Technical Assistance Report

Project Number: 44083 Regional Policy and Advisory Technical Assistance (R-PATA) August 2010

Promoting an Interlinked ASEAN Capital Market (Cofinanced by the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Partnership Facility and the Republic of Korea e-Asia and Knowledge Partnership Fund)

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

ABBREVIATIONS

AAOIFI – Accounting and Auditing Organization for Islamic Financial Institutions ACMF – ASEAN Capital Market Forum ADB – Asian Development Bank AEC – ASEAN Economic Community ASEAN – Association of Southeast Asian Nations ASEC – ASEAN Secretariat e-Asia program – Republic of Korea e-Asia and Knowledge Partnership Fund IOSCO – International Organization of Securities Commissions IP 2015 – Implementation Plan 2015 OECD – Organisation for Economic Co-operation and Development OREI – Office of Regional Economic Integration RETA – regional technical assistance ROSC – Reports on the Observance of Standards and Codes SEFM – Financial Sector, Public Management, and Trade Division TA – technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION

Type – Regional policy and advisory technical assistance (R-PATA) Targeting classification – General intervention Sector (subsectors) – Finance (money and capital markets, finance sector development) Themes (subthemes) – Regional cooperation and integration (money and finance), economic growth (promoting economic efficiency and enabling business environment) Location impact – Rural (medium impact), urban (high impact), national (medium impact), regional (high impact)

NOTE

In this report, "$" refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Director J. Ahmed, Financial Sector, Public Management and Trade Division, SERD

Team leaders H. Omar, Senior Financial Sector Specialist, SERD S. Ismail, Young Professional (Financial Sector), SERD Team members L. Abenojar, Administrative Assistant, SERD F. Barot, Administrative Assistant, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

I. INTRODUCTION

1. The Association of Southeast Asian Nations (ASEAN) has requested, through the ASEAN Capital Market Forum (ACMF) and the ASEAN Secretariat (ASEC), further technical assistance (TA) from the Asian Development Bank (ADB) to address issues regarding the Implementation Plan 2015 (IP 2015) for regional capital market integration. The ACMF is entrusted with developing the IP 2015 for an integrated capital market in ASEAN and freer capital flows. Previous TA projects1 in this area culminated in the submission of the IP 2015, which was endorsed at the 13th ASEAN Finance Ministers Meeting in Pattaya on 9 April 2009. 2 The IP 2015 sets out a broad framework to strengthen ASEAN capital market development and integration by 2015. It offers a comprehensive set of initiatives under three broad themes: (i) creating an enabling environment for regional integration, (ii) creating market infrastructure and regionally focused products and intermediaries, and (iii) strengthening the implementation process. The key underlying principles of the IP 2015 are the adoption of global standards to the extent possible, progressive liberalization to facilitate more open access, cost reduction through greater competition, and the engagement of ASEC as the main coordinator. This TA will support the implementation of recommendations and action plans specified in the IP 2015 on regional capital market integration.3 The TA is in line with the ADB Strategy 2020 for which finance sector development and regional integration and cooperation are two of five core strategies.4 Support for capital market integration5 will be essential to sustaining growth and providing access to economic opportunities in the region, and will help move regional cooperation and integration forward. Regional and national consultations were undertaken at ACMF meetings on 18 August 2009 and 25 February 2010 and during a mission to on 26–29 January 2010. The design and monitoring framework is in Appendix 1.

II. ISSUES

2. Financial crisis. Although Southeast Asian countries have made substantial progress in strengthening financial markets and enhancing regional integration, the recent financial crisis has caused a setback. Domestic market capitalization in United States dollars at the end of 2008 dropped by 53.3% in , 41.8% in Malaysia, 49.4% in the , 50.8% in and 47.7% in compared with the preceding year. There were improvements by the end of 2009, although only the Indonesian stock exchange had surpassed its 2007 level.6 Given the global nature of the financial crisis, the ASEAN Finance Ministers recognized at their meeting in Pattaya that managing the challenges is a joint responsibility and the urgent need to enhance financial resilience in the region by further integrating regional financial markets. The meeting agreed that the priorities for ASEAN are to enhance regional financial stability and further integrate its financial markets as a region to achieve the goals of the ASEAN Economic Community (AEC) Blueprint, which provides a roadmap for monetary and financial integration of

1 ADB. 2001. Technical Assistance for Strengthening Asian Financial Markets. Manila (TA 5985-REG); ADB. 2005. Technical Assistance for Supporting Enhanced Cooperation among Southeast Asian Equity Markets. Manila (TA 6298-REG); and ADB. 2008. Technical Assistance for Strengthening Southeast Asian Financial Markets. Manila (TA 6473-REG). 2 Per the joint media statement of the 13th ASEAN Finance Ministers Meeting in Pattaya on 9 April 2009, promoting an interlinked ASEAN regional capital market is one of the key priorities toward achieving the ASEAN Economic Community in 2015. 3 The TA first appeared in the business opportunities section of ADB’s website on 23 February 2010. 4 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank. Manila (the other three core strategies are infrastructure, environment, and education). 5 Under the core strategy of finance sector development. 6 World Federation of Exchanges. Statistics. www.world-exchanges.org (accessed 12 July 2010).

