History of the Primary KTB MarketDate Event
Jan. 1999 Regularized issuance of KTBs.
Mar. 1999 Established an interdealer broker (IDB) market in KSE.
Introduced primary dealers (PDs) for KTBs. Jul. 1999 Introduced multiple price auctions for KTB issuance.
Jan. 2000 Grain Management Fund Bond integrated into KTBs.
Mar. 2000 Issued 5-year KTBs.
May. 2000 Introduced fungible issue system of KTBs.
Jul. 2000 Fully implemented mark-to-market method.
Changed the auction method of government bonds from the multiple price Aug. 2000 auction to the uniform price auction.
Dec. 2000 Introduced buy-back system.
Mar. 2003 Changed fungible issue period of KTBs from three months to six months.
Aug. 2003 Established a market for 5-year KTB futures.
Jun. 2004 Established regulations on issuance of KTBs and operation of PDs.
Jan. 2006 First issued longest (20-year) government bonds.
Mar. 2006 Introduced STRIPS.
Sept. 2006 Introduced non-competitive bid option II.
Mar. 2007 Issued first KTBIs.
Source: KCMI, KOSCOM (2015).
A. Auction Method
1) Competitive Auction
In August 2000, a uniform price auction, called the Dutch auction, in Korea was newly adopted. The auction tended to minimize uncertainty and encourage broader participation compared to a multiple price auction. The government was able to reduce issuance costs by issuing government bonds that pay relatively lower yields.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•045 2) Non-Competitive Auction
To enhance the market-making function of PDs, the government authorized PDs to underwrite KTBs through non-competitive bids to designated days after a competitive auction. Unlike the competitive auction where the bidding yield as well as bidding amount should be submitted to underwrite KTBs, the bidder submitted the bidding amount only in a non-competitive auction
3) Auction Participation by Retail Investors
Retail investors wishing to underwrite KTBs could open an account at institutions designated as a PD and requested PDs to submit their bids for KTBs being auctioned.
B. Primary Dealer System
Primary Dealers (PDs) were those who had the right to exclusively participate in the primary market for KTBs. PDs were obliged to act as market makers in the secondary market. Among commercial banks, securities companies and merchant banks, any financial institution which wanted to be a PD had to satisfy various conditions for a qualification such as financial integrity, trading record of KTB benchmark issues, the trading record in the secondary market, and KTB holdings. Also, it had to submit a request for designation as a PD to the Minister of Strategy and Finance (MOSF).
In March 2000, the financial assistance scheme for PDs was introduced. It was a kind of lending system that the government lent temporarily idle government funds to PDs with PDs' holding of KTB as collateral. The government applied these incentives differently according to the performance of each PD in order to facilitate competition among PDs. The PD system was overhauled in February 2011.
C. Fungible Issuance System
Under fungible issuance, the same issue conditions including maturities and coupon rates were applied to all bonds issued within a certain period. The bonds were treated as the same type. The fungible issuance of KTBs was aimed to reduce the government's interest expense and develop credible benchmark rates by increasing the issuance volume of each bond type and increasing their liquidity in the secondary market.
046•2014/15 Knowledge Sharing Program with Lao PDR II D. Buy-Back and Conversion Offer System
In principle, KTBs are to be paid on their maturity dates. To prevent too many KTBs maturing at one time and control liquidity in the secondary market, the government may conduct buy-backs and conversion of KTBs. The buy-back and conversion systems were introduced in December 2000 and May 2009, respectively. Buy-back refers to the system that the government buys back government bonds not yet matured from the bond holders. If KTB maturities are concentrated in a short period and their supply increases substantially for rollover, the market may suffer from severe imbalances and experience extreme fluctuation in interest rates. In this case, buy-backs are employed in order to distribute the maturities of KTBs
E. STRIPS of KTBs
STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. Coupons are separated from the principal of coupon bonds, and these new securities are then sold as zero coupon bonds, along with the one for the principal repayment. The separated principal and coupon STRIPS can be recombined into the original coupon bond. This is called reconstitution. Contrary to the coupon bond which has a multiple number of cash flows, STRIPS are preferred by investors who do not want to bear reinvestment risk.
2.3.2.2. Secondary Market
To improve secondary market transparency after the Asian financial crisis, the Korea Treasury Bond System (KTS), a specialized electronic trading platform for KTBs, was established. Because this market was set up in the exchange, the trading was made based on the KRX transaction rules. Since this market is an exchange market, these bonds should be listed for trading. Direct participants into KTS are limited to government bond dealers (designated securities companies and banks). Other institutional investors and general investors who want to trade in this market have to consign orders to the dealers. KTS is an electronic transaction market where dealers can directly participate through the Internet.
