Bankable Insights – The Custodian Edition. Spotlight on evolving landscapes
Bankable Insights - The Custodian Edition, is a round-up of latest developments in the Securities Services industry.
*Bankable Insights*The Custodian Edition
Spotlight on evolving landscapes
Managing change and uncertainty is part and parcel of operating in the world’s financial markets, especially in the frontier and emerging markets sectors. At the time of writing this that experience is looking to be very relevant as the COVID-19 virus is spreading further afield, bringing market uncertainty in its wake. At Standard Chartered we are monitoring the situation very carefully, doing our best to ensure the safety of our staff while at the same time keeping our operations and processes running as close to normal as possible.
As many of the industry will already know, with this in mind the decision was made to postpone The Network Forum Africa meeting due to take place in Johannesburg in March.
As with other members of the community – I’m hopeful that we will maintain our engagement with the network throughout the year, finding alternative ways as and when needed.
Technology and the innovation, especially during this unprecedented period continues to be a hot topic. In this issue we take an in-depth look at the opportunities this presents in Africa as well as some of the concepts we see emerging in the digital asset space.
We continue to invest in our footprint and our people and are excited to introduce you to our new Securities Services Head in Nigeria in this edition. We have also recently welcomed Tina Knights as COO for Securities Services, succeeding Kat Rosboch who, after four extremely successful years in the role, moves on to a new challenge within the Bank. Tina, who is based in Singapore, has more than 20 years’ experience in operations and technology across global markets, where she has pioneered the use of emerging technologies to transform approaches to process re-engineering and operational support models. With Tina overseeing Operations, the backbone of our Securities Services organisation, we will continue to deliver the best outcomes for our clients and our business.
Emerging markets remain an important focus for global investors and we were honoured to recently receive a record 29 out of 30 possible accreditations in the Global Custodian Agent Banks in Emerging Markets 2019 Survey. Thank you for taking the time to participate in the survey and for rating us as your favoured provider in mainland China, India, Indonesia, Malaysia, Pakistan, Philippines, Qatar, Taiwan, Thailand and the United Arab Emirates. The awards are especially timely for Thailand, which has shown remarkable progress in its social and economic development in recent years and has a promising long-term growth outlook. We take a closer look at the country in this issue.
I hope you enjoy this edition of The Custodian. As always, if you have any feedback to share, we are eager to hear from you.
Margaret Harwood-Jones
Global Head Securities Services
<Br><Br>Innovation a catalyst
for investment in Africa
Innovation a catalyst for investment in Africa
The Africa region provides many opportunities for new technologies to grow and shine. In Africa, mobile penetration is much higher than internet penetration. As such, technology changes have been typically driven by the retail segment instead of corporates.
Mobile network operators have become disruptors to traditional financial services, leveraging partnerships with fintechs and other micro-financial institutions.
Changes driven by fintech companies are often perceived as a threat to traditional financial service providers where new innovative business models are evolved. However, at Standard Chartered, we welcome such changes especially in markets where we are looking at an unprecedented opportunity to provide efficient access to financial services particularly to the unbanked or underbanked populations.
The way forward
Traditional banking institutions need to continue to transform in order to compete in a meaningful manner, leveraging on the success of innovation in the retail space.
For example, the use of data analytics and APIs are important areas in which to build new capabilities and products for distributing financial services in Africa via mobile networks.
Looking at the trend of digital transformation globally, market participants such as banks, securities exchanges and regulators around the world are also experimenting and moving to blockchains, APIs, data analytics and machine learning. It is therefore essential to be ready to handle upcoming changes in the communication infrastructure with clients, market participants and infrastructure providers.
At Standard Chartered, we are constantly investing in new technologies and products which could enhance our offerings to clients in Africa. For example, we have created a blockchain bridge to translate messages between different blockchain technologies to allow interoperability and facilitate atomic swaps of tokens across different blockchains. If an asset can be traded against any other asset or currency in their digital form, we are well placed to enable such transactions.
Besides exploring new technologies, we are contributing in two ways to the fintech ecosystem:
- We see fintech companies as our partners. We have built mutually beneficial partnerships which can enhance our product offerings and bring more value to our clients.
