Harmonisation and integration:
Keys to empowering emerging capital markets
Capital markets boost economies in crucial ways, including by allowing issuers to raise affordable capital at scale, and ensuring domestic savers can access short- and long-term wealth expansion opportunities beyond just physical assets and bank accounts. And although the journey from local origins to global success for emerging capital markets doesn’t follow a one-size-fits-all script, there are useful lessons to be learned from the array of strategies and initiatives underway in various emerging markets.
The quest for harmonisation and best practices
The varied market conventions for clearing and settlement in Asian markets is a good example of the need for harmonisation in emerging markets. For instance, Taiwan requires firms to pre-match their trades for full delivery stocks, Singapore operates on a single settlement cycle whereas China offers T+0 for A shares and longer cycles for other asset classes. India has rolled out T+1 and will soon introduce T+0 , while other emerging markets in the region continue to operate on a T+2 basis.
Given such and other regulatory disparities in the developing world, it’s unlikely we will see an emerging market version of the EU, with its single currency and its TARGET2-Securities settlement platform. It is instead far more realistic that they will follow a path characterised by the adoption of international standards and best practices, driven mainly by healthy competition between emerging markets to ease market access and attract investor funds, as well as meet client demands for greater harmonisation. The rise of digital assets and tokenisation, together with accompanying regulatory frameworks and innovation sandboxes in markets such as Hong Kong, Singapore and Dubai, is expected to pave the way for greater reference, adoption, and momentum in this new asset class, with other markets.
Harmonisation will likely cover three areas. The first area is vertical harmonisation from exchange to depository, with best practices, such as central counterparty (CCP) clearing arrangements, adopted from various countries and regions.
One example is the Abu Dhabi Securities Exchange’s Tabadul Hub. This platform, which was launched in 2022 and is the region’s first digital exchange network, is based on the mutual market access model that allows trading between member exchanges regionally and globally.
Another is the Africa Exchanges Linkage Project (AELP), which seeks the integration of capital markets and exchanges across the continent. To date, the AELP connects nine exchanges across Africa – including in South Africa, Nigeria and Egypt – facilitating the cross-border trading of securities. While such regional efforts are in their infancy, the direction of travel is positive.
The second area is to simplify documentation requirements for foreign investors at market entry. This is key, because it can create a significant burden for investors seeking to accessing as a market. For example, in the Gulf Cooperation Council (GCC) bloc, the documentation needed to open a bank account in Oman differs significantly from what Saudi Arabia requires.
Efforts are underway to address this problem as the region is working towards both simplification and harmonisation with a policy debate underway between nations about whether to share a single KYC utility or to establish a single national investor number for Gulf Cooperation Council nationals (with the former garnering the support of the majority). In either event, both options are strong drivers of harmonisation and simplification at the capital markets level.
In Asia, China, India and the Philippines stand out for their access simplification initiatives:
The China Interbank Bond Market (CIBM), for instance, has created additional channels for offshore investors to access its bond market.
In India, the Securities and Exchange Board of India (SEBI) has a dedicated access team and digitalised account-opening documents to ease registration for foreign portfolio investors.
And in the Philippines, the central bank’s registration process was simplified with the issuance of an electronic ID rather than requiring a physical equivalent.
The third area is to standardise and automate processes in the value chain for settlements, corporate actions and fundings – an area in which Standard Chartered has seen progressive improvements. Before the pandemic, some markets were issuing dividend and income cheques; today, Standard Chartered is pressing ahead to implement same-day automated distribution of dividends and income in Asia, Africa and Middle East.
Enabling growth in emerging markets
As a provider of services across multiple jurisdictions, institutions like Standard Chartered also play a key role in harmonising the disparate operating environments global clients are likely to find in emerging markets. This can take the form of advocating for the simplification of market-entry documentation or standardising the nuances in data reporting and funding optimization.
For instance, solutions like compiling 40 different data sets into one harmonised, easy-to-digest compendium or standardising the classification of traditional and digital asset classes can help smooth client operations in the markets they choose to operate in. And as digital assets become more prevalent – demand for overall tokenised assets is expected to reach USD30.1 trillion by 2034 – putting the infrastructure in place to ensure interoperability between traditional and digital asset classes will help solve the current problems of fragmented technology platforms and regulatory frameworks.
Additionally, it’s crucial to address the growing demand from clients – particularly in the buy-side space – for comprehensive and secure strategies, as well as increased operational support including outsourcing, to handle real-time and value-add data. Yet another area where providers like Standard Chartered are working to provide value to clients in emerging capital markets is by developing deeper partnerships with fintechs to transform the effectiveness of traditional services like custodians to serve a rapidly evolving space.
Identifying future growth opportunities
Our presence in numerous emerging markets around the world offers us a front-row seat where we have been able to observe and analyse the relative effectiveness of regulatory approaches and practical interventions to develop capital markets. It is these observations and learnings that Standard Chartered brings to our interactions and product solutions, and that enable us to identify potential for future growth.
As more emerging markets look to integrate their capital markets into the global financial system, those that succeed to the fullest extent will be the nations that apply the lessons that have been shown to work elsewhere: harmonising their approaches, working cooperatively with others, applying best practices aimed at satisfying evolving customer demands, and aligning their regulatory frameworks with international standards.
