At the 13th ASEAN Summit in Singapore, the ASEAN leaders jointly adopted the ASEAN Economic Community Blueprint 2015 (AEC Blueprint), with the goal of establishing ASEAN as a single market and production base, with free flow of goods, services, investments and skilled labor, and freer flow of capital. The AEC Blueprint also sets out a broad general framework to strengthen ASEAN capital market development and integration by 2015.
To achieve the objectives of the AEC Blueprint 2015, the ASEAN Capital Markets Forum (ACMF) proposed to develop an Implementation Plan to Promote the Development of an Integrated ASEAN Capital Market (Implementation Plan). The Implementation Plan proposal was approved by the ASEAN Finance Ministers at the 12th ASEAN Finance Ministers’ Meeting (AFMM) in Danang, Vietnam in April 2008. The Plan was subsequently endorsed by the ASEAN Finance Ministers at the 13th AFMM in Pattaya, Thailand in April 2009.
Rationale for regional capital markets integration
The rationale for regional capital markets integration is to improve the competitiveness of the ASEAN capital markets in the global arena. At the same time, capital markets integration will reduce the risks of marginalization as individual markets in ASEAN may be too small with limited range of products and services, which lessen competitiveness of ASEAN capital markets individually as compared to the more developed markets. Furthermore, an integrated ASEAN capital market will likely lead to increased visibility and attractiveness in the global arena.
Regional integration also leads to improved levels of market efficiency and expanded investment choices for local investors and issuers. Investors will have access to a wider variety of products which would allow them to diversify their risk exposures more effectively and find alternatives to enhance their returns. Furthermore, issuers will have access to a larger pool of liquidity in the region and more diverse range of potential investors. Local market players e.g., securities companies, asset management companies and market professionals, will also be able to expand their business opportunity regionally and solicit wider groups of investors, thus achieving economies of scale.
Strategies of the ACMF
The ACMF has developed the following strategies in undertaking the initiatives outlined in the Implementation Plan:
- Create brand recognition for ASEAN as an asset class:
The ACMF will work to create brand awareness and recognition for ASEAN products and increase their visibility in global markets. The ACMF will seek to provide a facilitative environment that enables and encourages the private sector to develop new products, including exchange traded funds and index futures.
- Enhance ASEAN regulatory standards and practices:
The ACMF will seek to enhance the regulatory standards governing the ASEAN capital markets and practices in line with international standards, including standards set by the International Organization of Securities Commissions (IOSCO).
- Build mutual and global trust in ASEAN standards through mutual recognition regimes:
To build mutual and global trust in ASEAN standards, the ACMF will work towards the establishment of mutual recognition regimes whereby one regulator can rely on another regulator’s standards in the region to allow for the cross-border offering of financial products and services.
- Facilitate flow and access into ASEAN markets:
Through the establishment of an electronic trading link, global players will have access into any ASEAN market from one single access point. The trading link together with the establishment of an ASEAN Bulletin Board, which comprises leading stocks in ASEAN, is expected to increase the visibility of ASEAN in the global financial arena.
Implementation Approach of the ACMF
The ACMF has adopted a phased approach whereby the initiatives specified in the Implementation Plan are categorized into three phases based on priority. Phase I covers 2009-2010, Phase II covers 2011-2012, and Phase III covers 2013-2015. The initial phases of the Plan focus on establishing bilateral arrangements, and subsequently moving towards multilateral arrangements as more countries become ready to opt-in. Further, the plan focuses on gradual liberalization initiatives whereby offerings of products will be made available to non-retail investors first, before opening up to retail investors and will be complemented by a robust investor protection regime.
In addressing potential challenges, the ACMF is guided by the following approach:
|Risks of competition and marginalization of domestic market players
Through mutual recognition arrangements, domestic intermediaries have the opportunity to grow their businesses beyond domestic borders which may lead to greater economies of scale.
|Effective cross-border enforcement and dispute resolution
Regulators will establish cross-border information-sharing mechanisms and cooperation arrangements to ensure effective and robust enforcement. Efforts to create cross-border dispute resolution mechanisms for investors are also underway.
|Level of sophistication and financial literacy of retail investors
In its approach, the ACMF has adopted a phased approach. The offer of products to domestic retail investors will be conducted at a later phase, and through domestic intermediaries which will be obliged to conduct customer suitability tests. In addition, prospectus or sales brochures will need to clearly highlight details of the relevant risks involved.
|Prioritization of ASEAN integration efforts
Mutual recognition arrangements in ASEAN not only facilitates cross-border activity in the region, but also reflects the mutual trust among ASEAN capital market regulators and promotes ASEAN as an asset class. It will further integrate and strengthen the ability of domestic markets to compete globally.
The ACMF believes that the success of capital market regional integration efforts will depend on the active participation and commitment of relevant government agencies, private sector and investors alike.