Buy and sell orders submitted and transaction execution results are notified on the computer screen on a real-time basis. Then, each dealer uses a system that allows them to trade anonymously. Thus, the transparency of trading information is almost perfectly ensured in this market. The dominance of public bonds was more remarkable in the secondary bond market. As the amount of the bond issues and liquidity increased, the reference rate was changed to 3-year KTB yield.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•047 2.3.3. After the Global Financial Crisis (2009~Now)
2.3.3.1. Primary Market
The average proportion of MSB issuance amount from 2007 to 2013 is relatively high reaching 37.0% whereas that of government bond is 16.5%. Among the other types of bonds, special-purpose bonds issued by non-financial government- sponsored enterprises (i.e., non-financial SPL bond in the figure below) shows a substantial increase in its proportion since the mid-2000s. It is presumed that the government, which did not want the increase of government debt, made the government-sponsored enterprises conduct a variety of public-sector projects.
[Figure 1-5] Proportions of New Issues (Left) and Total Bonds Outstanding (Right)
100% 100%
Non-Financial Non-Financial 90% Corpotate Bond 90% Corpotate Bond
80% 80% Financial Corporate Financial Corporate Bond Bond 70% 70%
MSB MSB 60% 60%
50% 50% Financial SPL Bond Financial SPL Bond
40% 40%
Year Non-Financial SPL Non-Financial SPL 30% Bond 30% Bond
20% 20% Municipals Municipals
10% 10%
Government Bond Government Bond 0% 0% Year Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: KCMI, KOSCOM (2015).
2.3.3.2. Secondary Market
The proportion of MSB and KTB trading continued to increase after the global financial crisis triggered by the US subprime mortgage woes. The proportion, which was 76.4% of total OTC trading volume in 2008, increased to 82% in 2013. Considering that most of bonds traded in the exchange are KTBs, the proportion of the whole secondary bond market is likely to be higher than that of OTC.
048•2014/15 Knowledge Sharing Program with Lao PDR II 3. Korea’s Experience of Establishing Securities Deposit and Settlement Infrastructure 3.1. Concept and Significance of Securities Deposit and Settlement Infrastructure
Securities deposit and settlement infrastructure in broad terms includes the clearance, deposit and settlement of securities that take place after the execution of a trade. Here, the deposit of securities is a precondition for settlement. Although this activity may take place before or after the transaction agreement is executed, it is conventional to deposit securities, the subject of the transaction, before the execution of the agreement.4) This section introduces securities deposit infrastructure to help understand the concept and significance of securities deposit infrastructure, and then discusses clearing and settlement infrastructure.
3.1.1. Concept and Legal Structure of Securities Deposit Infrastructure
Securities deposit infrastructure, mainly a central securities depository (CSD), was first designed in Vienna, Austria in 1872 to ensure the safekeeping of securities and the efficiency of settlement.5) Investors owning securities deposited their securities with their banks, which, in turn, held the securities with other investors’ securities through the CSD. This was intended to boost securities transactions. However, it can be said that the depository model as we know it today started with the German Securities Deposit Act (DepotG) enacted in 1937. In the legal structure of securities deposit infrastructure designed under the DepotG, securities are held with intermediaries (Verwahrer) such as banks or securities firms, which, in turn, hold the securities through the CSD on the top position of securities deposit infrastructure’s tiered hierarchy. When the CSD receives and puts the deposited securities in custody, investors are no longer the sole owner of their securities and acquire co-ownership interests in securities of the same kind within the collective holdings of the custodian. That is, the securities deposit regime is designed in a way that changes the legal nature of deposited securities from sole ownership to co-ownership, a form of ownership right, and increases the efficiency of custody and settlement. In the German-style securities deposit infrastructure, the legal nature of the deposit of securities is “deposit and delegation”.
When securities of the same kind are held in a commingled way by the CSD
4) In case of short-selling, the deposit of securities is not a prerequisite because a sell order is submitted without actual possession of the securities. 5) The legal nature of securities deposit, set forth in Article 309 of the incumbent Financial Investment Services and Capital Markets Act (FSCMA) in Korea, is exactly the same as that in Germany.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•049 through such deposit activity, investors can consummate their transactions by delivering securities or paying funds. In other words, they can settle and complete their transactions through book-entry transfer6) between their intermediaries and the CSD without directly delivering securities certificates. As transactions and participants increase in number, securities deposit and settlement infrastructure is perceived as an essential component of the securities market. It is not an exaggeration to say that CSD-based securities deposit regime exists in every country of the world where there are capital markets.
Meantime, the legal structure of securities deposit infrastructure as mentioned above has been adopted in Germany, Austria and Korea. The design of such legal structure varies greatly from one country to another. [Figure 1-6] below illustrates the German-style securities deposit infrastructure.
[Figure 1-6] German-style Securities Deposit Infrastructure Based on Commingled Custody
Exercise of indirectly held rights Direct possession of securities and Issuer CSD management of accounts (with no rights to securities)
Indirect and joint possession of securities and management of accounts (with no rights to Exercise of securities) directly held Intermediary X rights
Revindication of property right and revindication of contractual claim
Indirect and joint possession, and coownership Investor of securities
6) Book-entry transfer is similar to double-entry bookkeeping in accounting. Each transaction is recorded with an equal amount as the minus on the debit side and the plus on the credit side.
