Hong Kong and Malaysia launch investment and settlement pilot platform

The Hong Kong Monetary Authority (HKMA), Bank Negara Malaysia and Euroclear Bank today announced the launch of a new pilot platform for the cross-border investment and settlement of debt securities.

The platform will become operational on March 30, 2012, and will "enhance cross-border debt securities settlement efficiency and strengthen the capacity for debt securities issuance activities in the Asian region", said a joint statement from all three parties.

Using the platform, investors in Hong Kong and Malaysia will be able to buy and hold foreign debt securities and settle cross-border transactions on a delivery-versus-payment basis. Meanwhile, local and international bond issuers are able to issue a wide range of debt securities. The overall aim is to "strengthen the cross-border issuance of, and foreign investment in, local bonds in Hong Kong and Malaysia", said the statement.

Also as part of the pilot, Euroclear Bank will maintain a comprehensive debt securities database of Asian debt securities .

The pilot is the culmination of a project that began in 2008, when a group of central banks and central securities depositories (CSDs) in the Asian region, and Euroclear Bank formed a task force with the aim of developing a cost-effective and efficient cross-border investment and settlement infrastructure for debt securities to facilitate the Asian bond market development and enhance the attractiveness of Asian debt securities to foreign investors.

The new pilot is the initial phase in improving the cross-border investment and settlement infrastructure for debt securities in Asia and demonstrates that Asian bond markets, with the support of an international central securities depository, are working to collaboratively strengthen post-trade infrastructure.

This facilitates "harmonisation of market practices and standardisation of the issuance and settlement of debt securities to deepen Asian bond market liquidity, attract investment and increase operational efficiency", said the three parties.

The pilot platform entails the optimisation of existing system links between the central money markets unit of the HKMA, of Bank Negara Malaysia and Euroclear Bank and the connections between local CSD and foreign currency RTGS systems in Asia as well as sharing certain Asian CSD services.

Peter Pang, deputy chief executive of the HKMA, said this was only the beginning of the development of the pilot. "The HKMA will continue to collaborate with Bank Negara Malaysia and Euroclear Bank to promote the pilot platform to other central banks and securities settlement systems in the region and implement additional services to meet market needs."

Bank Indonesia and Bank of Thailand were observers to the original white paper back in June of 2010 are are thought to be very keen to become involved in the project.

Muhammad Ibrahim, deputy governor of Bank Negara Malaysia, said: "This marks a major milestone for regional financial integration, and a step towards a unified bond market platform across Asia."

Pang and Ibrahim today sent a letter to other deputy governors in the region soliciting support and explaining the rationale behind the task force and its pilot platform.