact Sheet .......................................Page 26


Global Market Structure Hong Kong Newsletter Issue 30

Premature selling of placing shares may constitute illegal short selling

In a news announcement released on 1st August, the SFC has released a Note that highlights the need for investors and intermediaries to understand when a placement has completed or they may face criminal sanctions. The following points were made:

— Some placees, who sold shares for which they had subscribed, appear to have taken the mistaken view that the trade would not amount to illegal short selling even if they did not have the shares when they placed the sell order provided that they could settle the trade on the settlement date with the shares that had been allotted to them.

— Some placees took the erroneous view that they could sell the placing shares before the complement of a placement by relying on oral or written confirmations from their placing agent about the quantity of shares they would be allotted as guarantees that the same number of placing shares on the completion date to settle the trades.

— Prior to completion, a placement is subject to i) the Listing Committee of the Stock Exchange of Hong Kong Limited (“SEHK”) granting the listing of, and permission to deal in, the placing shares; and (ii) the SEHK does not revoke such listing and permission. Therefore the SFC takes the view that placing shares will continue to be conditional until completion of a placement.

— Under the SFO, a person shall not sell securities unless he has or, where he is selling as an agent, his principal has; or he believes and has reasonable grounds to believe that he has or, where he is selling as an agent, that this principal has, a presently exercisable and unconditional right to vest the securities in the purchaser of them.

— Therefore if a placee sells conditional placing shares before the completion of a placement, the person runs the risk of committing illegal short selling unless there is already a sufficient holding to settle the trade.

Head of Enforcement Mark Steward stated

“Investors and other market participants need to be aware of the consequences if they sell shares they do not yet hold or own. In some cases, this may constitute naked short selling which is against Hong Kong law.”

For the full notice see here:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=13PR73

Half-yearly SFC report on global and local securities markets

In a wide ranging report titled ‘Research Paper No 53: Half Yearly review of the global and local securities markets’, the SFC has considered a number of indicators in the market to provide a snapshot of the current market. Some key points on the equities market include:

Risks and uncertainties facing the Hong Kong market

a) Movements of capital flows – although there have been a number of record highs, sudden reversals of capital flow may be triggered, causing significant corrections in the stock markets.

b) Scaling back of Fed stimulus – If there is an unexpected spike in interest rates caused by the Fed’s stimulus withdrawal, volatility in stock and asset prices is likely to increase.

c) Global macro risks – The outlook for global economic growth remains uncertain.

d) Debt sustainability – In the US, investors may be concerned about the country’s debt ceiling. In Europe, the sovereign debt problem has been complicated by political uncertainties. In Japan, the high level of public debt may cause surges in yields and sovereign downgrades, which could affect asset prices.

e) Possible slowdown in Mainland economic growth – Investor sentiment may be affected by worries about a possible economic slowdown and uncertainties about the country’s monetary policy outlook.

Hong Kong Market Structure Update

Total (USD$) %loss/gain

Monthly ADT (July 2013) USD$5.11bn 27.84% Source: Thomson Reuters, 2013

Source: Thomson Reuters, 2013

Source: Bloomberg, 2013



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Hong Kong Market Structure Monthly Newsletter 3

Trading activity in the local stock market

Average daily turnover (HK$ billion)

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HSI (ex H-shares & red chips)

10.5 (15%) 8.3 (16%) 8.6 (15%) 26% 21%

Mainland Stocks 26.4 (39%) 20.8 (41%) 21.8 (38%) 33% 21%

H-shares 18.7 (27%) 14.9 (29%) 15.7 (28%) 32% 20%

Red chips 7.7 (11%) 5.9 (12%) 6.1 (11%) 33% 26%

Derivative Warrants 8.7 (13%) 5.9 (12%) 7.4 (13%) 47% 17%

Callable bull/bear contracts

5.7 (8%) 5.5 (11%) 7.0 (12%) 5% -18%

Others 17.0 (25%) 10.6 (21%) 11.9 (21%) 48% 43%

Market total 68.3 (100%) 51.1 (100%) 56.7 (100%) 34% 20%

Short selling

The report notes there was an increase in the first half of 2013 vs H2 2012 in both absolute and as a percentage of total market. The average daily short selling amounted to HK$6,793 million or 10% of the total market in H1 2013 compared with HK$4,641 million or 9.1% in H2 2012. As of 28th June 2013, the aggregated short position amounted to HK$177.1 billion (or 1.3% of the market cap of the reported stocks).

IPOs

There were 23 IPOs in H1 2013 raising HK$39.5 billion vs 32 IPOs H1 2012 raising HK$30 billion and 32 H2 2012 raising HD$59.2 billion. Mainland company listings accounted for 89% of the market during H1 2013 with the HKEx global IPO ranking falling to 6th in H22013 (down from 4th in H2 2012).

ETFS

10 additional ETFs were listed in H1 2013 taking the total to 110. Their average daily turnover was HK$4.5 billion, 80% higher than the HK$2.5 billion in H2 2012. ETFs account for 6.7% of the total market turnover, up from 4.9% in H2 2012.

After hours futures trading (‘AHFT’) session at HKEx

The new session that commenced at the HKEx on 8th April made the HSI and HSCEI futures available for trading from 5:00 – 11:00pm HK time. More than 100 brokers have participated in these sessions, to follow are some of the key statistics.

8th April – 30th June

No of contracts

% of market vs trading during normal sessions

Intraday volatility in AHFT

Intraday volatility in normal session

HSI futures 3,277 3.9% 0.8% 1.4%

HSCEI 2,547 3.3% 1.0% 1.9%

The full report can be accessed here:

http://www.sfc.hk/web/EN/files/SOM/RS%20Paper/EN/RS%20paper%2053.pdf

Personnel Changes

Changes in Senior Executives

Gary Jones has been appointed as the new head of the LME with a start date of 30th September. He will also be appointed to the LME Board (pending the approval of the Financial Conduct Authority in the HK). Mr. Jones will also take the role of Co-Head of HKEx’s Global Markets.

The Deputy Chief Executive of the LME, Mr. Diarmuid O’Hegarty, has submitted his resignation effective after a six month notice period.

Venue News

HKEx launches CES 120 Futures

On 12th August, trading commenced in the CES China 120 Index (‘CES 120’) futures. Developed by the China Exchanges Services Company Ltd. (‘CESC’) who is jointly owned by the HKEx, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, it will track the performance of the largest China and Hong Kong stocks taking A shares, H shares, red chips and private enterprises as constituents.

The key features of the CES 120 are as follows:

Contract Multiplier: $50 per whole index point

Minimum Fluctuation: 0.5 index point (or $25)

Contract Months: Spot month, the next calendar month and the next two calendar quarter months (calendar quarter months are March, June, September and December)

Trading Hours: 9:15 am – 12 noon and 1 pm – 4:15 pm (Hong Kong time, or HKT), except on Last Trading Day, or LTD

Trading Hours on LTD: 9:15 am – 12 noon and 1 pm – 3:00 pm (HKT) Note: No afternoon trading on Christmas Eve, New Year’s Eve or Lunar New Year’s Eve

Holiday Schedule: Hong Kong holiday schedule

Block Trade Minimum: 100 contracts

Liquidity Providers: IMC Asia Pacific Ltd, Newedge Financial Hong Kong Ltd, Optiver Trading Hong Kong Ltd

Hong Kong Market Structure Monthly Newsletter 4

The contract specifications are

Underlying Index/Index CES China 120 Index (the share price index of that name compiled, computed and disseminated by China Exchanges Services Company Limited)

Contract Multiplier HK$50 per index point

Contract Months Spot month, the next calendar month, and the next two calendar quarter months (i.e. quarterly months are March, June, September and December)

Minimum Fluctuation 0.5 index point

Maximum Fluctuation Nil

Contracted Price The price at which a CES China 120 Index Futures Contract is registered by the Clearing House

Contracted Value Contracted Price multiplied by the Contract Multiplier

Position Limits 30,000 contracts

Large Open Positions 1,500 contracts

Trading Hours 9:15 am – 12:00 noon and 1:00 pm – 4:15 pm (Hong Kong time)

There is no afternoon trading session on the eves of Christmas, New Year and Lunar New Year.

Trading Hours on Last Trading Day

9:15 am – 12:00 noon and 1:00 pm – 3:00 pm (Hong Kong time)

There shall be no afternoon trading session if the Last Trading Day falls on Christmas Eve, New Year’s Eve or Lunar New Year’s Eve.

Trading Method The Exchange’s Automated Trading System (HKATS)

Final Settlement Day The first Business Day after the Last Trading Day

Settlement Method Cash (Hong Kong dollar) settled contract for difference

Last Trading Day The Business Day immediately preceding the last Business Day of the Contract Month If it falls on a Mainland China public holiday, the Last Trading Day will be the preceding Business Day which is also a business day in Mainland China.

Final Settlement Price The Final Settlement Price for CES China 120 Index Futures Contracts shall be a number, rounded up to the nearest 1 decimal place if the figure in the second decimal place is 5 or above and rounded down to the nearest 1 decimal place if it is below 5, determined by the Clearing House and shall be the average of the values of the CES China 120 Index compiled, computed and disseminated by China Exchanges Services Company Limited taken at five (5) minute intervals between 1:00 pm up to 3:00 pm on the Last Trading Day. The Chief Executive of the Exchange has the power under the Regulations for trading Stock Index Futures Contracts to determine the Final Settlement Price under certain circumstances.

Trading Fee (per contract per side)

Exchange Fee HK$10.00

The amount indicated above is subject to change from time to time.

Levies (per contract per side)

Commission Levy and Investor Compensation Levy are payable at the rate or of the amount prescribed from time to time pursuant to the Ordinance.