- We support fintech companies through investments and sharing of industry experience to better understand client requirements.
Given our involvement in the Africa financial industry, we are exposed to a huge set of data on the ground. Utilising the data responsibly and sharing industry insights with fintech companies ultimately allows for improved products and services for clients.
Banks and fintech companies must leverage on each other’s strengths to stay ahead. For example, the nimbleness of fintech companies, the trust clients have in banks, and the data which established banks have can work hand-in-hand to create products and services quickly and efficiently. Going forward, we expect more collaboration between banks and fintechs to create new commercial models which can give us unique advantages when it comes to addressing the evolving client needs.
Given our involvement in the Africa financial industry, we are exposed to a huge set of data on the ground.
Improving accessibility
APIs have grown to be one of the most important channels for client communication and an important enabler for open banking. Ecosystem orchestration is about bringing the best and most efficient products and services to our clients, be it coming from Standard Chartered directly or via one of our partners. Our open banking strategy also allows us to collaborate more closely with our partners to develop new products and services.
Looking outside the financial industry, big tech companies have huge API stores published for external parties to use. Their API stores lead to positive network effects in terms of getting more clients and revenue. Standard Chartered has a suite of APIs which can allow clients or partners to get responses from us easily and enable faster integration between clients and the bank for transactions and reporting.
We are working very closely with clients to develop our APIs and have published several APIs on our API store including: settlement status, portfolio holdings, market news and funds reporting services. The Standard Chartered API gateway is integrated to our Enterprise Data Business. We also have a sandbox internally for third-party developers to experiment with. Having a sandbox is an essential step in encouraging clients and partners to use our APIs.
As a result of the growth of APIs across the industry, SWIFT has been very active in promoting ISO20022 as an API standard for consistency and scalability. They are also creating an API platform for banks to publish their APIs. Banks are increasingly adopting industry standards which are most likely to have a high take-up rate, as such at Standard Chartered, our APIs are mainly based on ISO20022 schema.
Standard Chartered has a suite of APIs which can allow clients or partners to get responses from us easily and enable faster integration between clients and the bank for transactions and reporting.
As part of the Bank’s innovation journey, we are constantly exploring internally for routine, repetitive and rule-based processes to be candidates for robotic process automation.
Examples of such automation developments include improvements made to capability in optical character recognition and straight through processing abilities including automatic FX.
Of course, automation is only possible if we can make sense of the data collected across daily activities. Rapid advancement in new technologies for data analytics and artificial intelligence are creating many performance enhancement and productivity efficiency opportunities while enabling the emergence of new operating and business models.
Advancement in technologies and automation will result in greater stress on transaction services fees and traditional custody fees. We need to continue to develop new business models to stay relevant and continue to make a difference in the post-trade space.
Big data, data analytics, AI and machine learning are closely integrated and the ability to convert raw data to enriched, economic data to cover market investor behaviour, risk analytics and regulatory obligations will be a differentiator.
At Standard Chartered, we are collecting data from both internal and external sources for data lakes and facilitating data consumption by clients and partners. We have also created a comprehensive data dashboard which is integrated directly with our data lake to offer a suite of widgets covering a 360-degree view of our clients and our markets.
We are engaged in data experiments to discover new information, for example, we have completed a detailed data analysis on MT599, a free format SWIFT message which requires manual processing and that enables us to identify areas of investment to improve efficiency and conduct data-driven conversations with clients for their cost savings and process improvement. Data-as-a-Service made available via our APIs and other channels will drive our client servicing capabilities to the next level.
We have our own strategic view of what our future will look like in 10 years and what we can do to continue to stay relevant. Collaboration with fintech companies and market participants, and investments in emerging technologies and innovative solutions are part of our answer to what we envision our role in Africa to be in terms of providing better and faster financial services to delight our clients.
<BR><BR>A new era of tokenisation
A new era of tokenisation
Despite their relative infancy and lack of measurable track record, digital assets – whereby asset ownership is denoted as a tokenised security on a blockchain – are beginning to accumulate interest from investors.