050•2014/15 Knowledge Sharing Program with Lao PDR II As seen in [Figure 1-6], the German-style securities deposit regime is based on the premise that physical securities certificates exist. In Germany, securities certificates are regarded as corporeal things that embody private rights with value. When they are lost, rights represented in the certificates are lost accordingly. This drove the custody industry in Germany to develop early. The German securities deposit infrastructure requires physical securities because the subject of ownership including co-ownership is corporeal property from a German law perspective, and, thus, co-ownership cannot be established without securities certificates in which rights are represented. Therefore, in this system, securities are commingled and held in custody at the CSD. Investors are given co-ownership over deposited securities in the commingled pool through indirect and joint possession. Despite the required existence of physical securities certificates, dematerialized, book entry (Wertrecht) or electronic securities are not impossible to exist in the German legal framework for securities deposit infrastructure. In Germany, book-entry records represent rights to government bonds and corporate bonds, by which these rights are “deemed” as securities. In so doing, theoretical issues are addressed. That is, even if securities certificates as corporeal things are not physically issued, their physical existence is legally recognized through “deeming”. This accommodates the theoretical framework for the existing securities deposit regime based on physical securities.
In contrast to the German legal system, the loss of physical securities certificates is not a big issue in the UK system because the definition of securities is not based on the existence of physical securities certificates. For that reason, the custody banking business did not prevail in the UK, unlike in Germany. Instead, registrars7) played a critical role due to the transfer of ownership over securities by registration. To facilitate securities circulation, the concept of a trust is used. The top-tier intermediary is trustee of securities, and the investor and other lower-tier intermediary have equitable interests as sub-trustee on sub-trust. This theoretical construction evolved into the legal principle that an investor loses legal ownership in “his or her securities commingled and held in custody”8) in return for acquiring equitable interests in a trust.9) In the UK law, physical securities are just evidential certificates. Their existence is not as much significant as that in Germany. Rather, rights represented in securities are important. Therefore, the UK could actively seek for indirect securities holding system, in which securities are fully dematerialized.
7) The term “registrar” is used in the UK whereas the term “transfer agent” is used in the US. The use of the two terms is due mainly to differences in the way of transferring registered securities between the UK and the US. 8) Securities above include not only physical securities certificates but also rights such as shares or bonds which can be represented in securities certificates. 9) However, understanding the UK indirect holding system using the trust concept is not a long- standing prevailing view. Discussions about this view started in the second half of the 1990s. Scholars began analyzing the UK system with the trust concept after 2000 [see Joanna Benjamin, Interests in Securities: A Proprietary Law Analysis of the International Securities Markets (New York: OUP, 2000) for a systematic study that explains investors’ rights in the indirect holding system using the trust concept]
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•051 In the fully dematerialized, electronic system, the investor can opt for registering himself or herself as the direct holder of securities rights or acquiring an equitable interest through his or her intermediary. [Figure 1-7] shows the indirect holding system in the UK.
[Figure 1-7] UK Securities Deposit Infrastructure Based on the Trust Concept
account management (with no rights to securities) CSD(register) Issuer
Exercise of rights
Intermediary Y (legal holded of rights) Trust 1
Intermediary X (holder of equitable interest)
Trust 2
Investor(holder of equitabale interest)
052•2014/15 Knowledge Sharing Program with Lao PDR II Unlike the UK, the US maintained the indirect holding system in which securities are held together in a commingled pool. This system is similar to the German one in the early days. However, it revealed many problems due to legal uncertainty, for example, no recognition of bona fide acquisition. Later, when the underdeveloped legal framework for the securities deposit regime was cited as one of the main causes of the stock market crash in October 1897, studies on relevant laws began. As a result, the revolutionary concept of a “security entitlement” was adopted in Article 8.5 of the Uniform Commercial Code (UCC) of 1994, completing the reform of the law for securities holding. The concept was invented based on the reality and practice of indirect holding. When the investor holds securities through his or her intermediary, he or she loses legal rights as a holder of the securities, and acquires a security entitlement from the intermediary. Here, property interest is added to this entitlement in order to protect the investor’s assets in the event of the intermediary’s insolvency. This is the essence of security entitlements. The relationship between the investor and the deposited securities no longer exists. The investor has no contractual relationship with the issuer of the securities or the upper-tier intermediary. Thus, the investor is entitled to exercise his or her rights only against the immediate intermediary, that is, the relevant intermediary. This model is structurally similar to the trust model in the UK. However, it differs from beneficial interest in a trust in that a security entitlement is established by contract per intermediary, and a separate entitlement is newly created per securities account. [Figure 2-6] depicts the US indirect securities holding system.
