What is the ABMI? The ABMI is an ASEAN+3 initiative, which members of the Association of South-East Asia Nations and China, Japan and South Korea, the “+3” countries, set up and funded. ABMI’s mission is to promote market integration and development, following the devastating Asian financial crisis in the late 1990s, thus helping prevent future crises. The ADB acts as the secretariat and hosts regular meetings.
What has it actually done so far? Cynics say the most tangible product of the ABMI’s work is a comprehensive guide for each of the region’s domestic bond markets, containing regulations, trading statistics and other details in a freely available document. The weighty tome runs to 1,487 pages and has become required reading for market participants since being published in 2012.
Progress, however, is evident in the following string of acronyms.
ABMF: The ABMI set up four task forces to study supply, demand, regulation and market infrastructure. The Asian Bond Market Forum (ABMF) is a working group of specialists under the regulation task force, responsible for developing a strategy to harmonise regulations across the group of disparate member countries. The ABMF has grown steadily as more market participants sign up, and at its last meeting, held at the ADB’s Manila compound in mid-March, saw about 150 members participate.
AMBIF: Years of discussions have resulted in a concrete plan to develop an Asian Multicurrency Bond Issuance Framework (AMBIF), essentially uniting multiple markets in a new format for professional investors, close to the 144A model of the US. The framework initially will include Singapore, Hong Kong, Japan, Thailand and most likely Korea, which expressed its intention to join at the October 2013 ASEAN+3 meetings in Yangon. The plan is to expand that group substantially as more countries put the necessary regulations in place, eventually creating a standard format for issuance applicable across the entire region.
CSIF: A second sub-forum, still under the ABMF, has been studying the issuance of processing and settlement – a key hurdle for investors to step outside their home markets. The Cross-border Settlement Infrastructure Forum (CSIF), too, is pushing forward with a key project of its own, a move to connect central securities depositaries and link multiple markets.
RTGS: The CSIF’s plan, rather than creating a new Euroclear-style regional clearing house, which would require a substantial capital base and a tricky political agreement, calls for links between existing central bank-backed depositaries. The Real-Time Gross Settlement (RTGS) initiative will require a series of bilateral agreements between Asia’s various central banks, in some cases building on existing arrangements. Hong Kong, for instance, has settlement agreements with Malaysia, Thailand, Singapore and Korea, as well as EuroClear.
CGIF: The ABMI has also championed the introduction of the Credit Guarantee and Investment Facility, a professionally administered trust fund set up to provide the credit enhancement needed to facilitate cross-border issuance. The US$700m capital base came from the ASEAN+3 nations and the ADB itself, which also acts as the trustee. The first staff arrived in 2010, and the first issue under the CGIF, from Singapore-listed Hong Kong trading company Noble Group in Thai baht, was successfully completed last spring. A second arrived in Indonesia last year, and more are in the works. “We could do many more deals if we wanted to particularly in guaranteeing USD bonds, but the key consideration for us is the development impact on the local currency bond markets,” said Boo Hock Khoo, vice president in charge of guarantee operations at the CGIF.
Why has it taken so long? As with any initiative involving multiple governments, decisions require extensive negotiations and a huge diplomatic effort. “It’s a very delicate process and a big diplomatic challenge. It’s not enough to say everyone will benefit; we also have to show that nobody will get hurt,” said Noritaka Akamatsu, deputy head of the ADB’s office of regional economic integration.
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