As the return opportunities becomes increasingly sparse owing to continued low interest rates, geopolitical instability and macro volatility, institutional investors are looking for ways to obtain new sources of alpha.
Digital assets – widening the private market universe
According to Alexandre Kech, CEO at Onchain Custodian, tokenisation’s impact will be felt initially in private markets (i.e. private equity, real estate) where the investment lifecycle continues to be inefficient, especially as transactions are often conducted bilaterally. These complex processes could be simplified and made more transparent if illiquid assets were tokenised with details recorded on a blockchain, and their behaviour administered via smart contracts. By digitalising illiquid instruments, they can be fractionalised more easily1, which could also help expand investor breadth and boost trading volumes, said Kech.
1 R3 (July 23, 2019) Asset fractionalisation: What, why and the future?
A new market infrastructure ecosystem
Ryan Cuthbertson, Head of Product Management, Securities Services at Standard Chartered, acknowledged that markets such as Switzerland were widely considered to be among the leaders in digital asset issuance and trading. And yet Asia Pacific stock exchanges and post-trade providers are also making progress, he added. For instance, the Stock Exchange of Thailand (SET) has confirmed it’s looking to build a digital assets platform which it intends to launch in 20202. In Singapore, government agencies are also embracing digital assets. In November 2018, the Monetary Authority of Singapore (MAS) granted a recognised market operator license (RMO) to 1exchange, a provider that supports the trading of digital tokens – and counts Singapore Exchange (SGX) as one of its investors3.
In Singapore, government agencies are also embracing digital assets. In November 2018, the Monetary Authority of Singapore (MAS) granted a recognised market operator license (RMO) to 1exchange, a provider that supports the trading of digital tokens – and counts Singapore Exchange (SGX) as one of its investors.
2 Coin Desk (May 14, 2019) Thai Stock Exchange building digital assets platform for 2020 launch
3 Coin Desk (September 6, 2019) The state of security token regulations in Asia
Navigating in an
unchartered terrain
The lack of harmonised regulation interspersed with the absence of a comprehensive taxonomy articulating what digital assets are is an ongoing problem. Such issues could potentially block wider adoption of these instruments, conceded Cuthbertson. “Regulators have yet to come up with a robust definition of what digital assets actually are and this needs to be resolved. It’s also not known who will supervise these digital assets. We are still a long way from a definition,” he added.
However, progress is being made in the Asia Pacific region. Some regulators, including Singapore’s MAS and the Hong Kong Securities and Futures Commission (SFC) have produced guidance on digital assets – and Thailand has even introduced its own legislation. Meanwhile, the People’s Bank of China (PBOC) – despite adopting a fairly staunch position on crypto-activities amid legitimate concerns of fraud – is currently developing a digital currency.
Kech said regulators should take a proportionate approach towards supervising digital assets, and that proper oversight is integral to the institutionalisation of digital assets. He added, however, his unease that a handful of jurisdictions are introducing requirements that are going over and beyond their existing securities laws.
Some regulators, including Singapore’s MAS and the Hong Kong Securities and Futures Commission (SFC) have produced guidance on digital assets – and Thailand has even introduced its own legislation.
Standardising digital assets
The industry accepts standardisation is pivotal to the success of digital assets, especially in areas such as asset safekeeping and settlement, and it’s an issue that International Securities Services Association (ISSA) has opined on. ISSA said it was essential for tokenised platforms to be able to co-exist and interoperate with the existing securities market ecosystem if digital asset issuance, capital raising, and investing is to flourish4. ISSA added that industry-wide collaboration would be instrumental in driving standards for digital assets, advising post-trade providers to leverage the ISO 20022 as a foundational starting point5.
“The absence of regulatory harmonisation is a problem now because it could potentially result in arbitrages across different markets in terms of their treatment of digital assets,” said Cuthbertson. “Industry standards are currently not the most pressing concern because digital assets are not operating at scale. Once these instruments acquire critical mass, standards will be key to enabling digital interoperability,” he added.
The industry accepts standardisation is pivotal to the success of digital assets, especially in areas such as asset safekeeping and settlement, and it’s an issue that International Securities Services Association (ISSA) has opined on.