In the US securities deposit law, whether entrusted securities are physical securities, global certificates10) or uncertificated securities11) does not matter. The US law is characterized by open architecture in which security entitlements are created as new rights under statute law when securities are deposited in any form.
10) A global certificate refers to a single certificate in which all rights are represented. It is primarily used in European countries including Germany whose securities deposit system requires physical securities. 11) Uncertificated securities are literally securities issued in dematerialized (i.e., paperless) form. In general, these are electronic securities.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•053 [Figure 1-8] US Securities Deposit Infrastructure Based on Security Entitlement
Exercise of rights
Issuer Nominee CSD
Securities entitlement 2
No No relationship relationship Intermediary X (entielement holder)
Securities entitlement 1
Investor (entielement holder)
In addition to the aforementioned three models for securities deposit infrastructure, there is another model in which securities are no longer required to be issued in paper form or the existence of physical securities is disregarded, and, thus, rights are represented or evidenced by a record in a securities account
054•2014/15 Knowledge Sharing Program with Lao PDR II held by an intermediary. Cases in point are France, Japan and Switzerland. In these countries, book entry is considered as a new approach to the representation of securities and rights therein. Book-entry transfer is legally approved because it is construed as being similar to the transfer of physical certificates. And investors legally approve that their intermediary directly holds rights such as shares and bonds, credited to their accounts held by that intermediary. Therefore, the intermediary is able to directly exercise the rights against the issuer. It is the common feature of securities deposit infrastructure in these three countries. This is clearly different from the indirect holding system in the UK or the US where the relationship between the investor and the issuer does not exist. Moreover, in this system, the ultimate investor is the holder of rights whereas the intermediary takes on the role of simply managing securities accounts. [Figure 1-9] illustrates Japan’s securities deposit regime based upon dematerialization.
[Figure 1-9] Japan’s Securities Deposit Infrastructure Based on Book Entry
Exercise of Dematerialization indirectly held rights and account management (with no rights to securities) Issuer CSD
Account management (with no rights to Exercise of securities) directly held Intermediary rights X
Contractual claim
Conceptual direct holding of securities Investor (shares/bonds)
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•055 When taking a closer look at this model, physical securities certificates in the German model disappear or their significance is no longer valid.12) And both rights, which may be or are represented in such securities, and their book entries become legally effective. Only the subsequent features of intermediated holding are adopted to build the legal framework for securities deposit infrastructure.13)
Lastly, Sweden, Finland, Spain, Greece, Czech, Brazil, and China operate depository infrastructure for dematerialized or electronic securities, along with so-called transparent system14) that gives legal validity and effect to entries made into accounts held by the CSD. In this case, there is no intermediary involved, except the CSD. Records in securities accounts held by intermediaries are not legally effective, but only records on investors’ rights directly managed by the CSD are valid.
3.1.2. Concepts and Types of Clearing and Settlement Infrastructure
In a securities market, the completion of a transaction involves clearance and settlement following trade execution.15) Clearing refers to the process of establishing final positions for settlement. Settlement refers to the process of paying the net amount finalized after clearance. This process consummates a transaction by delivering securities and making payment. The concepts of clearing and settlement are not yet clearly distinguished internationally. In general, the broader definition of securities settlement includes clearing. In a narrow sense, settlement refers to the completion of a transaction through the exchange of securities and money.16) In modern capital markets, blocks of securities are traded through an exchange. Thus, parties to a transaction cannot do settlement on their own through securities delivery and funds payment, highlighting the need for settlement risk
12) In Switzerland, when physical securities come into the indirect holding system, these securities no longer serve their functions, and rights embodied in the securities are separated and named Bucheffecten (book-entry securities). Bucheffekten are circulated from one securities account to another by book entry. This is the legal construction for the Swiss intermediated holding system. 13) The author of this section newly classifies intermediated securities credited to a securities account using the term “account securities (Kontoeffekten)”. See Changmin Chun, ibid, p19~21. 14) A detailed description of ‘transparent system’ is provided by UNIDROIT Study LXXVIII. Doc. 44 - Working Paper Regarding So Called “Transparent Systems” (October 2006); UNIDROIT Study LXXVIII. Doc. 70 - Report of the Transparent Systems Working Group (April 2007). For UNIDROIT rules for transparent system under the Geneva Securities Convention, see Hideki Kanda, et al., Official Commentary on the Unidroit Convention on Substantive Rules for Intermediated Securities (Oxford: OUP, 2012), p45~52; Changmin Chun, ibid, p63~65. 15) See KSD, “Theory and Practices of Securities Settlement Regime”, Pakyoungsa, 2013 (hereinafter referred to as “Securities Settlement Regime”) for more details on clearing and settlement systems for securities transactions. 16) See KSD, ibid, p30, and KSD, Securities Settlement Regime, 3rd Edition, Pakyoungsa, 2014, p287. Clearing and settlement in narrow terms are collectively referred to as clearing in broad terms in Bruno Biais, Florian Heider & Marie Hoerova, Clearing, Counterparty Risk and Aggregate Risk, ECB Working Paper Series No 1481, October 2012, p8. However, this is an exceptional view. Recent global trends, as attested by Principles for Financial Market Infrastructures (PFMI) show that it is general to divide and define clearing and settlement in narrow terms.