Note: CES futures will be exempt from Commission Levy from 12 August 2013 to 11 February 2014 both dates inclusive

Commission Rate Negotiable

Margin rates are as follows:

Futures Contract

Margin Rate

Initial Margin (HK$) Maintenance Margin (HK$)

CES China 120 Index Futures

Full Rate 12,000 /lot 9,600 /lot

Spread Rate

3,600 /spread 2,880 /spread

For the full HKEx announcement click here:

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2013/130724news.htm

Changes to Designated Securities for Short Selling

The below 17 stocks have been added to the list effective from 9th August:

STOCK CODE ENGLISH SHORT NAME

1. 382 WELLING HOLDING2. 531 SAMSON HOLDING3. 543 PACIFIC ONLINE4. 710 VARITRONIX INTL5. 715 HUTCH HARB RING6. 858 EXTRAWELL PHAR7. 1148 POWER XINCHEN8. 1190 BOLINA9. 1314 TSUI WAH HLDG10. 1600 TIAN LUN GAS11. 1900 CHINA ITS12. 2178 PETRO-KING13. 2200 HOSA INT’L14. 3668 CHINALCO-CMC15. 6881 CGS16. 8008 SUNEVISION17. 8292 HC INTL

19 stocks have been removed from the list

STOCK CODE ENGLISH SHORT NAME

1. 18 ORIENTAL PRESS2. 28 TIAN AN3. 201 MAGNIFICENT4. 256 CHINA HAIDIAN5. 317 GUANGZHOU SHIP6. 343 CULTURECOM HOLD7. 577 LOUIS XIII H8. 581 CHINA ORIENTAL9. 626 PUBLIC FIN HOLD10. 900 AEON CREDIT11. 984 AEON STORES12. 1008 BRILLIANT CIR13. 1733 WINSWAY14. 1938 CHU KONG PIPE15. 2133 CH POLYMETAL16. 2383 TOM GROUP17. 2722 CHONGQING M&E18. 3335 DBA TELECOM19. 3833 XINXIN MINING

ChinaAMC CES China A80 Index ETF (3180 & 83180.HK) were also added to the list eligible for listing from 26th Aug 2013 (their listing date).

Sourceswww.sfc.gov.hk

www.hkex.com.hk

www.hkma.gov.hk

China Everbright error draws attention to risk control framework

On 16th August, the China market was impacted by a number of erroneous trades as can been seen in the Bloomberg graph below. In what was stated by Mei Jian, Everbright’s board secretary to be a ‘technical glitch’ in the brokerages ‘arbitrage system’, China Everbright trading placed incorrect buy orders totaling RMB 23.4 billion (US$3.8 billion) that sent 16 major stocks to their 10% daily upper limit with RMB 7 billion worth of shares changing hands in a matter of minutes.

Source: Bloomberg

The system used by the Strategic Investment Division (“SID”), under Yang Jianbo, created 26,082 buy orders moving the Shanghai Composite Index up 5.62% compared to the previous days close. The system was designed to resend orders if feedback had not been received within 150 seconds and it has been reported by Caixin that even after the issue had been noticed, the traders could not stop the system and had to resort to cutting power.

The error caused Everbright to suffer losses of at least RMB 200 million (US$32.6 million) despite efforts to manage the exposure down through short selling of futures. The orders far exceeded the limit of RMB 80 million that Everbright had allocated to the SID that day, it has been reported by Caixin that individual traders are not able to increase such limits independently.

The firm had further issues on the following Monday when there were further human errors causing issues in the bond market. There, Everbright sold RMB 10 million of government bonds at a yield of 4.2%, 25 basis points higher than the valuation on the previous trading day. The counterparty agreed not to settle the deal.

The Chief Executive, Xu Haoming, has now stepped down and Yang Jianbo has been suspended. It was reported by the South China Morning Post that this was due to the regulator, CSRC, taking a tough stance on brokerages, requiring them to strengthen internal controls while being a stabilising force in a volatile market. Bloomberg quoted Song Jian, a Beijing based analyst at China Minzu Securities as saying that it may lead to ‘the cleansing of the internal risk management systems at Chinese brokerages as part of the government’s risk controls’.

Chinese Market Structure Update


Monthly ADT (July 2013) USD$29,70bn 7.18%





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Fig 2: Equities Daily Turnover per venue - July 2013

Fig 3: Futures HKFE HHI monthly ADT

Fig 4: Futures Daily Turnover per venue - July 2013

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Global Market Structure Chinese Newsletter Issue 30

6Chinese Market Structure Monthly Newsletter

As reported, Everbright Securities proprietary revenue rose 77% to RMB 165 million according to the broker’s annual report where a net income of RMB 1 billion on a revenue of RMB 3.6 billion in 2012. Everbright have now been banned from trading on a proprietary basis.

www.scmp.com/business/companies/article/1298554/china-everbright-securities-replace-president-following-trading

http://www.bloomberg.com/news/2013-08-18/everbright-trading-error-adds-to-china-broker-s-woes.html

3 new QFIIs licenses approved by CSRC in July

The following 4 entities have gained QFII approval

1. Newport Asia LLC

2. Hua Nan Investment Trust Corporation

3. Greenwoods Asset Management Hong Kong Limited

US$1.5 billion quota approved by SAFE for 8 QFIIs in July

Details of quota released are below:

1. China International Capital Corporation Hong Kong Asset Management Limited, US$100 million

2. China Everbright Assets Management Limited, US$100 million

3. Bosera Asset Management (International) Co., Ltd., US$100 million

4. BNP Paribas, US$150 million (additional)

5. Bank Negara Malaysia, US$600 million (additional)

6. Cathay Securities Investment Trust Co., Ltd., US$150 million (additional)

7. The Trustees of Princeton University, US$100 million (additional)

8. Ontario Teachers’ Pension Plan Board, US$200 million (additional)

As of 31st July 2013 quota of US$45 billion has been granted to 210 QFIIs in total (NB there are 232 licenses in total but not all currently have quota allocated). The CSRC announced on 12th July that the QFII program will be increased by a further US$70 billion.

Source: Deutsche Bank, CSRC, SAFE

IPO reboot may be delayed to Q4

According local media ECNS, CSRC may delay the IPO reboot to the 4th Quarter this year.

The delay may be due to the market conditions in the recent months.

CSRC to strengthen enforcement on financial crimes

Xiao Gang, head of CSRC vowed in an article to be stricter on the nation’s capital markets through stricter enforcement. The means will include increasing the penalty for malpractice and better protection for whistleblowers with larger incentives. Compensation for victims will also be increased.

The statistics shows the number of cases increased 21% y-o-y in 2012, with another 40% increase of criminal cases in the first half of 2013. The current CSRC law enforcement system is “challenging”, said Xiao. With 110 cases investigated every year, less than 60 cases end up with imposition of penalties, among which 30 are referred for criminal investigation.

CSRC examines onshore companies applying for HK listing

According to local media report, CSRC claimed that it is examining domestic companies who are applying for listing in Hong Kong. The list of companies under investigation is not disclosed.

CSRC data shows there are in total 179 onshore firms listing in Hong Kong or other overseas market with a market cap of US$192 billion as of 2012.

M&A deals increased 60% in July

An industry report from Zero2IPO revealed that China completed 102 M&A transactions in July, a surge of 59.4% compared with June. The value of the 86 M&A deals that revealed their transaction figures totaled US$ 3.05 billion.

CITIC Securities’ purchase of Credit Agricole’s CLSA unit was the largest deal in terms of transaction value.

Re-financing of real estate companies restarts

There are signs indicationg the ban on refinancing by listed developers since August 2009 as a measure to cool down the property market may be adjusted. A handful of real estate listed companies announced their re-financing plan per notices released by the Shenzhen Stock Exchange.

Venue News

SZSE revised trading rules

The Shenzhen Stock Exchange (“SZSE”) released the Shenzhen Stock Exchange Trading Rules (2013 Revision) (referred to as the “Revised Trading Rules”) on 28th July, 2013. The Revised Trading Rules improved the block trading system in Shenzhen market and allowed turnaround trades to be conducted for bond ETFs traded in the SZSE. The changes are summarised as below:

1. Lower entry requirements for the block trading

The Revised Trading Rules have lowered entry requirements for block trading of A-share, B-share and Securities Investment Funds by 40%. In particular, for A-share block trading, the entry requirement has been lowered from 500 thousand shares or CNY 3million equivalents to 300 thousand shares or CNY 2 million equivalents. For B-share block trading, the entry requirement has been lowered from 50 thousand shares or HKD 300 thousand equivalents to 30 thousand shares or HKD 200 thousand equivalents. For Securities Investment Funds block trading, the entry requirement has been lowered from 3 million units or CNY 3 million equivalents to 2 million units or CNY 2 million equivalents.

2. Introduce 2 new pricing mechanism for the block trading

Currently, the block trading price is negotiated among buyers and sellers and confirmed in the purchasing agreement. To further enhance fairness and transparency of the block trading system, the Revised Trading Rules have introduced 2 new after trading hour pricing mechanism, one is to use market closing price as the block trading price, the other is to use the volume weighted average price as the block trading price. In addition, the SZSE will announce summarized block trading information for each security according to the pricing mechanism on the stock exchange website, after market close.

7Chinese Market Structure Monthly Newsletter

3. Allow turnaround trades for bond ETFs

The Revised Trading Rules have specified that turnaround trades for bond ETFs are acceptable, i.e. the bond ETF units purchased on T day could be sold on T day.

CES 120 Index Futures to be launched on HKEx

The CES 120 was developed by China Exchanges Services Company Limited (CESC), a joint venture of HKEx, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, to track the performance of the largest and most liquid China stocks listed in Mainland China and Hong Kong. It includes A shares, H shares and red chips, as well as shares of private enterprises from the Mainland that are incorporated elsewhere and listed in Hong Kong.

The CES 120 futures contract will be the world’s first exchange-listed derivatives product designed to provide a convenient, cost efficient and simultaneous exposure to leading China stocks from the Mainland and Hong Kong markets through a single exchange-traded futures contract that can be used for trading or hedging purposes. The contract will be an ideal risk management tool for institutions and individuals with the Mainland China-related equity exposure, including Exchange Traded Fund (ETF) market makers looking to hedge their positions in ETFs linked to Mainland China-related ETFs.