4 ISSA (November 2019) Crypto-assets: Moving from theory to practice
5 ISSA (November 2019) Crypto-assets: Moving from theory to practice
Servicing digital assets
As more investors begin to increasingly use digital assets for trading purposes, custodians will need to develop solutions to support their requirements, and this is something Standard Chartered is actively exploring. “We believe that – owing to our sizeable balance sheet strength and ability to meet liabilities should things go awry – providers such as ourselves are in a strong position to support clients with digital asset servicing,” said Cuthbertson.
In 2020, it’s likely that there will be greater collaboration between regulators and market participants in creating an ecosystem to facilitate tokenisation of financial assets – via digital tokens leveraging distributed ledger technology (DLT) or blockchain. Regulators will come up with best practices and standards on the issuance and use of global stablecoins, securities token, and central bank digital currencies.
Where are regulations currently with regards to tokenisation?
In general, the securities laws of many countries were established prior to the advent or introduction of tokenisation, utilising blockchain or distributed ledger technology. Some jurisdictions – such as Switzerland, United States, United Kingdom, Germany, France, Netherlands, Singapore, Thailand and Hong Kong – have progressed further than others in analysing existing regulations and supplementing them to facilitate the legal framework for tokenisation. At a global level, the regulations with respect to tokenisation (which in this case, envisages the issuance or use of digital assets) require greater supervisory convergence to help realise full potential and address the following challenges:
- Inconsistent regulation: Classification of the underlying products varies from unregulated to regulated, resulting in unequal or sometimes duplicative application of laws and regulations between jurisdictions. This has made it difficult for issuer and market participants to conduct tokenisation activities, due to the uncertainty around legal classification, treatment and attendant applications of certain laws and regulations in the relevant jurisdiction.
- Regulatory application: In some jurisdictions, existing regulations are lagging and therefore not suited to facilitate tokenisation. Such regulatory gaps create ambiguity as to the legal certainty or settlement finality of transactions.
<BR><BR>Experts brace for LIBOR day
Experts brace for LIBOR day
The way banks charge each other interest is set to change – creating a multi-trillion-dollar challenge for markets.
Called variously ‘bigger than Brexit’ or ‘the largest banking challenge you’ve never heard of’, one thing is certain; regulators have specified that the London Interbank Offered Rate (LIBOR) will cease to exist after 2021-end.
LIBOR is estimated to underpin USD340 trillion in financial contracts and has held sway over the interest rates banks charge each other for short-term unsecured loans for decades.
During the 2007-2008 financial crisis, however, LIBOR began to behave in an unexpected manner compared to other market benchmarks. The UK and US regulators and prosecutors scrutinised the benchmark and how it was calculated, ultimately concluding that it was subject to manipulation.
This ‘LIBOR scandal’ sparked calls for deeper reform of the entire LIBOR system as regulators remained concerned that LIBOR was not a reliable benchmark given the relative lack of underlying transactions in the interbank lending market that LIBOR was meant to measure.
The industry now seeks a wholesale move to so-called risk-free rates (RFRs) anchored in actual transactions – with the preferred RFRs for the affected LIBOR currencies already identified by industry working groups.
Where RFRs had previously lacked volume, the industry as a whole is now evolving to offer viable alternatives to the IBORs (interbank offered rates) in a post-LIBOR world, according to the Bank of International Settlements1.
For banks, institutional investors and corporates, however, transition issues loom large, requiring resources in terms of manpower, money and cogent action plans.
Indifference is not an option
The most pressing concern is the migration of legacy LIBOR-linked exposures to the new benchmarks when LIBOR publication ceases after 2021.
Trillions of dollars of legacy contracts will still be outstanding at that time and the results of not constructing adequate fallbacks in LIBOR-referencing contracts is potentially catastrophic.
As 2020 progresses, floating-rate note (FRN) issuers and investors are increasingly being urged to transition away from LIBOR-linked benchmarks towards the use of alternative RFRs in their new contracts – and to ensure their legacy contracts include sufficiently-robust fall-back language. This is to avoid the risk of their FRNs converting to fixed rates in the event of a permanent cessation of LIBOR, with the potential to create losses for the unwary and equally huge windfalls for others.