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ASEAN in the areas of capital market development, financial services liberalization, and capital account liberalization.

3. Specific to capital market development, the meeting agreed to continue to broaden and deepen regional capital markets through measures that enhance market access, liquidity, and linkages and promote ASEAN as an asset class. To foster cross-border financial flows and linkages, the region's immediate priority is to create an enabling environment and market infrastructure to facilitate cross-border investments, strengthen institutional capacity in the markets, and maintain outward-oriented policies.

4. Levels of economic and market development. Another constraint on progress toward regional capital market integration in ASEAN is significant differences in member countries’ levels of economic development and observance of regulatory standards. This is compounded by various capital controls, fragmented infrastructure, and insufficient coordination and monitoring mechanisms. The key challenge, therefore, is to implement a well-sequenced program of regional integration initiatives, supported by national capital market development programs with regional considerations, and reinforced with a well-designed ASEAN-wide monitoring and coordination mechanism during implementation.7

5. ADB has helped address these issues by assisting and providing support to the ACMF.8 This TA builds on ADB's support through the Financial Sector, Public Management and Trade Division (SEFM) to the ACMF and ASEC. In May 2001, ADB approved a TA under which a series of studies were prepared that provided an in-depth analysis of banking and capital markets in East Asia. This was followed by a TA in 2005 which initiated consultation in ASEAN to develop a strategic framework for enhanced cooperation in capital markets. To ensure continuity, ADB approved a TA in 2008 that helped ACMF to develop IP 2015 and built consensus through workshops and conferences.

6. The endorsement of IP 2015 by the ASEAN Finance Ministers sent a strong signal to responsible parties to facilitate the implementation of the initiatives to achieve the objectives of the AEC Blueprint 2015 by offering a comprehensive set of strategic initiatives and specific implementation actions and milestones.

7. In line with its broad themes, IP 2015 covers six broad initiatives or core strategies: (i) a mutual recognition framework and comparable legal and enforcement framework, including strong investor protection and a scheme to resolve disputes and facilitate cross-border fund- raising and investment; (ii) an ASEAN exchange alliance and governance framework for regional linkages and new product development to support regional capital market integration; (iii) developing ASEAN as an asset class by promoting private sector-led regional product development, promoting ASEAN star companies on the ASEAN board, and developing and integrating Islamic finance markets; (iv) the further regional development and integration of bond markets; (v) reinforcing the ASEAN working process; and (vi) aligning national development initiatives to support cross-border integration and the adoption of phased market liberalization.9

7 The Southeast Asia Financial Sector, Public Management, and Trade Division of ADB has ongoing financial sector lending programs in , the Philippines, and Viet Nam and technical assistance projects in Cambodia, Indonesia, and the Lao People’s Democratic Republic. 8 A high-level forum of securities regulators in ASEAN created under the auspices of the ASEAN Finance Ministers in April 2004. 9 ADB support to the ACMF has been instrumental, as has been the participation of a group of experts drawn from the private sector who have acted as sounding board and advisory body.

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8. In addition, support is also needed for the ASEAN exchange alliance framework,10 as it is a tangible platform for distributing financial products and linking markets, leading to the AEC 2015. The framework primarily needs to establish the single ASEAN Board and an interlinked technology platform that will enhance the ability of investors in one market to trade securities listed on another market. In the process, ASEAN exchanges aim to (i) increase cross-border trading among ASEAN markets; (ii) strengthen the visibility of ASEAN as an asset class; and (iii) attract more international funds into ASEAN.

9. Alignment of national capital markets with the regional agenda. Meeting the objectives of the IP 2015 will require a strategy that ensures regional coordination but allows for national differentiation, given the significant differences among members in terms of economic and financial sector development, openness of the economy, and legal regimes. In this context, support is needed to help the ACMF and ASEC in their regional work and the national authorities in implementing the IP 2015 at the country level. This will help translate the objectives of the IP 2015 into specific tasks and tailor implementation to national circumstances.