SSE and CSI to launch CSI Urbanization Indices

The SSE and CSI announced the CSI Urbanization Indices will be launched on 26th August 2013. The detailed methodology can be found on the official website of SSE (www.sse.com.cn) and CSI (www.csindex.com.cn).

Source: www.csrc.gov.cn

www.english.sse.com.cn

www.hkex.com.hk

www.ecns.cn

www.chinadaily.com.cn

www.menafn.com

ContactEmail: [email protected] Tel: +852 2203 5710 +44 207 547 5552 +1 212 250 4170

Securities firms able to establish off shore branches

As announced in the FSC’s ‘Important Measures’ in July 2013, securities firms meeting certain criteria will be able to establish an offshore branch. The branch will be able to operate a number of activities including commission agency, brokerage, underwriting, agency business of securities or other financial products and the buying and selling of securities or other financial products denominated in foreign currencies.

The requirements for qualification cover areas such as:

— scale of operations

— financial soundness

— comprehensive internal control systems

Tax provisions regarding tax preferences for offshore securities branch, which will remain in effect for 15 years, were adopted with reference to the current taxation system for offshore banking branches.

Revision on FINI application form starting from 22nd July, 2013

The Taiwan Stock Exchange (“TWSE”) announced the revision on “Operation Directions for Applications by Overseas Chinese, Foreign Nationals, and Mainland China Area Investors for Registration to Invest in Domestic Securities or Trade Domestic Futures” has been effective from 22nd July 2013.

The revision has added two categories under “Section 3: Type of Applicant” for non-fund type Foreign Institutional Investor (“FINI”) applicants.

1. Collective account for foreign employees of the offshore subsidiary or branch of a Taiwanese listed company or a primary listed company in Taiwan. This applies to a Taiwanese company which is listed on the TWSE, GreTai Securities Market (“GTSM”), and includes Emerging Stocks, with more than one offshore subsidiary or branch to open a FINI account respectively or jointly on behalf of their foreign employees for the purpose of exercising share options, employee bonus shares, cash capital increase and subscription right for treasury stocks.

2. Share repurchase for a primary or secondary listed company in Taiwan

Offshore subsidiary or branch of a listed company may open a FINI for their China employees

The TWSE announced that with immediate effect, offshore subsidiaries/ branches of a Taiwanese company listed on the TWSE and GTSM including Emerging Stocks are allowed to register a consolidated FINI status with TWSE on behalf of their Mainland China employees. The purpose of this account is for the Mainland China employees to acquire securities which are transferred, subscribed by or distributed to them as well as the consequent sale of the securities.

In addition, when there are two or more offshore subsidiaries/branches of a Taiwanese company, it is allowed to open FINI accounts respectively, or just open one consolidated FINI account.

Taiwan Market Structure Update




Global Market Structure Taiwan Newsletter Issue 30





Fig 1: Equities Taiwan market monthly ADT (lit, auction & non-displayed order types)

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Fig 2: Cash Equities Daily Turnover per venue - July 2013

Fig 3: Futures FTX TAIEX monthly ADT


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Venue News

TWSE’s enhanced market information disclosure mechanism

The TWSE announced their plan to disclose the best 5 bid/offer reference price one trading minute (from 08:59 to 09:00am) before the market is open. Similar to the intraday volatility interruption system, if the reference price of a certain stock rises or falls more than 3.5 percent of the last reference, the TWSE will postpone matching this stock for two minutes i.e. the first trade will not be matched until 09:02am.

Weekly TAIEX Futures is launched on 31st July

Taiwan Futures Exchange (“TAIFEX”) announced that weekly TAIEX Futures were launched on 31st July 2013. It is expected that there will be more FINI/FIDI participation in the Taiwan futures market after weekly TAIEX futures is launched.

Sourceswww.fsc.gov.tw

www.twse.com.tw

Deutsche Securities Services


SEBI issues regulation norms for Alternative Investment Funds

SEBI has released a circular with details on the operational, prudential and reporting norms for Alternative Investment Funds (“AIFs”) which are funds established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate, which is a privately pooled investment vehicle, and collects funds from investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of its investors and are not covered under the SEBI (Mutual Funds) Regulations.

Below are the major regulations that apply to the AIFs.

— Category III Alternative Investment Funds may engage in leverage or borrow subject to consent from the investors in the fund and subject to a maximum limit and will be regulated through issuance of directions such as operational standards, conduct of business rules, prudential requirements, restrictions on redemption and conflict of interest as specified by the Board

Risk Management & Compliance requirements for Category III AIFs

— To have a comprehensive risk management framework supported by an independent risk management function and a strong and independent compliance function appropriate to the size, complexity and risk profile of the fund appropriately supported by sound and controlled operations and infrastructure.

— To maintain appropriate records of the trades/transactions performed and such information should be available to SEBI, whenever sought.

— To provide full disclosure and transparency about any conflicts of interest that may arise from time to time and how they are managed to both investors and SEBI.

Reporting Requirements

— Category I and II AIFs and the Category III AIFs which do not undertake leverage shall submit report relating to their activity as an AIF to SEBI on a quarterly basis in the prescribed format.

— Category III AIFs which undertake leverage shall submit a report to SEBI on a monthly basis in the prescribed format.

— Reports shall be submitted within 7 calendar days from the end of quarter/end of month as the case maybe. The reports for the period up to the quarter ended June 30, 2013 for AIFs which are already registered with SEBI shall be sent to [email protected] latest by 29th August 2013.

Redemption norms for open ended Category III AIFs

— The fund manager shall ensure sufficient degree of liquidity of the scheme/ fund in order to allow it to meet redemption obligations and other liabilities at any time.

Indian Market Structure Update




Global Market Structure Indian Newsletter Issue 30


Fig 1: Equities Indian market monthly ADT (lit & auction types)

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11Indian Market Structure Monthly Newsletter

— The fund manager shall clearly disclose the possibility of suspension of redemptions in exceptional circumstances (or if required by SEBI) to investors in the placement memorandum.

— The fund manager shall keep the investors and SEBI informed at all times on the steps planned/taken to restore normal operations and shall not accept any new subscriptions during the period of suspension.

Prudential requirements for category III AIFs employing leverage (Indian Hedge Funds)

— Leverage shall be calculated as the ratio of the Total exposure to the Net Asset Value of the AIF and should not exceed 2x NAV of the fund at any given time

Leverage = Total exposure {Longs+Shorts (after offsetting as permitted)} Net Asset Value (NAV)

— All Category III AIFs shall report to the custodian on a daily basis the amount of leverage at the end of the day (based on closing prices) and whether there has been any breach of limit during the day.

— In case of limit breaches, the same should be reported to the custodian, investors and SEBI and the excess exposure should be squared off before the end of next business day to adhere to the prescribed limit.

— All AIFs shall ensure that all marketing documents of the fund/ scheme, if any, can be distributed on a private basis only to its proposed investors and shall be in accordance with the placement memorandum of the fund/scheme.

SEBI has also issued the guidelines for existing AIFs wanting to change their registration categories based on risk exposure. However, only those AIFs which have not made any investments in their existing category would be allowed to make an application to SEBI for such changes along with application fees of Rs 1 lakh and the rationale behind the proposed change.

In case the AIF has raised funds prior to application for change in category, the AIF would be required to inform all its investors providing them the option to withdraw their funds without any penalties. Also, the AIF would not be allowed make any investments other than in liquid funds/ banks deposits until approval for change in category is granted by SEBI.

The SEBI press circulars are available here –

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1375094611151.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1375870851852.pdf

http://www.domain-b.com/investments/markets/sebi/20130729_alternative.html

http://articles.economictimes.indiatimes.com/2013-08-08/news/41202057_1_pooled-in-investment-vehicles-category-ii-aifs-aif-regulations

SEBI to get sweeping powers as government approves proposal to amend SEBI Act

The government has approved a proposal to amend the SEBI Act which will empower the markets regulator with sweeping powers to take on the market manipulators. With the introduction of these amendments, SEBI will be able to conduct search and seizure operations for attachment of assets, access call data records in respect to any securities transaction being probed by it and also crack down on ponzi schemes. The Ordinance amending the Securities Laws was promulgated by President Pranab Mukherjee.

With the new powers being granted, SEBI now looks to recover penalties upto Rs 125cr from errant entities which have not yet paid their dues. “Earlier, we were able to bar companies from raising money, ban people from taking directorship or impose penalty, but we have not been able to recover the money. Now, we can recover the money.” SEBI chairman, U K Sinha said.

SEBI is now working on ways to empower small investors and channel a larger flow of household savings into the capital markets. It is considering a ‘triple-A approach’ of spreading Awareness among investors, promoting Appropriate products and ensuring proper Audit of the marketplace.

SEBI is also considering a significant increase in its monetary penalties, and steps like public censure, against the errant entities in the capital markets to deliver efficient supervision and deterrent against malpractices.

SEBI will bring the activities and offences related to front-running under the ambit of fraudulent and unfair trade practices (FUTP) regulations in a bid to curb illegal activities. The FUTP norms will also treat fund-raising activities by those entities which don’t register as Collective Investment Schemes with SEBI as fraud.

http://www.thehindu.com/business/markets/govt-approves-proposal-to-give-sebi-more-powers/article4924547.ece

http://zeenews.india.com/business/news/companies/sebi-looks-to-recover-penatlies-worth-rs-125-crore_80523.html

http://www.financialexpress.com/news/set-for-overhaul-sebi-mulls-threepronged-approach/1151263

http://www.indianexpress.com/news/sebi-mulls-higher-penalties-public-censure-for-defaulters/1141689/

http://articles.economictimes.indiatimes.com/2013-08-12/news/41332696_1_sebi-board-futp-securities-market-regulator-sebi

SEBI probing broker-operator nexus/MCX-NSEL crash

SEBI has initiated a new probe after its integrated surveillance systems highlighted certain instances where brokers were found to be leasing their terminals to stock market operators who were using the trading system to create artificial volumes through “self-trade” in shares and manipulate prices. The price movements and volumes in these stocks were unusual and not in line with the trends in the index or its peers, which caught the regulator’s attention.