The scale of the transition is largely underestimated. It's probably one of the biggest impacts in financial markets for decades, and I don't think that the market quite appreciates that.”
Andrew Dixon-Smith, Head of Legal, Global & Commercial Banking, Standard Chartered
Transition phase
For John Ho, Standard Chartered’s Head of Legal, Financial Markets, corporates and banks need to realise that the changes will go beyond simply redrafting contracts.
It's not just a repapering exercise, it's a wholesale change in respect to the way you price trade, to the way you structure, market or book trades.”
John Ho, Head of Legal, Financial Markets,
Standard Chartered
In September 2019, the Alternative Reference Rates Committee (ARRC) released a practical implementation checklist to help market participants transition away from USD LIBOR to using the SOFR. The checklist covers 10 key areas where action is needed in order for impacted firms to prepare for the transition to SOFR. These include governance, communications, risk management, contract remediation, and operational readiness.
When it comes to bank preparation, it’s as much about helping clients as it is about their own impact analysis. According to Dixon-Smith it’s incumbent on banks and their clients to keep the dialogue open and moving.
Worryingly for many banks, contracts that require term rates are still being referenced to LIBOR. At the root of the problem is that while RFRs have a solid past based on actual transactions, they are overnight rates whereas LIBOR is published across a number of maturity periods. Unlike LIBOR, RFRs do not contain an embedded term or credit risk premium.
In contrast, a significant volume of cash products such as loans linked to LIBOR have forward-looking term rates, meaning borrowers have certainty over their future liabilities and can manage cash flows more easily.
While certain currency jurisdictions are working on forward-looking term rates, it is not certain that these will be developed before the end of 2021. According to Ho, global regulators have urged market participants to press on with LIBOR transition without waiting for these term rates to arrive.
Such benchmark reform is sure to create an administrational load as LIBOR’s demise draws near. While there are some that may be hoping benchmark headaches will be regulated out of existence by the time LIBOR is dead and buried, analysts say it’s a misplaced hope.
“I think it’s better to make appropriate proactive plans than to wait and see,” said Ho. “Transition will require mobilisation of significant resources to phase out of LIBOR and no one will want to be left hanging.
“The key message is that people need to start thinking about this, what it means for their organisation and to have a clear plan of action across a range of touchpoints. Firms with LIBOR exposure should fully understand their exposures and risks, seek to reduce reliance on LIBOR and engage in transition efforts.”
Given the degree of risk arising from the continued reliance on LIBOR, market participants should expect increasing regulatory scrutiny of their transition efforts as the end of 2021 approaches.
Firms with LIBOR exposure should fully understand their exposures and risks, seek to reduce reliance on LIBOR and engage in transition efforts.”
John Ho, Head of Legal, Financial Markets,
Standard Chartered
<BR><BR>Market access:
Nigeria
Kedu… Sannu… Bawo ni Nigeria
Nigeria is the largest economy in Africa and Nigeria’s capital markets are ranked third after South Africa and Mauritius1. Typically, market access is measured by both the breadth of issuers able to meet their funding needs in capital markets and the existence of instruments that transfer risk from debtors to creditors2.
Both these dimensions have been policy priorities in Nigeria in recent years and as a result of on-going efforts to improve the attractiveness of the market, both local and foreign portfolio investors in Nigeria have access to investments in equities, corporate bonds, government bonds, foreign exchange swaps, currency futures, climate aligned bonds, exchange traded funds, and options. Derivatives are largely traded on a bilateral basis between international banks and major Nigerian banks.
Regulatory environment
A mature and robust regulatory environment supports this product diversity. The Investments and Securities Act, 2007 (ISA) is the primary legislative instrument in the securities services regulatory framework and among other arrangements, it makes provision for the establishment of the Securities and Exchange Commission (SEC). The SEC is the main regulatory organ of the Nigerian capital market and was responsible for the Securities and Exchange Commission Rules and Regulation, 2013 – considered the market’s ‘bible’. To the extent that these companies and corporate bodies are participants in Nigeria’s capital market, The Companies and Allied Matters Act (CAMA) is the next significant legislative instrument of reference in Nigeria.