10. Barriers to capital market integration. Robust regional capital markets are essential to diversify the sources of funding necessary to support long-term investments and sustain high growth levels. At this juncture, it is crucial to successfully implement the IP 2015. Implementing the IP 2015 is not without significant challenges. First is to ensure that the ASEAN Finance Ministers Meeting endorsement leads to concrete actions at the national level. Second, is to involve other areas of national policymaking towards removing obstacles and barriers to integration. Restrictions on capital movements and disparities in tax regimes have been identified as major impediments to financial market integration.

11. This risk will be mitigated by ADB support provided by the Office of Regional Economic Integration (OREI) to ASEAN central banks toward developing a framework for integrating the banking sector and liberalizing capital account restrictions to permit the free flow of cross-border finance. Recognizing the synergy between the two initiatives, OREI has been part of the SEFM team since 2006. OREI has been consulted at various stages in the design of this TA, and this coordination will continue in implementation. ADB TA supports the ASEAN strategic initiatives of (i) regional capital market integration, which this TA proposes, and (ii) financial sector and capital account liberalization, which is led by OREI. These are critical to ASEAN’s attaining its strategic goals by 2015.

12. This TA will complement national program loans, projects, and TA to support the development of a robust and diversified financial system in ASEAN. By addressing binding national constraints such as inadequate capacity for supervision and risk management, which limit the scope for greater financial sector opening, it will facilitate greater regional cooperation and integration, strengthen the prospects for mutual recognition of governance standards, and harmonize the rules needed to deepen regional markets while contributing to financial stability.

10 The ASEAN Common Exchange Gateway alliance is expected to help pave the way for the future development of back-end linkages involving clearing, settlement, and depositary arrangements. ADB has provided technical Thassistancee views expressed and worked herein closely are with those regional of the stock consul exchangestant and and do regulators not necessarily to develop represent the system. those The of ultimateADB’s mobjectiveembers, isBoard to link of ASEAN Directors, capital Management, markets by way or staff, of a singleand may access be preliminarypoint for investors in nature. and issuers to any of the exchanges. The agreement will initially involve five countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) each of which will list their top 30 stocks on a single computer screen, known as the ASEAN Bulletin Board. Other countries are expected to join later.

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III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

13. The impact will be freer and increased capital flow in a more integrated ASEAN capital market. The outcome will be a more interlinked ASEAN capital market. The TA has been coordinated with work undertaken by OREI in Southeast Asia and will complement it.

B. Methodology and Key Activities

14. The TA will have seven main outputs. First, it will help the ACMF develop and implement a mutual recognition and harmonization framework. It will support ASEAN stock exchanges to develop the ASEAN Common Exchange Gateway Blueprint and a system design that will be the basis of an interlinked ASEAN capital market. The third output is to provide practical implementation of corporate governance best practices and standards including a gap analysis study and the formulation of corporate governance tools for publicly listed companies in ASEAN, which will be benchmarked against international standards in conjunction with the Roundtable on Corporate Governance of the Organisation for Economic Co-operation and Development and Reports on the Observance of Standards and Codes standards.

15. The TA will help the ACMF build ASEAN as an asset class by developing both conventional and Islamic regionally oriented products and promoting ASEAN star companies to be listed on the ASEAN board. In addition, the TA will help the ACMF conduct a study on regional tax harmonization that will identify gaps and provide recommendations for regional tax alignment and harmonization. The TA will also help the ACMF and national jurisdictions to develop more structured training and develop programs for regulators. Finally, the TA will reinforce ASEAN’s working process, policy coordination and transparency, and communication strategy through ASEC and a group of experts.

16. The major assumptions for the TA are continued commitment by ASEAN countries, active participation by the private sector, and access to information from the various jurisdictions. Among the potential medium-term benefits to the ASEAN countries are the establishment of (i) a mutual recognition framework and comparable legal and enforcement framework for cross-border fund-raising, (ii) a system design to serve as the basis for more interlinked ASEAN stock exchanges to facilitate cross-border fund-raising, (iii) ASEAN corporate governance tools for branding ASEAN as an asset class, and (iv) structured regional capacity building for capital markets regulators.11 Risks may be the inability of the governments to honor their commitments and pursue the six core strategies as outlined in the IP 2015. Resources will be allocated and capacity building will be provided under the TA to mitigate this risk.

C. Cost and Financing

17. The TA is estimated to cost $2,000,000 equivalent of which $1,500,000 will be financed on a grant basis by the Investment Climate Facilitation Fund12 under the Regional Cooperation and Integration Financing Partnership Facility and $500,000 will be financed on a grant basis by the Republic of Korea e-Asia and Knowledge Partnership Fund (e-Asia program), both to be administered by ADB. The financing and disbursement arrangements for Investment Climate Facilitation Fund and e-Asia program funds will be parallel. The e-Asia program will provide

11 Country rankings and medium-term benefits to ASEAN countries are discussed in the supplementary appendix, which is available upon request. 12 Established by the Government of Japan.

