ICMA Secondary Markets Update

ICMA Secondary Markets Update for Asia Pacific - August 2020

Mandatory buy-ins
Netting enforceability in China
Regulatory updates
Relevant publications and news items
ICMA Podcast episodes
Meetings and events


Mandatory buy-ins

The ICMA CSDR Settlement Discipline Working Group remains focused on implementation challenges of the mandatory buy-in regime with respect to cash bond and repo markets. The solutions and best practices being agreed by the Working Group will be incorporated into the ICMA Buy-in Rules which are being updated to create a contractual framework and market best practice to support implementation of and compliance with the new regulatory requirements (which are expected to come into force on 1 February 2022). The ICMA Buy-in Rules (part of ICMA's Secondary Market Rules & Recommendations), apply between members, and are usually incorporated into firms’ terms of business (members and non-members) by reference.
7 September: ICMA publishes a briefing note on CSDR mandatory buy-ins and the requirement to appoint a buy-in agent
The CSDR-SD regulatory technical standards require that in the case of failing non-cleared transactions, at the start of the mandatory buy-in process the purchasing party must appoint a buy-in agent. This may not be possible, particularly since a buy-in agent may not be available (noting that the ICMA Buy-in Rules currently do not require the appointment of a buy-in for this very reason). If a buy-in agent cannot be appointed, it would seem likely that the buy-in cannot be effected, resulting in mandatory cash settlement (“cash compensation”). As ICMA has highlighted in an earlier briefing note, it is not clear how, or even if, the cash compensation provisions can be applied in the case of bonds.
Please contact Andy Hill if you or your firm is not already engaged in this important initiative.

Netting enforceability in China

ICMA updated members on recent developments in netting enforceability in the People's Republic of China (PRC). Earlier this year the China Banking and Insurance Regulatory Commission (CBIRC) communicated a draft consultation through targeted channels that (i) would clarify there is no conflict between Chinese Bankruptcy Law and close-out netting; and (ii) would provide an overview of the key steps preceding the commencement of bankruptcy proceedings against a PRC Bank. 

ICMA has, for many years, obtained an industry opinion on the GMRA for PRC (PRC opinion). The PRC opinion is authored by JunZeJun and is available to ICMA members on the ICMA website. Counsel expect that in some aspects, the opinion can be further strengthened in relation to the enforceability of close-out netting under the PRC law. We will keep the membership informed as the CBIRC consultation progresses and, if appropriate, will commission an update of the PRC opinion. 

For further information, please do not hesitate to contact ICMA’s APAC office or ICMA’s legal team.




Regulatory updates


8 September: Taiwan FSC published Amendments to the “Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities” (in Chinese).

3 September: MAS published its Response to Consultation on Execution of Customers’ Orders. The consultation proposals formalise MAS’ expectations for CMS licensees, banks, merchant banks and finance companies to have policies and procedures to place and execute customers’ orders on the best available terms (“Best Execution”) to support fair outcomes for customers.

2 September: PBOC, CSRC and SAFE jointly released a consultation draft (in Chinese) with measures to further facilitate foreign institutional investors to invest in China’s bond market, covering simplified application, extended access to the exchange bond market, and permission for nominal holding and multi-level custodian structures. 

1 September: ESMA published a Call for Evidence in the context of the review of transparency requirements for equity and non-equity instruments.

1 September: SEBI published a circular on Review of debt and money market securities transactions disclosure. In order to further enhance transparency, it is now decided that the details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio shall be disclosed on a daily basis with a time lag of 15 days in a revised format as prescribed in Annexure A.

31 August: SEBI issued a circular on Relaxation from default recognition due to restructuring of debt which has been extended until December 31, 2020.

28 August: ESMA proposed to further postpone CSDR settlement discipline until 1 February 2022.

27 August: ESMA selected a Chair and Independent Members for its CCP Supervisory Committee.

24 August: Postponement to CSDR settlement discipline until February 2021 was published in the Official Journal of the European Union.