SEBI is also analyzing the transactions of a number of leading stock brokers to ascertain if they had diverted any “client-monies” meant for the Equity Trading segment to trade in the commodities/spot markets or had launched products designed like portfolio management services to trade in the commodity markets for a fixed return. Regulatory norms mandate that brokerages maintain a Chinese wall between their equity and commodities segments.

SEBI will also be probing the stock price crash in Multi Commodity Exchange (“MCX”) and its promoter Financial Technologies India Ltd (“FTIL”). The regulator is also looking into the trading pattern of some brokerages and other entities in the two stocks to ascertain whether they had any advance information about problems at NSEL.

http://www.business-standard.com/article/markets/sebi-probes-broker-operator-nexus-113072200882_1.html

http://articles.economictimes.indiatimes.com/2013-08-02/news/41008342_1_nsel-brokers-commodity-segment

http://www.moneylife.in/article/sebi-initiates-probe-into-financial-technologies-mcx-crash/33895.html

SEBI looks to revive the primary market, not to insist on safety-net

SEBI is working to fast-track the clearance of offer documents for public issues and has also urged the investment bankers to price initial public offerings (IPOs) at least 25% lower than the market price of listed peers in a bid to revive the primary segment of the local capital markets.

SEBI has also announced that it will not ‘informally’ insist issuers to provide for a safety net for retail investors until a decision is taken and such a mechanism is formally introduced.

http://www.livemint.com/Money/pRnsBy3IwbSC60QSzK5vZL/Sebi-seeks-to-revive-IPO-market.html

http://www.livemint.com/Money/9lYQalmxfgVo5AKEhhoWBN/Sebi-not-to-insist-on-safety-net-provisions-in-IPOs.html


SEBI to setup a committee to align Private Placement norms with Companies Bill

SEBI will constitute a committee comprising members of the market regulator, the ministry of corporate affairs and members of the apex body of chartered accountants which will look at plugging any regulatory loopholes between the SEBI regulations on private placement and what is outlined in the Companies Bill, 2012. The move comes after a rising number of instances of private placement being misused by various entities for raising funds from the public have come to the Ministry of Corporate Affairs’ notice.

http://www.financialexpress.com/news/sebi-to-align-pvt-placement-norms-with-companies-bill/1140757/0

http://www.business-standard.com/article/markets/govt-official-suggests-sebi-to-set-up-panel-on-private-placement-113071100714_1.html

Mauritius looking to collaborate on Tax Treaty to allay Indian concerns

The Mauritius government has offered to include a limitation of benefit clause (which can take many forms and need not necessarily be a monetary threshold) in the double taxation avoidance agreement with India but wants India to ensure that its general anti-avoidance rules (“GAAR”) do not override the tax treaty.

India has been trying to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other treaty abuses though Mauritius has been reluctant to make any changes. Although since the proposal of General Anti-Avoidance Rules (GAAR) by the Ministry of Finance, the number of investors looking to invest in India through Mauritius has slowed considerably.

http://www.livemint.com/Politics/DST9LjWFk804D9hbOIy3hJ/Mauritius-to-address-concerns-over-tax-treaty.html

Government sets up a panel to discuss tax issues with industry

The Finance ministry has set up a panel under the leadership of Mr. Parthasarthi Shome for discussing tax related issues and disputes with the industry representatives. The panel will meet the representatives on a weekly basis on every Wednesday and is intended to be a forum where the industry can put forward their point of view to the government while the government can clarify the policy decisions.

Shome would be supported by officers of the Tax Policy and Legislation (TPL) wing of the Central Board of Direct Taxes (CBDT) and the Tax Research Unit (TRU) of the Central Board of Excise and Customs (CBEC).

http://timesofindia.indiatimes.com/business/india-business/Panel-to-take-up-tax-issues-with-companies/articleshow/21152415.cms

SEBI may revive REITs

SEBI is revisiting the proposals to allow the formation of Real Estate Investment Trusts (REITs) in a bid to attract more foreign inflows and also to curb the pressure on gold imports. SEBI is currently planning to create a new category on the AIF platform, enabling investors to subscribe to units of REITs which will be listed and invest in rent-income-based real estate assets.

The regulator is proposing that 90% of the income from REITS be distributed as dividends every year, in line with the international practices. Initially, investments in REITs will be restricted to institutions and high net worth individuals only and might be opened to retail investors at a later stage.

http://www.thehindubusinessline.com/markets/sebi-makes-another-attempt-to-revive-reit/article4945879.ece

Venue Updates

Markets witness high selling pressure during July

During the month of July, the local capital markets came under high selling pressure with Foreign Institutional Investors (“FIIs”) pulling out US$3bn (Rs 18,500 Cr) worth of securities, while local mutual funds also offloaded shares worth US$ 340mn (Rs 2,168 Cr). According to the SEBI data, The FIIs withdrew Rs 12,081 crore (US$ 2 billion) from the debt market and Rs 6,394 (US$ 1 billion) from equities.

http://timesofindia.indiatimes.com/business/india-business/FIIs-pull-out-Rs-18500-crore-from-Indian-capital-market-in-July/articleshow/21420997.cms

http://zeenews.india.com/business/news/finance/mutual-funds-withdraw-rs-2-100-cr-from-stocks-in-july_81256.html

NSE back at world #1 position in terms of Equity Trading Volumes

According to a WFE release, National Stock Exchange (“NSE”) of India regained its number 1 position in terms of Equity Trading Volumes in June. NSE registered 11.2 crore trades on its platform, making it the world’s top exchange among the 50 bourses listed with WFE. NSE was also ranked first in the number of equity trades for the first half of 2013 with 71.18 crore trades.

NYSE Euronext and Nasdaq OMX followed NSE at the second and the third positions respectively. NYSE Euronext and Nasdaq recorded 10.65 crore and 9.88 crore trades in June, respectively in their equity segments. BSE stood at the eighth place with 2.44 crore trades on its platform.

http://www.thehindubusinessline.com/markets/nse-regains-top-slot-as-worlds-largest-bourse-for-equity-trade/article4927707.ece

BSE to refund 90% of broker’s membership deposit

The Bombay Stock Exchange (“BSE”) has decided to refund 90% of the amount it had raised as membership deposit from stockbrokers after the completion of a three year lock-in period after it had slashed its membership fees drastically in 2010 to counter competition from newer exchanges like MCX-SX. This is expected to cost BSE up to Rs 180 Cr and will benefit approximately 200 broker members.

“We decided to refund the money to brokers since a three-year lock-in on the deposit is over.” BSE said.

http://articles.economictimes.indiatimes.com/2013-07-24/news/40771978_1_membership-deposit-base-minimum-capital-1-5-crore

BSE, NSE transfer more stocks to restricted categories

Both the BSE and NSE through a series of notifications have notified the lists of stocks that have been transferred to the restricted (Trade-to-Trade) category where speculative trading is not allowed and delivery of the shares is mandatory. The action has been taken after these stocks were identified in a surveillance review conducted by the bourses as per directions from SEBI. BSE has moved a total of 41 scrips to the ‘T’ category while NSE has transferred 11.

http://www.thehindubusinessline.com/markets/stock-markets/bse-to-transfer-41-stocks-to-restricted-segment-from-aug-2/article4969914.ece

http://profit.ndtv.com/news/market/article-nse-to-shift-11-stocks-to-restricted-trade-segment-325086

BSE halves the circuit limit for MCX shares

Following the steep decline in the price of the MCX shares (50 percent decline after the NSEL announced suspension of certain contracts and delay in settlement time table by 15 days), the BSE has set the stock level circuit limit for scrip at 5 percent. The limit is effective from 8th August.


http://www.thehindubusinessline.com/markets/stock-markets/bse-lowers-circuit-limit-to-5-for-mcx-shares/article4999769.ece

BSE signs MoU with Canadian university

The BSE has signed a memorandum of understanding with the Digital Media Zone at Ryerson University of Canada (one of Canada’s largest incubators) to enable start-up companies of the two countries across sectors to access each other’s markets.

http://articles.economictimes.indiatimes.com/2013-08-02/news/41008527_1_indian-institute-start-ups-mou

Personnel Moves

SEBI shuffles portfolios with EDs; reconstitutes the advisory committee on Mutual Funds

SEBI has undertaken a major reshuffle of portfolios allocated to its top officials during an internal organizational restructure. Under the new arrangement, Mr. S.V. Murali Dhar Rao is now in charge of market regulation department and Mr. S. Ravindran is now be responsible for integrated surveillance department while Ms. Ananta Barua takes over the responsibility of heading investment management (mutual funds, PMS, FIIs, collective investment schemes and custodians).

SEBI has also reconstituted the advisory committee on Mutual Funds which is mandated to advise on issues related to regulation and development of mutual fund industry. The 15-member committee is now headed by Janki Ballabh, former Chairman of SBI. The members of the committee include executives of various fund houses such as Birla Mutual Fund CEO A Balasubramanium, Tata Mutual Fund Chairman of the Board of Trustees(Independent Trustee) S M Datta, DSP BlackRock President & CIO S Naganath and Edelweiss Mutual Fund CEO Vikaas M Sachdeva, among others and also comprises of representatives from government and media.

http://www.thehindubusinessline.com/markets/sebi-rejigs-portfolios-at-top-level/article4921216.ece

http://www.thehindubusinessline.com/markets/sebi-rejigs-advisory-committee-on-mutual-fund/article4923916.ece

Raghuram G Rajan appointed next Governor of the Reserve Bank of India

The Reserve Bank of India (“RBI”) has announced the appointment of Raghuram G Rajan as the next Governor of India’s central bank effective from 4th September 2013 for a term of three years.

Mr Rajan is currently the Chief Economic Advisor in the Finance Ministry. He is an alumni of IIM-Ahmedabad and IIT-Delhi, and completed his doctorate from the Massachusetts Institute of Technology. He was professor at the University of Chicago’s Booth School of Business before taking over as Chief Economic Advisor. He is also a former IMF chief economist and is credited with predicting the 2008 global financial crisis well ahead of its occurrence.

http://www.bloomberg.com/news/2013-08-06/india-s-rajan-to-be-next-rbi-head-as-rupee-plunges-btvi-reports.html

http://www.timesnow.tv/Rajan-appointed-next-Reserve-Bank-of-India-Governor/articleshow/4433817.cms


Short sell regulation changes to be implemented 5th November

The Japan Financial Services Agency (JFSA) has responded to the public comments made on the revised short sell regulations in April this year. There is no material change compared with the consultation. Below are the key changes.