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support for the second output, promoting ASEAN stock exchange alliances and regionally oriented products. This assistance will enhance regional cooperation and innovation. The TA will finance regional workshops and seminars to disseminate its findings, gather views on the feasibility of its proposals, and facilitate agreement on new initiatives and actions. No activity will be financed in any member country under this TA unless and until a letter of no objection, if needed, has been received from its government. The detailed cost estimates and financing plan are in Appendix 2.

D. Implementation Arrangements

18. ADB will be the executing agency. The TA will be implemented over 20 months, from August 2010 to March 2012. It will require 64 person-months of international consulting services, including a group of experts to serve as resource persons and an international project coordinator, and 22 person-months of national consulting services, including two national project coordinators, costing $1,702,000 for remuneration, travel, per diem, and reports and communications. Three firms will be engaged in addition to several individual consultants for specific areas. The engagement of the firms will be based on quality and cost at a ratio of 80:20. The group of experts will be engaged individually as resource persons to develop and review a consolidated action plan for 2010–2015 and to serve as a central reference for sequencing, reprioritizing, and monitoring all strategic initiatives relating to capital market integration. Three project coordinators will be engaged. The international project coordinator and one national coordinator (national capital market expert) will be based in ASEC. The international project coordinator will help interface with members of the ACMF, ASEAN member countries, and ADB to help monitor the implementation of the IP 2015. The national capital market expert will help develop databases on capital market development, and facilitate in-house seminars and workshops. The final coordinator will be based in ADB to liaise with consultants to coordinate implementation and assist in designing and conducting regional conference and seminars. Details of consultants to be engaged under the firms are in Appendix 3.

19. All consultants and resource persons will be hired according to ADB Guidelines on the Use of Consultants (2010, as amended from time to time). Equipment and office supplies to be financed by the TA will be procured by the consultants or ADB in accordance with ADB Procurement Guidelines (2010, as amended from time to time). Disbursements under the TA will be done in accordance with the ADB Technical Assistance Disbursement Handbook (2010, as amended from time to time). The terms of reference for all consultants are in Appendix 4.

IV. THE PRESIDENT'S DECISION

20. The President, acting under the authority delegated by the Board, has approved (i) ADB administering technical assistance not exceeding the equivalent of $1,500,000 to be financed on a grant basis by the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Partnership Facility, and (ii) ADB administering technical assistance not exceeding the equivalent of $500,000 to be financed on a grant basis by the Republic of Korea e-Asia and Knowledge Partnership Fund for Promoting an Interlinked ASEAN Capital Market, and hereby reports this action to the Board.

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Performance Targets Data Sources and/or Assumptions Summary and/or Indicators Reporting Mechanisms and Risks Impact By 2015: Assumptions Freer and increased At least five countries in Annual reports from the Continued capital flow in a more ASEAN list at least their Central Banks and MOF; macroeconomic stability integrated ASEAN capital top 30 stocks on a single reports and statistics from market computer screen, known the ASEC, IOSCO, World Strong national capital as the ASEAN Bulletin Federation of Exchanges, market development Board for the ASEAN World Bank, International plans aligned with exchange alliance. Monetary Fund, and other regional integration agencies objectives

Participating countries Reporting mechanisms: Strengthened risk-control increase their cross- ADB staff assessments, mechanisms within border investment TA reports, and staff intermediaries portfolios by 1.5% from missions, etc. $180 billion in 2006. Continued support from governments and the The share of foreign Various policy and legal private sector companies listed on documents issued by ASEAN exchanges governments, the ASEC, Risks increases from 11.3% in and IOSCO Exogenous economic 2007 to 20% in 2015. shocks

Differences in capital market development limit the benefits of integration and participating countries’ commitment to harmonized actions and the implementation plan. Outcome By April 2012 closing of Reports and statistics from Assumptions More interlinked ASEAN TA: regional stock exchanges, High level support from capital market Establishment of the members of ASEAN and ASEAN finance ministers electronic trading link via IOSCO, and other agencies and ASEAN Capital the ASEAN Common Markets Forum Exchange Gateway with Reporting mechanisms: increased participation by ADB staff assessments, Close coordination within ASEAN countries, from 3 TA reports, and staff ASEAN exchanges countries currently to 5 missions, etc. countries, further Risk increased to 6 countries Various policy and legal Different views of by 2015 documents issued by Southeast Asian governments, the ASEAN countries on the Finance Ministers Meeting, objectives of, and and the ASEAN Capital constraints imposed by, Markets Forum regional integration and exchange alliance

