3 March 2016

ASEAN Exchanges set a new precedent for capital markets integration

New research from the SWIFT Institute highlights the ongoing development and collaboration among the ASEAN Exchanges

Kuala Lumpur, 3 March 2016 – Recently published research by the SWIFT Institute outlines the progress made by the Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – through the ASEAN Exchanges initiative, a collaboration of seven ASEAN-based exchanges aimed at growing the region's capital markets. In particular, the research investigates the challenges surrounding the development of ASEAN Exchanges and potential areas for future development.

The research indicates that while ASEAN has been established as a regional block since 1967, there remains significant disparity in how these institutions embrace regulation, manage day-to-day operations and foster investor education. Still, the members of ASEAN Exchanges have taken a highly fluid and flexible collaborative approach with positive results.

Based on the research, there are three pillars of success, which include:

  • Regular Engagement, but “Loose” Organising Structure
    CEOs of the different ASEAN Exchanges meet every quarter to discuss various issues relating to knowledge sharing and market integration. There are also five working committees focused on technology, regulation, market operations and business development.
     
  • Collective but “Non-Imposing” Governance
    The collaboration in ASEAN Exchanges is also characterized by the constant attempt to achieve consensus among the ASEAN countries. Issues are collectively discussed and debated. There is also substantial respect for the unique context of each country that these decisions are “non-imposing” on each member.
     
  • Gradual and Incremental Operating Model
    Recognising that full harmonization of regulations and business practices across ASEAN (e.g., to change a country’s legislation) would not happen overnight, the evolution of the cross-border trading model is characterized by non-disruptive changes, leveraging existing or outsourced infrastructure. Progress is made by targeting incrementally more difficult components of the overall trading infrastructure.

This approach allows ASEAN Exchanges to have the benefits of implementing a “home rules apply” principle for cross-border linkages (i.e. trading link and the depository linkage via a global custodian) while tackling the institutional disparities. Some institutional disparities such as building up system capabilities and relaxing or harmonising some legal rules have already been successfully eliminated, while other institutional disparities are still in the process of being addressed.

The research recommends that to achieve the full vision of ASEAN Exchanges, attention should not just be focused on bridging the regulative and normative institutional disparities, but should also include the cognitive level to foster investor education and to promote the recognition of ASEAN companies.

"Based on interviews with senior leaders at ASEAN Exchanges, this report gives a good background into the challenges and opportunities that are facing this region.” says Peter Ware, Director of the SWIFT Institute. “Time, flexibility, and continuous nurturing of shared commitment seem to be the key factors in sustaining the development of ASEAN Exchanges going forward.”

This paper was produced by Carol Hsu, Professor in the Department of Information Management at National Taiwan University and Sia Siew Kien, Associate Professor and Director of the Nanyang Business School at Nanyang Technological University for the SWIFT Institute.  

Download a full copy of the research paper.

 

About SWIFT Institute
Launched in April 2012, the SWIFT Institute fosters independent research to extend the understanding of current practices and future needs across the financial industry.  Managed by SWIFT, and working in close collaboration with academics from top international universities, the SWIFT Institute brings the financial industry and academia together to explore ideas and share knowledge on topics of global importance.

The research covers various aspects of transaction banking, including the following areas: Payments, Clearing / Settlement, Cash Management, Trade Finance, Trust and Securities. 

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About SWIFT
SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,800 banking organisations, securities institutions and corporate customers in more than 200 countries and territories. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.

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