Price Restrictions - Introducing a “trigger-system”

— The price restriction will be triggered when a stock is traded at 10% or lower price compared to the closing price of the previous trade date.

— The price, once triggered per above, will last till the end of the next trading date.

Ban on Unlocated Short Selling

— The ban on short selling without locating the borrow (so called “naked” short selling in place since 2008) will be permanent.

Short Selling Position Reporting and Disclosure

— The position reporting requirement will also be permanent.

— The position reporting will be triggered at a position of 0.2% or more of the outstanding shares (currently 0.25% or more.)

— The position reporting will be publicly disclosed at a position of 0.5% or more of the outstanding shares (currently 0.25% or more.) One final disclosure will be made when the position falls below 0.5%.

— The change reports will be required for position movements for 0.1% or more after hitting the threshold of 0.2% or more. One final change report will be required when the position falls below 0.2%.

Proprietary Trading Systems (“PTS”)

— PTS executions will be subject to the ban of naked short selling, the price restrictions, and the duty to flag as short.

Enlarged Exemption

— Arbitrage between the public exchange and PTS will be included as an exempted trade from the price restrictions. A wider scope of ETF products will also be included in the exemptions.

— Restrictions on a so-called short selling facilitation trades which could mislead the market by appearing as a broker’s principal long selling in the market with a crossing with a client’s short selling order behind.

To access the full announcement from the JFSA click here:

http://www.fsa.go.jp/news/25/syouken/20130821-3.html

Japanese Market Structure Update




Global Market Structure Japanese Newsletter Issue 30





Fig 1: Equities Japanese market monthly ADT (lit & auction types)

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15Japanese Market Structure Monthly Newsletter

Venue Updates

Small Tick Pilot Programme

The Tokyo Stock Exchange (“TSE”) will also be running a Small Tick Pilot Programme in two phases where Phase 1 will be run from Jan to Jun 2014 while Phase 2 will be run from Jul 2014 to mid 2015. Both phases will run two different sets of tick sizes which will be applicable to all Topix 100 stocks during the pilot program.

Once the phase 1 and 2 are over, the performance of both phases will be evaluated and target stocks and spread sizes will be determined for implementation from mid 2015 onwards in phase 3. Phase 3 is timed with TSE’s Next Generation trading system (Arrowhead).

TSE and OSE Cash segments merged 16th July

Post the merger of the cash segments of TSE and the Osaka Stock Exchange (“OSE”), the OSE cash products were relisted on the TSE on 16th July and cash names on OSE start trading live on TSE. TSE has now emerged as the world’s third largest equities exchange by listed companies and handles more than 90% of the local equities trades.

Japan Exchange Group looking to combine TSE’s Mothers and OSE’s Jasdaq

Japan Exchange Group Inc. will consider a future merger of the Tokyo Stock Exchange’s Mothers section and the Osaka Securities Exchange’s Jasdaq section, both of which are meant for enabling startups to tap the capital markets.

“Through the integration, we aim to be the most preferred exchange in Asia. We will now need to address how to sort out overlapping functions of the Mothers and the Jasdaq. We aim to realign them after building a certain degree of consensus by taking a certain amount of time and following procedures” Akira Kiyota, president of TSE Inc Said.

Also, Osaka Securities Exchange Co. may launch a commodity futures market on its own, without seeking an alliance with an existing operator in or outside Japan according to President Hiromi Yamaji.

Japan Exchange Group trading overview

Cash Equity Market

— In July 2013, average daily trading value of 1st Section domestic stocks was ¥2.2623 trillion, exceeding ¥2 trillion for 6 consecutive months since February 2013.

— Trading value on the ETF market was ¥2.25 trillion (TSE and OSE combined), exceeding ¥2 trillion for 3 consecutive months.

— Issues that were listed only on the former OSE or primarily traded on the OSE market, such as Nikkei Leveraged ETF (1570), GungHo Online Entertainment (3765), and Nintendo (7974), ranked highly in terms of auction trading value after market integration on 16th July.

Derivatives Market

— Total derivatives trading volume on JPX for the month was 26,843,867 contracts.

— Monthly trading volume for the night session was 6,725,414 contracts. The ratio of night session to the day session trading volume was 38.5%.

— The number of Nikkei225 options contract months and that of strike prices were increased on July 16. As of the end of July, trading volume of these new contracts accounted for 18.1% of trading in Nikkei225 options.

Sourceswww.tse.org.jp

www.ft.com

http://www.atmonitor.co.uk/

www.japantimes.co.jp

www.bloomberg.com

www.nasdaq.com

http://www.ose.or.jp/

www.telegraph.co.uk

Chi-X Global and SBI Japannext in the running for ATS platofrm

Following details contained in Issue 29, there have been a number of press articles relating to the potential alternate venue. Chi-X Global and SBI Japannext (using NYSE technology) are both reported to be considering acting as the technology platform providers for any upcoming ATS. Both firms are looking at the potential to work with on shore brokers, with up to eight broker consortium members holding no more than 15% each of the new venue.

According to an FT article, Tal Cohen (CEO Chi-X Global) stated

“We are actively assessing the opportunity, but it’s still early days. Korea is one of the large markets in Asia, and it is trying to open itself up. What we want to do is work with the local firms to showcase what we can bring to the table.”

Chuck Chon, Co-chief Executive of SBI Japannext, said:

“We are actively engaged with the top eight brokers, and we have approached them with our proposal to bring our successful formula developed in Japan and to launch with consortium partners in Korea.”

However, high transaction taxes, the 5% cap on market share and the KRW 20 billion won (US$18 billion) capital requirement pose challenges for an incomer. Nick Ronalds, Head of the Equities Committee of ASIFMA said

“From the standpoint of an ATS operator deciding whether to set up in Korea, the [cap] would obviously affect your decision about whether it’s feasible or reasonable [to set up in the market]”.

South Korea plans to impose tax on derivatives trading

The South Korean government is pushing ahead with plans to impose a tax on derivatives trading next year. Per the revised tax bill being proposed by South Korea’s Ministry of Strategy and Finance next month, a 0.001% tax will be applied to the turnover value per futures trade. Options will reportedly be subjected to a 0.01% levy.

This may further bring down the derivatives trading volumes in Korea which were already reported to be down ~70% in first half of 2013 compared to 2012. The Government expects the tax to generate KRW120bn ($107.9m), according to officials.

Korea direct financing up 17% MOM, Corporate direct financing down 9% YOY

Corporate direct financing amount in Korean market during the first half of 2013 was $53,845m, down 9.3% ($5,507m) from $59,352m in the same period last year.

Direct financing amount in June this year was $93,215m, up 17.2% ($1,37m) from $7,951m during the previous month.

Venue News

KRX algo management plan for derivatives

In an update provided on 12th July, the KRX has released a ‘Comprehensive Management Plan for Algorithmic Trading in the KRX Derivatives Market’ in order to avoid negative market impacts generated by algorithmic trading errors and secure both effectiveness and safety of the derivatives market with the comprehensive management plan designed to prevent such abnormalities.

An “algorithmic trade” has been defined as “the use of electronic platforms for entering trading orders with an algorithm which executes

South Korean Market Structure Update




Global Market Structure South Korea Newsletter Issue 30





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17South Korean Market Structure Monthly Newsletter

pre-programmed trading instructions whose variables may include timing, price, or quantity of the order, or in many cases initiating the order without human intervention.”

A summary table has been provided to the market in relation to the receipt and transmission of orders as below.

Guidance in also given on a number of topics including:

— how to register an algorithmic trading account

—the introduction of a cumulative order limit

—the introduction of a kill switch

—the obligation to set up an automated order cancellation system

—an increase in the management level for risk exposure amount

Details of the surcharge for excessive orders are set out here:

18South Korean Market Structure Monthly Newsletter


The timeline for implementation of the regulations is

For the complete detail of the notice click here:

http://eng.krx.co.kr/coreboard/BHPENG09004/view.jspx?bbsSeq=20017&secretYn=N

KONEX’s low turnover

22 firms listed on Konex (South Korea’s new venture driven stock market) experienced sluggish turnover as institutions refrained from selling their shares on the new bourse. Foreign investors made no investments either. Individuals accounted for ~60% of total trading volume of KRW 8.5Bn (USD 7.57Mn).

Market integrity rules on dark liquidity and HFT

On the 12th of August, ASIC released the latest guidance on Consultation Paper 202 (Dark liquidity and high-frequency trading: Proposals). The new rules focus primarily on dark pool regulation and disclosure. See page 22 for table of topics considered.

ASIC to close disclosure loophole on share purchases for executives

ASIC and ASX are releasing a discussion paper in September to address the purchasing of shares for executives by ASX listed companies. $1.5 billion worth of share purchases for company executives went unreported in 2012 due to the loophole, which involves categorizing the share purchases as financing cash flow.

http://www.smh.com.au/business/companies-use-loopholes-to-buy-shares-20130326-2gs91.html

OTC derivative reporting rules released

On 11th of July, ASIC released final rules around OTC derivatives trade reporting obligations for financial institutions. Mandatory reporting will be phased in over three stages, following a voluntary reporting period beginning on the 1st of October 2013.

The new reporting regime covers financial institutions and intermediaries, with end users not affected by the new rules. ASIC plans to consult on the reporting obligations for end users later this year.

http://www.asic.gov.au/asic/asic.nsf/byHeadline/13-171MR%20OTC%20derivatives%20reform%20-%20ASIC%20implements%20reporting%20regime?opendocument

ASIC Issues multiple infringement notices and fines

There has been an uptick in the number of infringement notices and fines issued by ASIC to brokers recently, including the following fines in the last month:

— Instinet Australia fined $130,000. The fine related to Instinet’s automated order processing system failing to stop priority crossings with no change of beneficial ownership.