056•2014/15 Knowledge Sharing Program with Lao PDR II management.17) Accordingly, it is necessary to have an institution specialized in processing third-party settlement of securities trading. This settlement institution (or settlement agent) is legally defined as “a person or entity that is engaged in the business of “rendering third-party securities settlement service”. In addition, it may be explained as a person or entity that repeats and continues such activity for the aforementioned purpose. In other words, settlement itself is the purpose of business.
The overall process flow chart below depicts clearing and settlement for securities transactions on KRX to help better understand the clearing and settlement process.
[Figure 1-10] Process Flow Chart of Clearing and Settlement for Securities Transactions on KRX
Submission of Quotes Members (commissioned, proprietaty)
Receiving Quates and Trade Execution Trading House (KRX) Correction of Any Errors
Trade Confirmtion
Obligation Assumption
Netting
Confirmation/Finalization of Settlement Positions
Clearing House Notification of Settlement Details (KRX) Guarantee for Settlemant Execution
Handing of Default
Settlemant Instruction
Securities Delivery Payment
Transfer Transfer Settlemant Institution Securities Receiving Payment Receiving (KSD) Settlemant Member’s Settlemant Member’s A/C A/C A/C A/C
Source: KRX (2011), Clearing and Settlement Report.
17) Settlement risk includes credit risk, liquidity risk, system risk, operational risk, and legal risk. For more information on settlement risk and settlement risk management, see KSD, ibid, p85ff.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•057 As illustrated in [Figure 1-10], clearing involves post-trade operations that include (i) trade matching and confirmation, (ii) netting of instructions and establishment of final positions for settlement, (iii) settlement instructions, and (iv) guarantee of settlement. The main components of clearance are trade confirmation and netting. For reference, the term “clearing” is used here because this means determination of obligations or completion of all obligations in broad terms.18)
Meantime, settlement is the process of consummating a transaction by transfers of securities and funds according to the clearing house’s settlement instructions. The settlement institution notifies the clearing house of settlement results (settlement execution or failure).19) As described in the section on securities deposit infrastructure, settlement is undertaken without delivery and receipt of physical securities certificates in modern securities markets. Securities certificates are kept in custody with the CSD, and settlement is carried out by book entry transfer as Figure 5 shows.
There are two types of clearing arrangements: bilateral clearing and multilateral clearing. This classification depends on the number of clearing participants. With bilateral clearing, two parties to a trade enter into a legal relationship and assume counterparty risk, arising from their trading activities.20) Bilateral clearing arrangements are mainly used for a small number of large OTC transactions. To make transactions more secure, trading parties establish and use a master agreement that specifies transaction limits, collateral, netting, events of default and others.21) The most commonly used standard contracts are the Master Agreement published by the International Swaps and Derivatives Association (ISDA), and the Global Master Repurchase Agreement jointly published by the Bond Market Association (TBMA)22) and ISDA. Unlike bilateral clearing, multilateral clearing refers to the clearing of financial products involving multiple parties in a certain range. In this case, transactions are cleared by a securities or derivatives exchange, or a clearing house. With multilateral clearing, transactions are cleared by a single (central) counterparty clearing house. This type of arrangement is commonly used to clear trades on the exchange.23) In the meantime, the purpose of clearing is to reduce final positions for settlement through netting so as to enhance settlement efficiency and reduce liquidity risk. [Figure 1-11] suggests that the use of multilateral clearing significantly decreases final settlement positions. For instance, in [Figure 1-11], securities firm A buys 24 shares from C, and sells 8 shares and 6 shares to B and
18) See KCMI, “Feasibility Study and Proposed Roadmap for the Establishment of ADX Clearing House”, Research Project Report, February 2014 (Seiwoon Hwang, Sohyun Kang, Gilnam Nam, Jin Yougn Yang, Inhyung Lee, Changmin Chun) 19) See KCMI, ibid, p11 20) Ibid, p160. 21) Ibid. 22) Ibid. 23) Ibid.