Appendix 1 7

Design Performance Targets Data Sources and/or Assumptions Summary and/or Indicators Reporting Mechanisms and Risks Outputs By 2012: Reports and statistics from Assumptions 1. Mutual recognition and Number of countries that regional stock exchanges, Strong commitments from harmonization framework have recognized and Securities Commission, all countries involved, and a comparable legal harmonized the initial members of IOSCO and especially the leading 5 and enforcement public offer guidelines ASEAN, and other framework increases from 3 currently agencies Active participation of the to at least 5. private sector in policy Reports of working groups, formation and Report on a dispute committees, and assessment resolution mechanism consultants Access to information for Initial cross-country report ASEC reports various jurisdictions on the degree of observance of IOSCO ACMF progress report Risk objectives and principles Limited capacity in published ASEC and IOSCO reports governments to undertake the actions 2. New system design for By December 2010, Reporting mechanisms: necessary to facilitate the ASEAN Gateway completion of a new ADB staff assessments, exchange alliance as system design to replace TA reports, and staff recommended by the TA current system to connect missions, etc. ASEAN exchanges. Various policy and legal 3. ASEAN corporate By December 2011, documents issued by governance standards practical implementation technical working groups of international corporate governance best practices and standards by ACMF member countries and a self- assessment tool completed and ready to be applied by publicly listed companies in ASEAN

Introduction of two 4. Development of regional products, one regionally oriented each for conventional and products Islamic finance, by 2012

Completion of the draft framework on regional Shariah-compliant harmonized standards by 2012

5. Regional tax Report ready on regional harmonization study tax regimes identifies gaps and provides The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s suggestions for regional members, Board of Directors, Management, or staff, and may be preliminary in nature. tax alignment and harmonization to promote regionally oriented products

8 Appendix 1

Design Performance Targets Data Sources and/or Assumptions Summary and/or Indicators Reporting Mechanisms and Risks

The first annual report on regional integration of ASEAN capital markets launched

6. Capacity building for Structured capacity regional capital market building and training regulators program for capital market regulators in Cambodia, Lao People’s Democratic Republic, and Viet Nam designed and implemented by December 2010

Customized attachment programs for regional capital market regulators fully implemented by December 2011

7. Reinforce ASEAN’s Greater alignment of working process, policy national capital markets coordination, policy agenda with that of transparency, and ACMF in 2015 by at least communication strategy 5 countries from the through the group of current 3 countries experts and ASEC.

Activities with Milestones Inputs 1. Develop and implement a mutual recognition and harmonization framework and a Investment Climate comparable legal and enforcement framework, including strong investor Facilitation Fund under the protection and dispute resolution schemes. Regional Cooperation and

1.1. Help the ACMF to develop and implement ASEAN mutual recognition guidelines to Integration Financing provide a coherent framework for coordinating the many and diverse strategic activities Partnership Facility: $1.5 of the ACMF members to foster regional integration (completed December 2011). million 1.2. Support an ACMF dispute resolution framework for ASEAN and undertake the required implementation, including dispute resolution mechanisms, cross-border enforcement, Republic of Korea e-Asia and information sharing (completed December 2011). and Knowledge Partnership 1.3. Support ACMF’s conduct of a cross-country study of the degree of observance of Fund: $0.5 million IOSCO objectives and principles by building on and updating independent assessments that are already available from, for example, the World Bank Financial Sector Assessment Program (completed March 2011).

2. Develop a new system design for the ASEAN Gateway, leading to ASEAN stock

exchange alliances in support regional integration. 2.1. Help ASEAN stock exchanges to kick start the ASEAN stock exchange alliance by helping to design the ASEAN Common Exchange Gateway blueprint during the initial design phase of the ASEAN exchange alliance initiative and developing a system design as the basis for a more interlinked ASEAN capital market (completed December 2010). 2.2. Help the ACMF strengthen the oversight of exchanges’ self-regulation, governance, and information sharing arrangements to ensure adequate balancing of commercial and regulatory objectives across ASEAN (completed June 2011).

Appendix 1 9

Activities with Milestones Inputs

3. Implement practical ASEAN corporate governance standards. 3.1. Assist a study of the implementation of ASEAN corporate governance standards and tools benchmarked against international standards in conjunction with the OECD

Roundtable on Corporate Governance (through the OECD–ASEAN Roundtable Focus Group) and ROSC standards to be adopted by publicly listed companies in ASEAN and used for branding purposes (completed June 2011). 3.2. Make recommendations on the practical implementation of international corporate governance best practices and standards by ACMF member countries and complete and make ready a self-assessment tool to be applied by publicly listed companies in ASEAN (completed December 2011).