24 August: Thai SEC is seeking public comments on draft amendments to the regulations related to repurchase and reverse repurchase agreement to allow both securities companies and derivatives intermediaries to make repo/reverse repo transactions of listed securities and investment units with all types of investors. The public hearing ends on 23 September 2020.

21 August: Thai SEC is seeking public comments on the proposed principles for amending the rules on subordinated perpetual bonds to enhance investor protection and the ecosystem for the sale process. The public hearing ends on 21 September 2020.

21 August: HKEX published a 60-page Consultation Conclusions on Review of Chapter 37 – Debt Issues to Professional Investors Only, including Main Board Rules amendments (pp.35-48) and GEM Rules amendments (pp.49-59). The outcome seems largely consistent with ICMA’s 7 February response.

19 August: CFETS announced the pilot operation of direct RFQ under CIBM Direct and QFII/RFQII starting from 1 September whereby international investors can trade directly with counterparties, rather than through their agent bank. On 1 September, Bloomberg and CFETS jointly announced the launch of the RFQ service for CIBM-Direct on the Bloomberg Terminal.

7 August: ESMA issued the latest double volume cap data.

6 August: ESMA agreed position limits under MiFID II.

3 August: MAS enhanced its Significantly Rooted Foreign Bank Framework.



Relevant publications and news items

September 2020
Measuring execution quality in FICC markets, FMSB
Trends, Risks, and Vulnerabilities Report, No2. 2020, ESMA
August 2020
Managing super fund liquidity in the midst of COVID-19, APRA Insight - Issue Three 2020
Participating in International Benchmark Interest Rate Reform and Improving China’s Benchmark Interest Rate System, PBOC
Asset and Wealth Management Activities Survey, Hong Kong SFC
Basic Figures on Fails (Aug.), Bank of Japan
Bond Market Survey (August 2020), Bank of Japan
Results of the June 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD), ECB
Bonds and syndicated loans during the Covid-19 crisis: decoupled again?, BIS
Risk and return in international corporate bond markets, ECB
Do Enhanced Collective Action Clauses Affect Sovereign Borrowing Costs?, IMF

Hong Kong-Mainland ETF cross-listing approved, CSRC and SFC. On 28 August, SFC authorised two exchange-traded funds (ETFs) to be listed on the Stock Exchange of Hong Kong under a scheme which will facilitate cross-listing of ETFs between markets in Hong Kong and the Mainland. On the same matter, CSRC approved the Shenzhen-Hong Kong ETF Connect products. Each of the products managed by a mainland fund manager is designed to invest no less than 90% of the fund’s net assets in a single Hong Kong target ETF in the form of the qualified domestic institutional investor (QDII) and get listed on Shenzhen Stock Exchange. 
July 2020
A system-wide scenario analysis of large-scale corporate bond downgrades, ESRB
Economic Bulletin – Update on economic and monetary developments, ECB
Liquidity distribution and settlement in TARGET2, ECB
Who Drains Bond Market Liquidity in an Emerging Market?, IMF


ICMA Podcast episodes

COVID-19 ICMA Asset Management & Investors Council market update (9 September 2020)
Digital transformation in capital markets
Opening up China’s capital markets
Post-Brexit: the way ahead in international capital markets


Meetings and events

Green recovery in Asia-Pacific and the role of capital markets 
22 September, 4-5pm HKT/SGT
ICMA Future Leaders: Challenges facing young professionals post COVID-19
29 September, 5-6.30pm CEST
ICMA Secondary Market Forum: Secondary bond markets in the wake of the pandemic
6 October, 3-5pm CEST
ICMA European Repo and Collateral Council (ERCC) Annual General Meeting
7 October, 3-5pm CEST
ICMA Primary Market Forum
13 October, 4-6.15pm HKT/SGT / 10am-12.15pm CEST 
ICMA & JSDA - Developments in Bond Markets Contributing to Sustainability under COVID-19 – Globally and in Japan
13 November, 4-5.40pm Japan Standard Time



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