1 Absa Africa Financial Markets Index 2019
2 Bank of International Settlements Committee on the Global Financial System Papers No 62 Establishing viable capital markets
Foreign investor participation
Foreign investment in the Nigerian capital market enjoys the same regulatory treatment afforded to local investment. Foreign issuers are permitted to issue, sell or offer for sale or subscription, securities to the public through the Nigerian capital market. Securities may be denominated in naira or any convertible foreign currency3.
The SEC has the discretion to exempt foreign issuers from certain securities registration obligations under the SEC rules if it is “in the public interest” and where reciprocal agreements exist between Nigeria and the country of the issuer, or the issuer’s country is a member of the International Organisation of Securities Commissions4.
New Nigerian Stock Exchange (NSE) Rules allow foreign issuers to apply for the listing of their sukuk and debt securities on the NSE. The SEC Rules require portfolio investors to appoint a custodian and to file a copy of the letter of appointment of the custodian with the SEC within 10 working days of making the appointment5.
3 SEC Rules, Rule 414
4 SEC Rules, Rule 416
5 SEC Rules, Rule 409
Access to foreign exchange
Nigeria maintains a floating exchange rate and foreign exchange transactions are regulated by both statute and the Central Bank of Nigeria through regulations, circulars and directives including the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 12 (the FEMM Act) and the Foreign Exchange Manual (the FX Manual). There are no regulatory restrictions on foreign investment in the capital market, however, a foreign investor must ensure that foreign currency inflows are imported through an authorised dealer. The FX Manual also permits authorised dealers to issue an electronic certificate of capital importation (eCCI) to the investor. The eCCI guarantees “unconditional transferability of funds, through an authorised dealer in freely convertible currency, relating to dividends or profits (net of taxes) attributable to the investment”. Foreign investors may also use local currency balances to purchase foreign currency from the Nigerian Autonomous Foreign Exchange Market and this can be freely repatriated from Nigeria without any further approval.
General considerations
The Nigerian capital market offers strong investment performance by regional standards and its ability to attract foreign portfolio investors relies on, in addition to above stated considerations: Nigeria’s tax system, which has performed well in encouraging and facilitating financial market development6, the robust account structures, and the use of key financial master agreements such as ISDA, GMRA and GMSLA, which are all recognised in Nigeria.
6 Absa Africa Financial Markets Index 2019
400%
Oversubscription of Nigeria’s first 30-year government bond issued in 2019
14
ratified tax treaties and
6 in the pipeline
USD290 mn7
average daily turnover of horizontal repos
50.87%
Contribution of foreign portfolio investments to total transactions on NSE
56%
Contribution of institutional investments to total transactions on NSE
20%
Net portfolio investments to foreign exchange reserves
7 Absa Africa Financial Markets Index 2019
Our view – current highs and lows
Improvement in access to foreign exchange
- Nigeria has moved towards unifying its various exchange rates, bringing its foreign exchange fixing rate (the rate at which it sells dollars to certain local companies) closer to the Nigerian autonomous foreign exchange fixing rate used by foreign bond and stock investors.
- In 2018, Nigeria signed a currency swap agreement with the People’s Republic of China, its second largest trading partner, to increase trade and ease pressure on the naira-dollar rate by reducing Nigerian importers’ reliance on dollar transactions. This is also expected to improve foreign exchange availability in the market.
Focus on product diversity
The Nigerian Government has pioneered the issuance of new products in the market since late 2017. These include:
- Nigeria is one of the leaders in the continent with 3 issues of sovereign sukuk bond issued between 2017 and 20198.
- A five-year NGN10.69 billion sovereign green bond (SGB), which is the world’s-first Climate Bonds Certified sovereign bond issued in December 2017, Nigeria’s second green bond issue was also oversubscribed at 220 per cent.
- In 2019, the NSE and the Luxembourg Stock Exchange (LuxSE) agreed to cooperate in promoting cross listing and trading of green bonds in Nigeria and Luxembourg.