4. Develop regionally oriented products. 4.1. Help the ACMF build ASEAN as an asset class by promoting regional product

development, both conventional and Islamic; ASEAN star companies‘ listing on the ASEAN board, and the adoption of corporate governance standards benchmarked against best international practice to attract foreign investment (June 2011). 4.2. Help the ACMF to develop harmonized Shariah-compliant standards for the region.

4.3. Help the ACMF to develop and harmonize policies on licensing, branching, and mergers and acquisitions and issue relevant ASEAN policy guidelines or standards to support the growth and consolidation of regionally oriented intermediaries and services (completed June 2011). 4.4. Help ASEAN exchanges and the ACMF to map the current requirements in listing rules, financial and corporate governance for listed companies, and continuous

disclosure requirements and promote cross listings to support regional products

(completed December 2011).

5. Conduct a regional tax harmonization study. 5.1. Conduct a study on regional tax regimes, identifying gaps and providing suggestions for regional tax alignment and harmonization to promote regionally oriented products (December 2011).

6. Build the capacity of regional regulators. 6.1 Assist the ACMF in capacity building for capital market regulators in Cambodia, Lao

People’s Democratic Republic, and to help align their national capital market agendas to the regional agenda (completed December 2011). 6.2 Help the ACMF to provide a customized secondment program for national capital market regulators to provide exposure of a more advanced capital market in ASEAN (completed December 2011). 6.3 Help the ACMF organize regional workshops and seminars on the IP 2015 and specific capital market initiatives under the plan for regional capital market regulators (completed December 2011). 6.4 Assist in meeting the capacity-building needs of certain national capital market regulators (completed December 2011).

7. Reinforce ASEAN’s working process, policy coordination, policy transparency, and communication strategy through a group of experts and ASEC. This involves policy coordination, policy transparency, and a communication strategy implemented mainly through the group of experts and ASEC. 7.1. Provide dedicated expert support to coordinate the relevant work unit of ASEC, which will serve as, among other things, a secretariat to the group of experts. More specifically, provide expert support to help develop a consolidated action plan for 2010– 2015 to serve as a central reference for sequencing, reprioritizing, and monitoring all the strategic initiatives and actions related to capital market integration (completed December 2011). 7.2. Oversee jointly with ASEC the production of annual reports on the regional integration The viewsof ASEAN expressed capital markets, herein areto be those reviewed of the and consul approvedtant byand the do group not necessarilof experts y repres e nt those of ADB’s mem(completedbers, Board December of Directors, 2011). M anagement, or staff, and may be preliminary in nature. 7.3. Help the ACMF and ASEC to organize peer review mechanisms to help implement the mutual recognition and harmonization framework (completed December 2011). 7.4. Help the ACMF to develop a communication strategy and common message set

10 Appendix 1

Activities with Milestones Inputs

applicable to ACMF members to help them better communicate with stakeholders including policy makers and market players (completed June 2011). 7.5. Support the alignment of national capital market agendas with that of ACMF 2015 (completed December 2011).

ADB = Asian Development Bank, ACMF = ASEAN Capital Markets Forum, ASEAN = Association of Southeast Asian Nations, ASEC = ASEAN Secretariat, IOSCO = International Organization of Securities Commissions, IP 2015 = Implementation Plan 2015, OECD = Organisation for Economic Co-operation and Development, ROSC = Reports on the Observance of Standards and Codes, TA = technical assistance.

Endorsed By: Approved By:

Jaseem Ahmed Kunio Senga Director, SEFM Director General, SERD Date: Date: Endorsed by:

Appendix 2 11

COST ESTIMATES AND FINANCING PLAN ($'000)