058•2014/15 Knowledge Sharing Program with Lao PDR II D, respectively. In bilateral clearing, both parties to each transaction settle their respective transactions.24) In multilateral clearing, securities firm A can reduce the number of settlements to one by receiving 10 shares as a result of multilateral netting. The greater the number of trading parties and transactions, the more effective multilateral netting becomes. As for multilateral clearing, clearing occurs through novation, assumption of obligation or open offer. This classification relies on which legal device is used by the clearing house for clearing. Novation means submitting a new obligation and discharging an old obligation by modifying material part of the obligation. As parties to a transaction transfer their contracts to a central counterparty (CCP), their original bilateral contracts are replaced with two contracts with the CCP.25) Assumption of obligation takes place by the way that the CCP assumes obligations of the original parties to the transaction, ensuring the nature of such obligation remains intact. This is adopted by KRX.26) When it comes to open offer, the CCP extends an open offer to act as a counterparty for orders matched to its clearing members. As soon as such a transaction arises, the open offer is automatically deemed to have been accepted by its clearing members.27) Which method is most desirable may depend on each country’s legal framework. Novation and open offer are most popular in the US and Europe, apart from Korea and Japan.
[Figure 1-11] Bilateral Netting vs. Multilateral Netting
Bilateral netting Multilateral netting
A 8 B A B RA =24 RB =22 RA =10 RB =6 6 16 10 6
24 14 CCP C D C 2 14 D RC =22 6 RD =6 RC =0 RD =0
Source: KRX (2011), Clearing and Settlement Report.
24) Also in bilateral clearing, if net settlement is used instead of trade-for-trade gross settlement, positions between the two parties can be netted out at the time of clearing. For more information, see the following settlement methods. 25) Ibid, p13. 26) Ibid. 27) Ibid.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•059 Securities settlement methods can be classified according to the use of netting, netting methods, the use of centralized settlement, and payment terms. Different settlement methods are used, depending on the characteristics of transactions. There are two main methods of settlement: gross settlement and net settlement. With gross settlement, the full quantity of securities is delivered and the amount of funds is paid on a transaction-by-transaction basis. Since counterparties to a transaction mutually become settlement counterparties, gross settlement has the benefit of ensuring transaction stability. However, growth in the value of settlements increases liquidity risk. This settlement method is primarily used for OTC bond trades. With net settlement, settlement can occur on either a bilateral or multilateral basis. Net settlement refers to netting long and short positions in each instrument across traders and settling final positions. This method is employed in most securities markets because it raises settlement efficiency by reducing the aggregate value and number of settlements. Multilateral netting is used in settlement calculations for the securities market in Korea. Net settlement takes place, based on net positions calculated during clearing as explained earlier. Meanwhile, delivery versus payment (DVP) is a settlement method that involves the simultaneous delivery of securities to the buyer and payment to the seller. This is intended to remove settlement risk. DVP models are divided into three types according to how securities and funds are netted out.28) In DVP 1 model, the delivery of securities and the payment of funds are settled on a gross basis, and settlement occurs on a trade-by-trade basis. In DVP 2 model, the securities are settled on a gross basis on the date of settlement whereas the funds are settled on a net basis after the delivery is completed. In DVP 3, both securities and funds are settled on a net basis. In Korea, on-exchange trades are settled on a DVP 3 basis, OTC stock trades between institutional investors on a DVP 2 basis, and trades in the KTS market on a DVP 1 basis.29)
The table below provides the general classification and brief description of securities settlement methods.30)
28) For more detailed information on DVP models, and their advantages and disadvantages, see KSD, ibid, p75~77 29) KSD, ibid, p334 30) KSD, ibid, p59
060•2014/15 Knowledge Sharing Program with Lao PDR II
General Classification of Settlement MethodsClassification Settlement Description Criteria Method
Gross settlement Trade-for-trade settlement
Use of netting Long and short positions are netted off to a single Net settlement position for settlement Bilateral net Netting between two parties No. of settlement participants Multilateral net Netting between multiple parties settlement
Possession of Payment netting Non-legally binding netting legal binding Netting force Novation netting Legally binding netting methods Daily net settlement Position netting takes place every day without (DNS) continuous netting
Use of If the net position of a trade executed on a specific date is not settled on the agreed date of rolling basis Continuous net settlement, this unsettled position is carried over settlement (CNS) to the next day and is settled after being netted down against the next day’s net position
Centralized Transactions are centrally settled through a Settlement settlement settlement institution centralization Decentralized Settlement occurs between parties to a settlement transaction Account-period All trades are settled once on a given day within settlement the accounting period Settlement cycle Every day is taken as separate settlement. The Rolling settlement trades done on a day cannot be netted off against those done on the earlier day Physical Actual transfers of securities and funds Availability of settlement liquidation Cash settlement Settlement through resale or repurchase
Exchange of securities and money at the same DVP time Payment terms FOP (free of Delivery of securities without payment payment)
Source: KSD(2012).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•061 3.1.3. Conclusion
This section has looked at the concepts of securities deposit, clearing and settlement. As described earlier, securities deposit infrastructure is built in various ways, and the legal construction of securities holding system determines the nature of rights that investors hold, and the way these rights are exercised. Global recommendations are that regardless of the design of the legal framework, the characteristics of securities deposit regime should be sufficiently incorporated into the applicable law. In other words, the relevant legal underpinnings should well reflect the features of securities holding infrastructure, regardless of whether physical securities exist or whether securities exist in dematerialized or electronic form. The most important characteristic of deposited securities is transfer of interests in securities by book-entry.