- SEC and the NSE have also proposed different rules to guide the trading of derivatives. While the NSE’s rules will govern trading of derivatives on the NSE, the SEC rules will govern both OTC-traded derivatives and exchange-traded derivatives.
- In May 2018, the Senate of the National Assembly passed the Companies and Allied Matters Bill (the Companies Bill), which seeks to amend the CAMA. The Companies Bill includes provisions on the validity of netting arrangements in certain contracts, including derivative contracts.
8 Central Bank of Nigeria, Financial Markets Department Half Year Activity Report 2019
Restrictions
-
Nigeria has lagged in respect of the quality of insolvency laws, the efficiency of bankruptcy and reorganisation processes, the time and cost of resolution, and the recovery rate for claimants9.
- Multiple exchange rate reporting requirements weakens Nigeria’s investment posture, but this situation is improving10.
- The exclusion of local banks from buying government bills at an open market auction in July 2019 to encourage banks to lend more to the private sector has had unintended adverse effects on the market.
- The uneven application of ISIN codes on exchange-traded financial instruments has created administrative and record-keeping challenges for portfolio investors and custodians.
9 IMF Ease of Doing Business 2019
10 Absa Africa Financial Markets Index 2019
Supporting clients in Nigeria
Standard Chartered opened its Nigerian Securities Services business in 2011, and in six years has grown its market share to 18 per cent becoming the second largest custodian in the country. In a market where there are six custodians, this represents a definitive confidence in our brand name and capability.
Introducing Adeyemi Odubiyi, Head of Securities Services, Nigeria
Adeyemi joined Standard Chartered in late 2019 with more than 12 years of experience in Securities Services. In addition to his role at the Bank he is also Chairperson for the sub-committee under the Association of Assets Custodian of Nigeria (AACN), and a key member of The Certificate of Capital Importation Dematerialisation project (ECCI) during the launch of securities lending In Nigeria.
Adeyemi is part of a team of specialists in sales, product management, client management, operations, relationship management and risk management, blending local market expertise and experience with the global capability. Market intelligence and advocacy is central to servicing clients in the Nigerian market and Standard Chartered is a market leader in Nigeria in lobbying the Nigerian market to achieve best practice globally. The bank is currently the General Secretary of the Association of Assets Custodians of Nigeria (AACN).
<BR><BR>Understanding
Thailand
Over the past four decades, Thailand has made remarkable progress in its social and economic development. The country posted an average 7 per cent rise in gross domestic product (GDP) annually during its biggest growth period from 1985 to 1995. In 2018, Thailand achieved its most robust economic growth in six years, posting a 4.1 per cent increase for the year.
Thailand has also seen a steady development of its capital markets in recent decades. To remain competitive and relevant in the age of disruption, Thai market regulators have been proactive in efforts to drive innovation in the market.
As Thailand’s economy evolves, the country is seeking new ways to maintain growth momentum amid shifting paradigms in business, shaped by digital disruption. In 2017, the Thai government launched a transformation strategy – known as Thailand 4.0 – which focuses on high-tech industries and innovation.
Under the auspices of Thailand 4.0, the capital markets sector is slated to undergo changes. Although the capital markets sector is not a strategic industry under Thailand 4.0, it’s still expected to benefit from increased use of financial technology (fintech).
In 2017, the Thai government launched a transformation strategy – known as Thailand 4.0 – which focuses on high-tech industries and innovation.
For instance, the fintech wave has led to the advent of new business models and solutions, such as equity crowdfunding in Thailand. In May 2018, the Stock Exchange of Thailand (SET) launched the Launchpad and Investment Vehicle for Enterprises (LiVE) platform as a crowdfunding market. LiVE uses blockchain, which represents one type of distributed ledger technology (DLT), to offer growth opportunities to start-ups. The platform provides crowdfunding for such businesses, allowing them to utilise it to reach a wider audience and expand customer bases, sourcing support from both the public and private sectors.
Thai market regulators have shown interest in digitisation and the new ways it could create efficiencies and deliver value to Thailand’s capital markets and investors. For example, the SET is set to introduce its Digital Gateway to the National Digital ID (NDID) platform by mid-2020. The NDID platform, Thailand’s first and only blockchain-based system, is a government-led initiative to enable non-face-to-face authentication and verification of clients using various financial and government services. FundConnext, SET’s mutual fund distribution platform, is integrated with NDID platform to support electronic account opening.