Item Total Cost A. Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Partnership Facilitya 1. Consultants a. Remuneration and per diem for international consultants i. Regional capital market regulation expert (5 person-months) 100.0 ii. Cross-border legal dispute resolution expert (4 person-months) 80.0 iii. Corporate governance expert (8 person-months) 160.0 iv. Islamic finance expert (5 person-months) 100.0 v. Taxation expert (4 person-months) 80.0 vi. Project coordinator and capital market expert (16 person-months) 320.0 b. Remuneration and per diem for national consultants i. Capital market expert (10 person-months) 60.0 ii. National project coordinator (12 person-months) 72.0 c. Resource persons and group of experts (4 person-months) 100.0 d. International and local travel 190.0 e. Reports and communications 30.0 2. Workshop and conferencesb 170.0 3. Miscellaneous administration and support costs 20.0 4. Contingencies 18.0 Subtotal (A) 1,500.0 Item B. Republic of Korea e-Asia and Knowledge Partnership Fundc 1. Consultants a. Remuneration and per diem for international consultants i. Stock exchange micro structure expert for the design stage 40.0 (2 person-months)d ii. Stock exchange micro structure expert for the implementation stage 160.0 (8 person-months) iii. Capital market product development expert 80.0 (4 person-months) iv. Capital market legal and international best practices expert 80.0 (4 person-months) b. International and local travel 40.0 c. Reports and communications 10.0 2. Workshop and conferences for consultants 2a, 2b and 4c 70.0 3. Miscellaneous administration and support costs 10.0 4. Contingencies 10.0 Subtotal (B) 500.0 Total 2,000.0 ACMF = ASEAN Capital Markets Forum, ASEAN = Association of Southeast Asian Nations. a Established by the Government of Japan and administered by the Asian Development Bank. b The estimate for workshops and conferences includes allocation for capacity-building programs for regulators of ASEAN emerging economies to align their national capital market agendas with the Implementation Plan 2015. c Administered by the Asian Development Bank. d The design stage will be cofunded by the ASEAN exchanges. e Together with the four working groups of the ACMF and the ASEAN Secretariat, there will be several conferences to review and report on progress in regional integration. Allocation is also made for the capital market legal and international best practices expert to present the results of a study on the feasibility and adoption of international best practices and standards among ASEAN star companies at regional conferences. Source: Asian Development Bank estimates.

12 Appendix 3

____CONSULTANTS TO BE ENGAGED THROUGH FIRMS

Consultant Person-months Firm A, Component 2: Development of a New System Design for ASEAN Gateway, Leading to ASEAN Stock Exchange Alliances to Support Regional Integration Stock exchange micro structure expert for the design phase 2 Stock exchange micro structure expert for the implementation phase 8 Total 10

Firm B, Component 3: Implementation of the ASEAN Corporate Governance Standards and Tools Component 4: Development of Regionally Oriented Productsa Corporate governance expert 8 Capital market legal and international best practices expert 4 Total 12

Firm C, Component 4: Development of regionally oriented products Islamic finance expert 5

Total person-months for all the three firms 27 a This firm will also be responsible for appointing resource persons and coordinating all regional training, workshops, and conferences, as requested by members of the Association of Southeast Asian Nations Capital Markets Forum. Source: Asian Development Bank.

Appendix 4 13

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. The regional technical assistance will be carried out by three firms, individual international and national consultants. Up to 86 person-months of consulting services will be required, of which 64 person-months will be performed by international consultants (including 4 person-months for the group of expert as resource persons) and 22 person-months by national consultants. The tasks of the consultants will include but not be limited to the following:

A. International Consultants

1. Component 1: Mutual Recognition and Harmonization Framework and Comparable Legal and Enforcement Framework

a. Regional capital market regulation expert (5 person-months, intermittent)

2. The expert is expected to have significant expertise in developing capital markets, including the regulatory perspective in both developed and emerging markets, knowledge of European Union regulations, and experience in promoting linkages among capital markets. Experience in the Southeast Asia region is preferred. The expert will work closely with the Association of Southeast Asian Nations (ASEAN) Capital Markets Forum (ACMF) and a group of experts to be drawn by the ACMF from nationally known figures in ASEAN countries knowledgeable of capital market issues, ASEAN committees and task forces, the International Organization of Securities Commissions (IOSCO) Asia Pacific Regional Committee, ASEAN exchange chief executive officers and working groups, capital market regulators in ASEAN countries, and major market players.

b. Cross-border legal dispute resolution expert (4 person-months, intermittent)

3. The consultant will be a lawyer who has significant experience in cross-border capital market operations, with practical knowledge of the regulatory and legal systems in ASEAN countries, specifically of the legal aspects of securities issuance, trading, and the necessary supporting infrastructure from institutional, operational, enforcement, dispute-resolution, and bankruptcy processes. He or she will be familiar with associated international practice in global financial centers for dealing with the various issues relating to challenges in cross-border supervision, enforcement, dispute resolution, and investor protection.