— Euroz Securities Limited fined $35,000 for placing an order to sell 800,000 EVN at $0.013 vs the last price of $1.68, which resulted in EVN being sold down 25% to $1.25

— UBS Securities Australia fined $30,000 for entering an offer in QAU to sell 1,800 units at $0.165 vs. last price of $15.75, resulting in a 1% price move down to $15.585

— Credit Suisse Equities fined $95,000 for allowing an algorithm to place an order to sell 1,616 HSTDA at $0.315, without taking into account a 10 to 1 share consolidation that occurred the previous day. This resulted in a 48% price decrease from the adjusted last price.

Australian Market Structure Update

Monthly ADT (July 2013) Total (AUD$) %loss/gain

Total market ADT AUD$3.63bn 20.98%

Lit ADT AUD$3.31bn 21.64%

Dark ADT AUD$0.19bn 8.08%

OTC ADT AUD$0.13bn 20.06% Source: Thomson Reuters, 2013


Global Market Structure Australian Newsletter Issue 30





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Fig 3: Equities Daily % Order Type - July 2013 �

Fig 4: Equities Spreads (bps) - July 2013

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Venue Updates

ASX announces enhancements to ‘Sweep’ orders, updates for MIR compliance

On the 22nd of July, the ASX announced enhancements to ‘Limit Sweep’ orders. Sweep orders interact with flow posted in ASX Centerpoint before trading in the ASX TradeMatch (the lit market). The behaviour of Sweep orders in the lit market will be identical to current TradeMatch limit orders, which will allow the substitution of Sweep orders for normal Limit orders. The changes will bring ASX functionality in-line with ChiX (ChiX limit orders already automatically match with flow posted in ChiX Hidden Liquidity). It is likely that a large number of brokers will substitute Sweep Limit orders for Limit orders when the changes come into effect.

Additional functionality will be introduced to allow ‘dual posting’ of liquidity in Tradematch and Centerpoint. Sweep orders flagged as ‘dual posting’ will post on Tradematch, and also match with orders in Centerpoint at half a tick above their limit price.

The changes come into effect on November 25th.

There are additional technical changes being implemented on October 28th, as part of a mandatory release.

1. New fields will be included in ASX Trade messages including both order and trade messages.

2. The settlement date for Special Markets

See table below. The full notice can be accessed here:

https://www.asxonline.com/intradoc-cgi/groups/trading_and_market_information/documents/communications/asx_037637.pdf

Australian Market Structure Monthly Newsletter





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Fig 6: Futures SFE-ASX SPI 200 monthly ADT

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Event Enhanced Test Environment Functional Test Environment ASX Trade Production Environment

ASX Trade Central System release 26th July TBC*

Installed for Mandatory release 26th July TBC* 28th Oct

It is mandatory for all ASX Trade Open Interface applications to be recompiled to the latest version of the ASX Trade Open Interface Header file.

The current ASX Trade Production API version will no tbe supported from 28th Oct 2013

New Open Interface header file can be used with applications

26th July TBC* 28th Oct

Regulatory Data Capture to comply with ASIC MIR


Participants are not required by ASIC to provide this regulatory data to ASIC until 10th March 2014

Settlement Date enhancements to support Special Markets


The new information fields will not be used or contain values until implementation of the new standard timetable for rights issues. This will not be before 2014

Content changes to ASX Trade Fields and defect fix

August TBC* 28th Oct

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TBC** TBC** 25th Nov

Enhancements to Limit Sweep Orders

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*Changes will be available in FTE 2 weeks prior to nominated go-live date

**The PTE will be upgraded early Oct. Environment details

21Australian Market Structure Monthly Newsletter

Chi-x gains approval for market maker rules

Following CP02/2013, the Chi-x market maker rules have received regulatory approval and are planned to come into effect on 1st November 2013. Those who register as market markets will have to follow the below obligations:

Security Group Minimum Order Value

Maximum Spread: Price: Maximum Spread (in tick size)

Trading Obligation Ratio

Group one (Top 50 by market capitalisation)

$10,000.00 $0< $20: 4 $20 < $40: 5 $40 < $50: 6 $50 < $60: 7 $60 < $70: 8 $70 < $80: 8 $80 < : 9

65%

Group Two (remainder of ASX 200)

$7,500.00 $0 < $20: 4 $20 < $30: 5 $30 ≤ : on a case by case basis (but ≥ 6)

65%

Group Three (remainder)

$5,000.00 $0 < $20: 4 $20 ≤ : on a case by case basis (but ≥ 5)

50%

Chi-X is considering an appropriate fee regime given the benefits providing such liquidity to the market would bring. This will be separately developed and implemented in consultation with ASIC. The short sell requirements imposed in the Corporations Act are subject to exemptions for market makers, if the affirmative obligations detailed above are monitored and enforced, participants may be able to apply for such relief from ASIC.

The operational details are being discussed with ASIC, the rules will go live once they are confirmed.

For the consultation paper click here:

http://www.chi-x.com.au/Portals/8/Notices/Compliance/CP%202%202013.pdf

Changes to Chi-X order types

The following details have been released by Chi-X with regards to order types.

Order Change Status

Hidden Limit Order

Discontinued Implemented

Peg Offset Discontinued Implemented

Primary Peg Order

Must rest in the order book with at least 1 tick price improvement inside the best bid or offer or half tick where NBBO spread is 1 tick.

Changes expected to be available as follows:

— in PTE for client testing from Monday 19 August 2013; and

— The change is expected to move into production in early September on a date to be confirmed.

Order Change Status

Market Peg Order

Must rest in the order book with at least 1 tick price improvement inside the best bid or offer or half tick where NBBO spread is 1 tick.

Mid-Point Order

In circumstances where participants set a half tick limit price on a Mid-Point order, the order can only rest at the half tick when the half tick is the arithmetic mid-point of the NBBO. If the half tick limit price is not the arithmetic mid-point, the order will be rounded (if a bid rounded down, if offer rounded up) to the nearest full tick. If the NBBO moves such that the half tick limit is again the arithmetic mid-point of the NBBO the order will revert to resting at the half tick.

It is also expected that the MIR requirements will lead to additional fields in orders, trade and execution reports including:

1. Execution venue

2. Origin of order

3. Intermediary ID

4. Wholesale indicator

You can access the notice here:

http://www.chi-x.com.au/Portals/8/Notices/Mrkt%20Ops/Market%20Operations%20Notice%200019-13.pdf

ASX finalises code of practice for clearing and settlement

The ASX released the final Code of Practice for Clearing and Settlement of Cash Equities on the 18th July 2013. The code covers the ASX’s obligation with regards to pricing and access to settlement services, and mandates the establishment of an advisory forum where users of ASX clearing and settlement services and other stakeholders can provide input to the boards of ASX Clear and ASX Settlement. The code came into effect on the 9th of August.

http://www.asx.com.au/cs/documents/ASX_finalises_Code_of_Practice_and_membership_of_Forum.pdf

ASX conducts “war games”

The ASX undertook “war games” last month to simulate a cyber-attack on exchange infrastructure. A research paper published by the World Federation of Exchanges and the International Organisation of Securities Commission found 53 per cent of exchanges - including the key global exchanges - suffered a cyber attack last year.

Sourceswww.asic.gov.au

www.smh.com.au

www.chi-x.com.au

www.asx.com.au

22Australian Market Structure Monthly Newsletter

Market integrity rules on dark liquidity and HFT

The following topics are considered

Topic 10th Nov 2013 9th Feb2014 10th Feb 2014 9th May 2014 26th May 2014

Crossing system transparency and disclosure

Operators must publish information on the crossing system on a website. Will include product

Disclosures on the operation of the facility

Identify trade information for wholesale clients as to whether it was a principal cross

Crossing system fair treatment

Tick sizes that apply to exchange markets will also apply to crossing systems

Clients must have the ability to opt out if desired

A common set of procedures must be in place which do not unfairly discriminate between users

Crossing system monitoring

If suspicious activity is noticed in a crossing system, it must be reported to ASIC

Activity most be monitored, waiver in place until 10th May 2014

From 10th May, monitoring waiver expires

Crossing system controls Operators must notify ASIC of system issues as soon as practicable

Existing system and control requirements for automated order processing will extend to crossing systems

Enhanced conflict of interest obligations

Client orders must be dealt with fairly and in due turn

Client confidential information must be protected

Order flow incentives Market participants will be prevented from receiving negative commissions

HFT – Manipulative trading circumstances of order

Market participants must consider whether the frequency of an order, the volume of products subject to each order and the extent to which orders are cancelled or amended in relation to whether there has been a false or misleading impression given

Harmonisation of manipulative trading rules

Market participants of ASX 24 must comply with manipulative trading rules (in line with rules for ASX and Chi-x)


MAS sets up a cross border collateral arrangement with BoJ

The Monetary Authority of Singapore (“MAS”) and Bank of Japan (“BoJ”) have set up a cross-border collateral arrangement to enhance financial stability in Singapore. Under the agreement, eligible financial institutions operating in Singapore may obtain Singapore dollars from MAS by pledging Japanese government securities with MAS.

This widens the range of acceptable collateral in MAS’ liquidity facility, and permits greater flexibility in the liquidity management of eligible financial institutions, including Japanese banks, operating in Singapore.

MAS fines 22 financial institutions over money laundering

The MAS fined 22 financial institutions and restricted operations at seven firms for failing to comply with rules to prevent money laundering and terrorism financing in the past three years. The Monetary Authority of Singapore also issued 47 warnings and reprimands and ordered “a few” financial firms to review their anti-money laundering framework.

“Like any international financial center, we recognize that Singapore is vulnerable to being used as a conduit for illicit funds,” Lee said. “This is a clear message that Singapore neither wants nor will tolerate such illicit flows.” Lee Boon Ngiap, an assistant managing director at the regulator, said.