Like other leading stock exchanges around the world, SET is also keen to use emerging technologies like DLT to achieve operational efficiency and identify new growth opportunities.
Thai market regulators have shown interest in digitisation and the new ways it could create efficiencies and deliver value to Thailand’s capital markets and investors.
Thailand market in numbers
Our view – current highs and lows
Highs
Thailand has been the most liquid market in the Association of Southeast Asian Nations (ASEAN) region since 2012 and has the highest number of listed companies selected for inclusion in the Morgan Stanley Capital International (MSCI) Standard Index in ASEAN. In 2018, Thailand launched its first depositary receipt, with an underlying asset as an exchange-traded fund that invests in VN30 index, which tracks performance of the top 30 large-cap Vietnamese stocks. To keep up with emerging technologies, SET has also enhanced existing capital market infrastructure and digitised processes to better serve market participants.
In early 2019, Thailand announced plans to build a digital asset exchange, and its decision to apply for a digital asset operating license. This comes as no surprise as DLT and asset tokenisation continue to drive a new wave of innovation worldwide. The country is keen to be one of the early movers in providing a digital-asset ecosystem to enable investors to tap into the new tokenised assets.
Lows
Thailand was the first country in the ASEAN region to enact legislation regulating the offering of digital assets and business undertaking digital asset-related activities.
In May 2018, Thailand’s Securities and Exchange Commission (SEC) published two Emergency Decrees to enact the law and regulations related to digital asset business operations and Thai tax ramifications on certain income earned from digital assets. While there are still unanswered questions and ambiguities in the existing regulatory
framework – such as which custody requirements are applicable to digital assets – any move towards clearer guidelines is a step in the right direction.
Thailand is expected to continue working with the industry to keep up with technological innovation and introduce robust regulations which strike a balance between legislating for investor protection and encouraging innovation.
In November 2019, the SEC announced plans to amend the decree on digital asset businesses.
The move is aimed at facilitating the growth of digital assets while shielding investors from unnecessary risk.
The regulator is examining the royal decree to determine if there are aspects of it that could hinder the development of digital asset businesses.
Thailand is expected to continue working with the industry to keep up with technological innovation and introduce robust regulations which strike a balance between legislating for investor protection and encouraging innovation.
Supporting clients in Thailand
According to statistics from World Federation of Exchanges, market capitalisation in Thailand increased by approximately 29 per cent from the end of 2015 to 2018. As of June 2019, SET ranked second in the region with a market capitalisation of around USD574 billion; which is a 15 per cent increase from end of 2018. The SET Index at end-June 2019 increased 6.8 per cent from the previous month and 10.6 per cent from end-2018 to 1,730.34 points. SET was the best performer in the region.
In 2018, Thailand raised about USD2.46 billion of funds. It came second in the region and accounted for 27 per cent of total funds raised in 2018. In 2019, Thailand accounted for 39 per cent of the total funds raised through initial public offerings (IPOs) in the region. The SET netted USD2.63 billion in IPO proceeds as of 15 November 2019, making it the top performer in Southeast Asia. Apart from positive market sentiments, the Thai bourse’s high liquidity helps to attract more IPO listings.
All these positive developments coupled with other initiatives – such as local market regulators collaborating on a regulatory reform to modernise regulations and eliminate duplicate processes – enhance the overall attractiveness of Thailand’s capital markets. Thailand’s growth is expected to continue and accelerate in years to come – it’s important for foreign investors to have a trusted partner who has deep expertise and insights on the local market.
Standard Chartered is the largest market clearer in Thailand and has extensive involvement in shaping and accelerating the process of change in Thailand’s capital market infrastructure. Standard Chartered is a key market participant in Thailand and provides a comprehensive, integrated custody offering across Asia, Africa and the Middle East, thereby enabling clients to benefit from the consistency and connectivity of its network.
<BR><BR>Explore other
Bankable Insights
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Financial Institutions Edition. The year ahead.