Securities clearing and settlement systems are the infrastructure that completes transactions by confirming trade information, establishing settlement positions through netting, and conducting settlements. When securities deposit is subject to property law, clearing and settlement can be seen as a set of legal activities to maximize the efficiency of trading parties from a contract law perspective. Novation, assumption of obligation and open offer are three legal devices used when transactions are cleared by a clearing house through netting. Countries tend to employ the most familiar device(s) among them given their respective laws or transaction types.
Lastly, securities deposit, clearing and settlement systems have been established to make securities-related operations more efficient in almost all countries with capital markets. They are the most important infrastructure that should be in place along with capital market development.
3.2. Historical Evolution of Korea’s Securities Deposit Infrastructure through Stages of Capital Market Development31)
Korea’s securities deposit and settlement regime was first introduced in 1973, and evolved gradually in line with directions and changes of capital market development. Historical development of Korea’s securities depository and settlement systems can be divided into five phases: introduction, entrenchment, growth, maturity and operational advance. This section focuses on the first two phases of development to meet the purpose of this report, but explore the growth phase if needed.
31) This section is based on the modified and enhanced content in KSD’s Securities Settlement Regime, 3rd edition, Pakyongsa, p7-15.
062•2014/15 Knowledge Sharing Program with Lao PDR II 3.2.1. Introduction Phase
Book-entry transfer system was launched in Korea against the backdrop of sharp growth in the number of listed stocks and trading volume in the securities market. The market growth was driven by a boom in initial public offerings, resulting from the government’s policy initiative for capital market development starting from 1968, and its strong policy to encourage firms to go public in 1972. There arose a need for book-entry transfer system, which replaces the transfers of share certificates, to improve settlement activities to keep pace with the market growth. Consequently, the provision of “book-entry transfer” was inserted into the 5th amendment to the Securities and Exchange Act (the SEA) on February 1973. The new provision required that any corporation desiring to offer book-entry transfer service obtain approval from the Minister of Finance. This laid the legal foundation for the rendering of book-entry transfer service. Later, the primary market started to function properly thanks to the government’s measures to foster the capital markets as well as strong IPO activity. Moreover, amid a rapid increase in the trading volume of the secondary market, Korea Securities Settlement Corporation (KSSC) as a central securities depository (CSD) was founded on December 6, 1974 to provide book-entry transfer service for the purpose of streamlining the settlement process.32)
This was a starting point from which the securities settlement system was introduced in the Korean market. The depository institution, a core component of the securities settlement regime, was launched as an independent body with its own staff, which conducts book-entry transfer, getting rid of the original functions of securities settlement, and the central custody and movement of physical securities certificates. The securities depository occupied a pivotal position in the secondary market.
The 6th amendment to the SEA took place on December 21, 1974. The new Act set forth detailed rules for book-entry transfer. The term “book-entry transfer institution” appeared in the SEA for the first time. With respect to book-entry transfer, the revised Act required (i) securities eligible for book-entry transfer to be designated by the Minister of Finance, (ii) permitted the book-entry transfer institution to issue a certificate of securities deposit, (iii) allowed such institution to provide both securities deposit and registration services, (iv) prescribed rules for the commingled custody of securities, and v) strengthened oversight and supervision on the book-entry transfer institution by requiring it to obtain approval on its business policy and rules from the Minister of Finance.
32) The 5th amendment to the SEA provided an interim measure in its appendix to allow the exchange to offer book-entry transfer service until any entity acts as a transfer agent with the government’s approval. Based on that, the exchange provided book-entry transfer service until December 6, 1974. Later, this function was transferred to Korea Securities Settlement Corporation upon its establishment.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•063 3.2.2. Entrenchment Phase
3.2.2.1. Securities Standardization and Full Implementation of Book-entry Settlement
To make the securities holding and settlement regime take root, securities issuance, among other things, should be standardized. And restrictions should not be placed on the trading of standardized securities eligible for deposit at a securities depository, and further the custody, return, and principal and interest payments of the securities. In addition, securities need to be issued in a standardized form so that counterfeit, forged or altered securities can be easily identified in the trading process. Especially, demand for issuing standardized securities emerged due to several incidents of forged certificates in 1975. In August 1977, the Rules for Handling of Uniform Securities were enacted to provide a framework for the circulation of standardized securities.
In the meantime, the Book-entry Transfer Normalization Measure was put in place on April 18, 1975. The gist of this measure was to mandate KSSC to settle securities transactions. Book-entry settlement of all transactions was fully implemented on July 7, 1975. As a result, on July 18 of the same year, KSSC commenced book-entry settlement service. At that time, the volume of stock trades in the secondary market grew increasingly, and physical settlement volume skyrocketed. These changes raised the need for the full implementation of book- entry settlement to avoid the risks and inconveniences incurred by physical movement of share certificates.