Philippines may not be able to join the ASEAN link by 2015

The Philippine Stock Exchange (“PSE”) has said that it may not be able to join the planned integration of ASEAN exchanges two years from now as it needs more time to prepare the local markets and infrastructure to be able to compete in an integrated environment. Apart from the stock and bond markets, the local banking community likewise is unprepared for regional integration, according to bankers and regulators. A number of regulatory and infrastructure upgrades will be required before the integration can be achieved.

“Clearly if you are to ask what is logical for the stock exchange, we have to have as many products and that includes fixed income. That includes integrating the infrastructure--we have to have the depository, the risk management process. The integration of the fixed income products, as well as the platforms would be part of our strategic plan to have an integrated Philippine Stock Exchange.” PSE president Sicat said.

Venue News

Trading at SGX rises in July

SGX has reported an increase in the trading activity in both securities and derivatives segments on its platform from a year ago. Major highlights below:

— Total securities turnover was S$27.5 billion, up 2% year on year

— Total futures and options volume increased 52% year-on-year to 8.8 million contracts.

ASEAN Market Structure Update




Global Market Structure ASEAN Newsletter Issue 30






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Fig 2: Equities Daily % order type - July 2013

Fig 3: Futures SGX MSCI Singapore monthly ADT

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— China A50 futures trading more than doubled to 1.7 million contracts year-on-year.

— Nikkei 225 futures volume was up 44% year-on-year at 2.7 million contracts.

— MSCI Taiwan futures activity was up 30% to 1.9 million contracts from a year earlier.

— Nifty futures trading increased 15% to 1.3 million contracts year-on-year.

— MSCI Indonesia Index Futures more than quadrupled to 32,737 contracts.

— Month-end open interest was up 21% year-on-year to 994,317 contracts.

SGX reported a 43% year-on-year rise in its Net income to S$ 87.6mn on the back of record derivatives volumes and increase in stock volumes. For the financial year ended 30th June, net profit was up 15% at S$ 335.9mn, while operating revenue rose 10% to S$ 715 mn.

SGX launches long dated orders for securities

The SGX has launched long dated order types for securities which can be carried forward or retained for up to 30 days on the exchange unless they are completed or cancelled. Investors will be able to specify the number of days for which they want their orders to remain active on the exchange.

SGX consults public on reducing standard board lot size

The SGX is consulting the public on its proposal to reduce the standard board lot size of securities listed on SGX from 1,000 to 100 units, with a view to reducing it to 1 unit in the longer term.

The reduced board lot size is expected to benefit the public as individuals will find it easier to invest in higher-priced shares, instead of limiting themselves to lower-priced ones. Since many of the index component stocks and blue chips tend to be higher-priced, this will enable retail investors to more easily build balanced and diversified portfolios to grow their savings. Institutional investors will also be better able to manage their risk exposures through finer asset allocation of funds.

The proposed standard board lot size of 100 units will apply to ordinary shares, real estate investment trusts, business trusts, company warrants, structured warrants, extended settlement contracts and shares on GlobalQuote. Existing board lot sizes of less than 100 units will remain unchanged.

Amendments are proposed to the Listing Rules, to cater for the reduction of the board lot size including:

— Removal of Mainboard Listing Rules specifying the minimum board lot size for structured warrants, given the adoption of the standard board lot size of 100 for structured warrants

— Amendments to Mainboard and Catalist Listing Rules to require issuers to specify in the annual report, the number of shareholders who hold less than 100 shares.

Subject to regulatory approval and member readiness, SGX targets to introduce these rules by the first quarter of 2014. The consultation is open till 6th September and can be accessed here –

http://www.sgx.com/wps/wcm/connect/09393f0040c69dbe97def75b188ebef5/Consultation+Paper_Reduction+of+Board+Lot+Size_19Aug_Final.pdf?MOD=AJPERES

http://www.sgx.com/wps/wcm/connect/sgx_en/Misc/regulations/PC/Consultation+Paper+on+Reduction+in+Board+Lot+Size

SGX introduces new rules for listed companies

SGX has introduced new rules related to holding of general meetings in Singapore and Poll voting after consultations with the MAS and consideration of the public comments on the topics. The rules will be applicable to all companies/trusts listed on the Mainboard and Catalist. Highlights below:

— Holding of General Meetings in Singapore to be effective 1st January 2014

— All companies to hold general meetings in Singapore to maximise shareholder participation and engagement.

— Alternative arrangements like webcasts to be made in case of legal constraints to hold meetings in Singapore

— Voting by Poll to be effective 1st August 2015

— Voting to be conducted by polls where shareholders are accorded rights proportionate to their shareholding and all votes should be counted.

— Shareholders who are unable to attend the meetings can cast their votes through proxies to participate in the outcome of shareholders’ resolutions

— Disclosure of Voting Outcomes to be effective 1st August 2015

— Prompt disclosure of the voting decisions and outcomes should be made by all companies.

SET to expand the list of eligible stocks for Derivative Warrants (DW)

The Stock Exchange of Thailand (“SET”) has announced that effective 1st August, it will be adding an additional 29 stocks from the stocks ranked 51-100 in the SET100 index for derivative warrants (“DW”) and will also expand DW with underlying indices covering SET Index series and exchange-traded funds (“ETFs”). The underlying stocks to be added have had an average market capitalization during the past four quarters of at least THB10 billion (approx. US$323 million). The list of underlying stocks will be revised quarterly and announced within five working days after the end of each quarter.

The stocks to be added on August 1 are AAV, AMATA, AP, BCH, BECL, BLAND, DCC, ESSO, HEMRAJ, ITD, LPN, MAJOR, MBK, MCOT, QH, ROJNA, SC, SIRI, SPALI, SSI, STA, STEC, STPI, THCOM, THRE, TISCO, TPIPL, TTA, and TVO. Including all of the underlying stocks in SET50 index, SET’s DWs will have a new total of 79 underlying stocks.

Earlier on July 2nd, trading in DWs was improved by lengthening ticker symbols to 12 letters to include the last trading date for that particular DW and enabling investors to easily indentify the allowed trading period of a given set of DWs.

SET raises trading targets for the year; Consolidates IT Infrastructure

The SET is raising its 2013 targets by 50% or more for market trading volume and newly listed companies’ market capitalisation after witnessing a good run in the 1st half of the year and achieving all its half yearly targets.

In 1H13, SET’s daily market trading turnover averaged Bt 61.4bn, up 90% YoY and the highest in ASEAN. The FY13 target therefore has been increased by 54% to Bt 49.5bn from Bt 32bn.

The target for newly listed companies’ market capitalisation is raised by 50% to Bt 180bn from Bt 120bn. the targeted number of traded futures contracts is revised up to 66,000 per day from 50,000.

SET has implemented Cisco’s Data Center architecture to increase operational flexibility, improve its business operations and streamline its online trading platform.

25ASEAN Market Structure Monthly Newsletter

Bursa Malaysia liberalises regulated short selling; KLCI records another all-time high

Bursa Malaysia has announced a larger pool of securities eligible for Short Selling and Stock Borrowing and Lending segment in a bid to achieve the “Developed” market status. The list of stocks eligible for securities borrowing and lending (SBL) has been increased to 171 from 100 previously with the removal of the Securities Commission’s (SC) 100-stock cap. short selling activity reached a record RM 293mn level in June compared to almost nil a year ago indicating strong institutional investor interest on the trading strategy on local bourse. Currently only institutional investors are allowed to participate in the regulated short selling and SLB segments.

“The existence of short selling and securities lending were among the criteria set by index provider FTSE Group for a “Developed” stock market. The list will be reviewed on a semi-annual basis in June and December, resembling the process for the FTSE Bursa Malaysia KL Composite Index, and it may exceed 171 counters if enough stocks meet the criteria.” Bursa acting director of securities market Ong Li Lee said.

The FTSE Bursa Malaysia KLCI (FBM KLCI) recorded another all-time high after closing on 1797.74 points on 20th July. The index had also reached an intra-day high of 1800.26.

Bursa Malaysia 2Q net profit soars 45%, posts best 1H results since 2007

Bursa Malaysia announced a 45% rise in its year-on-year 2Q net profits to RM 54.82mn on the back of higher trading value of securities traded. It’s the highest quarterly profit for the bourse since the rally in 2007. Turnover jumped 23% to RM130.35mil from RM105.38mil a year ago, while earnings per share stood at 10.3 sen for the quarter against 7.1 sen previously.

For the period of 1H 2013, Bursa’s net profit surged 19% to RM 93.02mn against RM 78.35mn last year. Revenue gained 11% to RM 240.79mn versus RM 215.24mn, while earnings per share was 17.5 sen against 14.7 sen earlier.

“Bursa Malaysia’s solid performance in 1H13 is due to the stronger performance from our three markets (Securities, Derivatives and Islamic). All three markets recorded high double digit growth in respective traded volumes as a result of increased foreign and retail participation. This performance is a reflection of the local and global interest and confidence in Malaysia’s strong fundamentals. Bursa Malaysia has not seen such momentum in the past six years.” Dato Tajuddin Atan, CEO, Bursa Malaysia said.

PSE offers incentives for ETF market makers

In a bid to promote the introduction of the new asset class in ETFs in the local markets, the PSE has announced a waiver of transaction fees (0.0005% of transaction value normally) for market participants acting as “Market Makers” for the product.

Under the SEC-approved ETF rules, at least one of the designated authorized participants of the ETF should act as a market maker, whose main role is to ensure sufficient liquidity in the market.

“Given that market making is a novel practice in our market, we want to incentivize participants at this point to help encourage more traders to consider being a market maker for ETFs. This is consistent with practices of exchanges in other countries to help promote liquidity in their markets,” PSE president Hans Sicat said.

IDX revises its new listings forecast to 40

The Indonesia Stock Exchange (“IDX”) has increased its forecast for new public offers in the current year to 40 (up from 30 earlier) amid a great rush by local companies to tap the local markets to raise funds. The JCI index had hit record highs in May before the US fed announced plans to ease its asset purchase program.

