SINGAPORE -- Members of the Association of Southeast Asian Nations are gradually moving toward integrating their capital markets. Singapore, Malaysia and Thailand earlier this month signed a deal to streamline the review process for offering securities across borders.
This step enhances an earlier agreement on common disclosure rules among countries in the region -- part of preparations to establish an ASEAN Economic Community at the end of this year. Though the pace of financial integration is generally perceived to be slow, the bloc's leading nations are at least attempting to get on the same regulatory page.
The Monetary Authority of Singapore, Singapore Exchange and market regulators from Malaysia and Thailand on March 3 signed a memorandum of understanding on what they call the Streamlined Review Framework for the ASEAN Common Prospectus. The framework, when implemented by September, will fully harmonize the disclosure requirements for securities issuances. When a company offers shares or bonds in two or more countries, it will only need to issue one prospectus that complies with the common standards.
Under the new system, it should take three to four months to gain approval. Currently, since companies have to seek the OK from regulators in each country, the process can stretch to six months.
Singapore, Malaysia and Thailand are the first to participate; the other seven ASEAN members can join when they are ready. This approach, which officials call "ASEAN minus X," is a way to get integration started in a region where countries are at vastly different stages of development.
ASEAN members have already established a free trade area, in which tariffs and other barriers are largely eliminated. The goal of the AEC is to establish a single market, enabling free flows of goods, services, investment and skilled workers. Capital market integration is one aspect of this.
Lonely trio
A unified capital market is expected to improve the region's competitiveness, stimulate cross-border movement of money and attract investment from farther afield.
Financial sector insiders welcomed the move by the three countries. "To have common standards would greatly simplify things and reduce costs," said Hugh Young, managing director of U.K.-based fund manager Aberdeen Asset Management Asia. He added that further efforts, such as centralizing programs to combat money laundering, are anticipated.
To expedite integration, the key question is how to get more ASEAN members on board soon. The bloc's existing fund-passporting framework, which facilitates cross-border distribution of investment funds, and the electronic equity trading link, which enables stock brokers to place orders in multiple markets around the region, have only been implemented in the same three nations -- Singapore, Malaysia and Thailand.
Indonesia, the largest ASEAN country, is apparently skeptical about the benefits of financial sector integration. The Philippines, too, has shown a preference for strengthening its domestic financial sector over participating in regional initiatives. And smaller nations such as Laos and Myanmar have only nascent capital markets.
Another issue is how to push liberalization of the banking sector -- an essential part of financial integration. The region's central banks laid a foundation for this in 2011, when they endorsed an ASEAN Banking Integration Framework. The aim: liberalize banking by 2020. Yet many regulations will not be covered and remain up to individual governments.
Wide gaps between nations are a hindrance. There are concerns that because Indonesia and the Philippines have "large populations and relatively underdeveloped banking sectors," they may be more "likely to come under greater competitive pressure from other regional banks," Thiam Hee Ng of the Asian Development Bank wrote in a report last September. Smaller nations are more worried about foreign competition.
"It is important that the AEC gains credibility with successes quickly, as economic nationalism is its powerful enemy," Nazir Razak, the chairman of Malaysia's second-largest lender CIMB Group Holdings, said in January. Strong players such as CIMB and Singapore's big three banks are quickly expanding regionally, without waiting for regulators to move integration forward.
To keep international investors interested, integration needs another push. "I would like to see integration of the legal structures within ASEAN, not only aligning the various countries' laws with each other but also adopting legal bodies," said Mark Mobius, executive chairman of Templeton Emerging Markets Group.