2. Component 2: Development of a New System Design for ASEAN Gateway, Leading to ASEAN Stock Exchange Alliances to Support Regional Integration.

a. Stock exchange micro structure expert for the design phase (2 person-months, intermittent)

4. The consultant should have significant expertise in (i) international stock exchange The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s alliancesmembers, Boardand their of Directors, structures Management, and operational or staff, andprocedures; may be preliminary (ii) securities in nature. market operations, including trading, clearance, and settlement systems; (iii) assessment of technology (software and hardware) needed to initiate linkup; and (iv) operational procedures of stock exchanges, listing procedures, and market dealings. In addition, the consultant should have work

14 Appendix 4

experience on strategically relevant projects with at least two of the four exchanges participating in the design phase, and will be expected to work closely with the special working group and appropriate project management bodies from the participating exchanges, (i) acting as mentor to the special working group during the design phase, (ii) advising the special working group on specific areas in the deliverables to consider for review, and (iii) collating and reconciling comments from each exchange

b. Stock exchange micro structure expert for the implementation phase (8 person-months, intermittent)

5. The consultant should have significant expertise in (i) international stock exchange alliances and their structures and operational procedures; (ii) securities market operations, including trading, clearance, and settlement systems; (iii) assessment of technology (software and hardware) needed to initiate linkup; and (iv) operational procedures of stock exchanges, listing procedures, and market dealings. In addition, the consultant should have working experience on strategically relevant projects with at least two of the four exchanges participating in the design phase, and will be expected to work closely with the special working group and appropriate project management bodies from the participating exchanges, (i) coordinating with ASEAN exchanges and New York Stork Exchange Technologies in validating the linkage solution; and (ii) verifying connectivity among exchanges and with participants.

3. Component 3: Corporate Governance Standards and Best Practices. Corporate governance expert (8 person-months, intermittent)

6. The consultant should have significant working experience in the corporate governance of publicly listed companies and direct experience in the primary and secondary markets, deep understanding of regulatory requirements and the workings of the exchange, deep understanding of the various international standards for corporate governance such as those of the Organisation for Economic Co-operation and Development and Reports on the Observance of Standards and Codes, and past involvement in designing and formulating corporate governance frameworks.

4. Component 4: Development of Regionally Oriented Products.

a. Islamic finance expert (5 persons-month, intermittent)

7. The consultant should be an international expert on Shariah and finance with more than 10 years’ practical experience in Islamic finance and a good understanding of Shariah issues regionally and globally and of its legal requirements. In addition, the consultant must have deep understanding of the various legal and regulatory requirements of the countries in the region, Shariah framework, Islamic Financial Services Board, and Accounting and Auditing Organization for Islamic Financial Institution standards.

b. Capital market product development expert (4 person-months, intermittent)

8. The consultant will have an extensive background in capital market product development in developing countries in ASEAN and developed markets in the Asia–Pacific region such as Australia and Hong Kong, China. The expert should coordinate with the team leader and other consultants to address cross-border capital market development issues. Suggestions and

Appendix 4 15 recommendations for new products have to include an assessment of market readiness and potential receptivity.

c. Capital market legal and international best practices expert (4 person-months, intermittent)

9. The consultant will be a lawyer who has significant experience in capital market regulation in developed and developing markets with a focus on international corporate governance standards and a working knowledge of implementing IOSCO best practice principles and objectives of securities regulation, including benchmarks under the IOSCO memorandum of understanding. Experience in the ASEAN countries is preferred.

5. Component 5: Regional Tax Harmonization Study. Taxation expert (4 person-months, intermittent)

10. The consultant will have an extensive background in capital market cross-border tax and legal matters and should be experienced regarding the implications of taxing financial instruments on financial sector development. The expert should coordinate with the team leader and other consultants to address cross-border capital market tax issues.

6. Component 6: Policy Coordination and Communication Strategy through a Group of Experts and the ASEAN Secretariat and Alignment of National Markets Agendas with That of the ASEAN Capital Market Forum 2015

a. Project coordinator and capital market expert (16 person-months, continuous)

11. The consultant, to be based in the ASEAN Secretariat (ASEC) in , will have significant experience in capital markets in developed and developing countries and a working knowledge of implementing IOSCO best practices for securities regulation. The expert should have experience in managing complex capital market projects involving several countries.

b. Group of experts (4 person-months, intermittent)

12. A group of experts will be recruited as resource persons for up to total 6 person-months to assist the ACMF, ASEC, and ADB in successfully implementing the Implementation Plan 2015.

B. National Consultants

1. Capital market expert (10 person-months, continuous)

13. The consultant, to be based in ASEC, should have a background in capital markets, familiarity with the regulatory structure and operations of stock exchanges, and proficiency in English. The expert will assist ASEC, the capital market expert and project coordinator, and the group of experts. The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

16 Appendix 4

2. National project coordinator (12 person-months, continuous)

14. The project coordinator, to be based in the Philippines, should have adequate experience in project management and will assist ADB, the team leader, and other consultants.