“24 companies have conducted initial public offerings this year. That has brought the total number of listed companies to 483, with a combined market value of Rp 4,602 trillion ($461 bn). The IDX is encouraging the Indonesian Chamber of Commerce and Industry (Kadin), the Indonesian Young Entrepreneurs Association (Hipmi) and the Indonesian Employers Association (Apindo) to persuade more business owners to list their companies” - Hoesen, a director at IDX, said.

Myanmar to launch stock exchange

Mayanmar has introduced a “Security Exchange Law” to the lower house of parliament and is expecting to launch its own stock exchange shortly once the bill is approved. The Central Bank of Myanmar is cooperating with the Daiwa Institute of Research Group and Japan’s Tokyo Stock Exchange to establish the local bourse. A relevant committee has also been formed in order to ensure a smooth launch for the exchange.

Personnel News

Senior management changes at MAS

The MAS has made a number of changes at the senior management level in an attempt to strengthen its leadership bench. All the changes will be effective from 1st September 2013. “These changes are intended to strengthen our leadership bench, and to bring fresh perspectives to our core areas of work.” Managing Director Ravi Menon said.

Below are the major changes

— Ms Teo Swee Lian, now the deputy managing director (financial supervision), will step down from her current position to become special adviser in the Managing Director’s Office, where she will help MAS play a more active role in international regulatory work.

— Ms Teo will be succeeded by Mr Ong Chong Tee, who will oversee the Banking & Insurance, Capital Markets, and Policy, Risk & Surveillance groups in his new appointment. Mr Ong will relinquish his current roles as deputy managing director (monetary policy & investment) and deputy managing director (financial development).

— Jacqueline Loh will succeed Ong as head of monetary policy and investment, and development and international.

— Andrew Khoo will lead corporate development.

— Edward Robinson, an assistant managing director of economic policy, was named chief economist in addition to his current position.

— Foo-Yap Siew Hong will become assistant managing director, special projects, in the Managing Director’s Office

Sourceswww.channelnewsasia.com

www.sgx.com

www.mas.org

www.reuters.com

www.4-traders.com

www.bangkokpost.com

www.todayonline.com

www.thestar.com

www.online.wsj.com

www.thejakartagloble.com

www.en.acnnewswire.com

www.ft.com

www.biz.thestar.com.my

www.bworldonline.com

www.nationmultimedia.com

www.philstar.com

www.waterstechnology.com

www.btimes.com

www.finextra.com

www.gowealthy.com

www.ibtimes.com


Global Market Structure APAC Quant Analysis Factsheet - July 2013

Below is a selection of quantitative metrics, which provides additional analysis of the markets and liquidity during July 2013. For further information, please contact:

Global Market Structure:email: [email protected]: +44 207 547 4390

MSCI Asia Pacific Ex JP

Taiwan TAIEX Index

FTSE Straits Time Index

NSE S&P CNX Nifty

Hang Seng Composite Index

S&P/ASX 200 Index

Korea SE Kospi 200 Index

Sp

read

(b

ps)

Vo

lati

lity


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


14.0

12.0

10.0

18.0

16.0

20.0

22.0

24.0

26.0

40.0%

35.0%

25.0%

60.0%

65.0%

30.0%

20.0%

50.0%

45.0%

55.0%

Intr

a-In

dex

Co

rrel

atio

n


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


33.0

28.0

3.0

18.0

8.0

13.0

23.0

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

31-J

uly

29-J

uly

30-J

uly

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

23-J

uly

24-J

uly

25-J

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26-J

uly

31-J

uly

29-J

uly

30-J

uly

01-J

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02-J

uly

03-J

uly

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uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

31-J

uly

29-J

uly

30-J

uly

Liquidity

Historical Volatility

The chart below shows the daily index primary spreads on APAC indices during July 2013:

The chart below shows primary volatility of APAC indices during July 2013:


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


Sp

read

(b

ps)

Vo

lati

lity


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


14.0

12.0

10.0

18.0

16.0

20.0

22.0

24.0

26.0

40.0%

35.0%

25.0%

60.0%

65.0%

30.0%

20.0%

50.0%

45.0%

55.0%

Intr

a-In

dex

Co

rrel

atio

n


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


33.0

28.0

3.0

18.0

8.0

13.0

23.0

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

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uly

24-J

uly

25-J

uly

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31-J

uly

29-J

uly

30-J

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02-J

uly

03-J

uly

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uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

31-J

uly

29-J

uly

30-J

uly

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

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23-J

uly

24-J

uly

25-J

uly

26-J

uly

31-J

uly

29-J

uly

30-J

uly

Sources:Deutsche Bank AG estimates and calculations


Quantitative Analysis:email: [email protected]: +44 207 545 3129

27Quant Factsheet Monthly Newsletter

Sector Correlation Matrix

Au

to &

Par

ts

Ban

ks

Bas

ic

Res

.

Ch

emic

al

Co

nst

. &

M

at.

Fin

anci

al

Ser

v.

Foo

d &

B

ev.

Ind

. G

ds

& S

erv.

Med

ia

Oil

& G

as

Per

s.

Go

od

s

Rea

l E

stat

e

Ret

ail

Tech

.

Tele

com

s

Trav

el &

Le

is.

Uti

litie

s

Auto. & Parts

Banks

Basic Res.

Chemicals

Constr. & Mat.

Financial Serv.

Food & Bev.

Ind. Gds & Serv.

Media

Oil & Gas

Pers. Goods

Real Estate

Retail

Technology

Telecoms

Travel & Leis.

Utilities

1M Historical Correlations80-100% 60-80% 25-60% <25%


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


Sp

read

(b

ps)

Vo

lati

lity


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


14.0

12.0

10.0

18.0

16.0

20.0

22.0

24.0

26.0

40.0%

35.0%

25.0%

60.0%

65.0%

30.0%

20.0%

50.0%

45.0%

55.0%

Intr

a-In

dex

Co

rrel

atio

n


Taiwan TAIEX Index


NSE S&P CNX Nifty


S&P/ASX 200 Index


33.0

28.0

3.0

18.0

8.0

13.0

23.0

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

uly

16-J

uly

17-J

uly

18-J

uly

19-J

uly

22-J

uly

23-J

uly

24-J

uly

25-J

uly

26-J

uly

31-J

uly

29-J

uly

30-J

uly

01-J

uly

02-J

uly

03-J

uly

04-J

uly

05-J

uly

08-J

uly

09-J

uly

10-J

uly

11-J

uly

12-J

uly

15-J

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25-J

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31-J

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29-J

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30-J

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29-J

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30-J

uly

Intra-Index Correlation

The chart below shows the correlation of movement within each index, calculated using the index and index constituents volatilities and weights:

The matrix below shows the % correlation of movement between two sectors during the previous month:



100.0% 81.9% 72.0% 84.3% 81.1% 77.3% 81.4% 83.9% 69.3% 81.8% 86.2% 78.2% 76.5% 81.0% 82.0% 78.5% 77.8%81.9% ##### 91.7% 79.1% 90.9% 91.6% 87.8% 90.0% 76.1% 90.2% 91.1% 93.3% 89.1% 87.4% 86.4% 87.6% 90.2%72.0% 91.7% ##### 76.5% 88.0% 89.9% 80.6% 80.8% 75.2% 83.5% 84.6% 89.1% 76.4% 75.8% 77.2% 83.7% 76.0%84.3% 79.1% 76.5% ##### 82.9% 79.3% 82.7% 82.6% 70.6% 82.1% 83.3% 80.3% 78.6% 82.8% 86.6% 67.4% 73.0%81.1% 90.9% 88.0% 82.9% ##### 91.3% 87.7% 86.3% 72.6% 90.3% 93.9% 91.5% 86.3% 86.3% 84.6% 82.6% 87.3%77.3% 91.6% 89.9% 79.3% 91.3%# #### 83.1% 83.0% 82.9% 88.5% 90.1% 88.5% 80.3% 83.5% 83.3% 83.7% 87.8%81.4% 87.8% 80.6% 82.7% 87.7% 83.1% ##### 90.5% 74.6% 84.0% 89.9% 85.9% 89.2% 88.6% 82.2% 82.1% 87.2%83.9% 90.0% 80.8% 82.6% 86.3% 83.0% 90.5% ##### 80.1% 86.0% 87.7% 89.2% 91.2% 88.1% 82.1% 84.7% 86.2%69.3% 76.1% 75.2% 70.6% 72.6% 82.9% 74.6% 80.1%# #### 79.1% 79.0% 79.1% 67.5% 78.7% 72.9% 77.5% 72.8%81.8% 90.2% 83.5% 82.1% 90.3% 88.5% 84.0% 86.0% 79.1% ##### 93.9% 89.2% 84.5% 84.4% 89.9% 81.0% 88.8%86.2% 91.1% 84.6% 83.3% 93.9% 90.1% 89.9% 87.7% 79.0% 93.9% ##### 89.3% 88.4% 88.2% 88.1% 87.5% 90.0%78.2% 93.3% 89.1% 80.3% 91.5% 88.5% 85.9% 89.2% 79.1% 89.2% 89.3% ##### 86.6% 82.3% 88.0% 83.5% 87.9%76.5% 89.1% 76.4% 78.6% 86.3% 80.3% 89.2% 91.2% 67.5% 84.5% 88.4% 86.6% ##### 85.6% 79.8% 78.3% 89.1%81.0% 87.4% 75.8% 82.8% 86.3% 83.5% 88.6% 88.1% 78.7% 84.4% 88.2% 82.3% 85.6% ##### 83.8% 80.7% 84.0%82.0% 86.4% 77.2% 86.6% 84.6% 83.3% 82.2% 82.1% 72.9% 89.9% 88.1% 88.0% 79.8% 83.8% ##### 77.4% 83.2%78.5% 87.6% 83.7% 67.4% 82.6% 83.7% 82.1% 84.7% 77.5% 81.0% 87.5% 83.5% 78.3% 80.7% 77.4% ##### 80.8%77.8% 90.2% 76.0% 73.0% 87.3% 87.8% 87.2% 86.2% 72.8% 88.8% 90.0% 87.9% 89.1% 84.0% 83.2% 80.8% #####

28

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