3.2.2.2. Adoption of Book-entry Settlement for Bonds
The bond market was much smaller than the stock market until the mid-1970s. It became vibrant gradually from 1977 onwards and grew dramatically during the 1980s. In 1982, bond trades accounted for 76% of total securities trades. This suggests that the securities market was transformed into the bond-driven market. However, since bond transactions were settled through the transfers of physical bond certificates and funds, a surge in bond trading volume magnified inconveniences and problems caused by physical settlement. Settlement emerged as a big obstacle to facilitating bond trades.
In response, pilot deposit and settlement services for corporate bonds commenced in May 1982. Some listed bonds were designated as depository-eligible issues, and the transactions of the selected issues were settled by book-entry transfer at KSSC. In September 1982, the depository system was expanded to include all listed corporate bonds, except government bonds and agency bonds. In 1983, all
064•2014/15 Knowledge Sharing Program with Lao PDR II listed bonds including government bonds and agency bonds became subject to the depository system and the book-entry system.
Book-entry settlement for bond trades is summarized below. As with book-entry settlement for stock trades, KSSC opted for the centralized and commingled custody of bonds by issue, recognizing the acquisition of co-ownership in deposited bonds by depositors. This enabled book-entry settlement for bond transactions. What is more, interest income on deposited bonds was collected together by the book-entry transfer institution, which, in turn, distributed such interest income to individual depositors in proportion to each depositor’s co-ownership stake in the bonds. This greatly reduced the transfer of bond certificates to exercise rights attached to the bonds.
3.2.2.3. Acceleration of Depositing Securities in Central Depository
Until the early-1980s, institutional investors, (such as securities companies, banks, insurance companies and investment trust companies), the major participants of the securities market, lacked awareness of securities deposit and settlement infrastructure, and preferred to hold securities certificates. They kept the majority of securities from clients in their own custody. Under these circumstances, it was difficult to build efficient securities-holding and settlement systems, without introducing a central depository system for securities held by institutional investors.
Against this backdrop, the Securities and Exchange Commission amended its rules governing the administration of securities by securities firms on January 8, 1983. The revision aimed to tackle inconveniences, problems and risks arising from direct holding, handling and frequent transfers of physical securities certificates in the face of block deals in the market, thereby promoting securities trading. This revision paved the way for accelerating the adoption of the central depository system. The amended rules required securities houses to deposit securities from their clients with KSSC, setting aside 10% of such securities for possible return. As a consequence, over 90% of clients’ securities were centrally deposited in KSSC.
3.2.2.4. Adoption of Consecutive Deposit System
The revised securities administration rules as mentioned above strengthened the central deposit function. However, the transfer of physical securities was still required when an issuer set a base date to determine who would exercise shareholder rights. Returning securities was a cumbersome but necessary task. At that time, when an investor deposited his or her share certificates with a securities firm, the deposited certificates were registered in the name of the securities company on the issuer’s books and held on behalf of the investor. These securities were put in custody at
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•065 KSSC, the CSD in Korea. On the base date, (e.g., at the end of the year), the securities firm got back the deposited certificates from KSSC to change the holder of the certificates in the issuer’s shareholder register. This aimed at establishing rights to the shares and exercising the said rights. Then, the certificates were returned to KSSC at the end of the year. This year-end return was a big impediment to increasing the efficiency and rationalization of book-entry transfer. Furthermore, during this process, the share certificates could not be sold because these were not deposited with KSSC. Meantime, the securities company and the transfer agent had to spend human or physical resources on preparing securities statements, and returning and safekeeping of the certificates. The heavy workload caused financial losses. On top of that, the risk of bona fide acquisition existed from a legal perspective due to the theft or loss of the certificates. And the issuer struggled to manage its heavy workload related to shareholder management when the transfer of titles was concentrated at the end of the year. To reduce such heavy workload, eliminate the risk of accidents, and ensure the rationalization and efficiency of book-entry transfer, the Consecutive Deposit System was introduced on April 30, 1985.
In this system, share certificates owned by clients or securities firms were registered in the name of KSSC, the book-entry transfer institution. Clients and securities companies were able to exercise their rights to securities through KSSC. This system greatly decreased the physical movement of securities certificates concentrated at the year-end and cut down the workload of securities companies. Thanks to the Consecutive Deposit System, securities deposit and settlement infrastructure was perceived as the system that makes it easier to settle securities transactions and exercise securities rights. This system was operated under mutual agreements between KSSC and individual depositors (KSSC’s participants), and was later legally prescribed in the revised SEA in 1987.
3.2.2.5. Legal Underpinnings for Consecutive Deposit System
The 9th amendment to the SEA in November 1987 contained drastic rules and regulations aimed to improve the existing book-entry settlement system and protect real owners’ rights in securities kept centrally at KSSC. A summary of the relevant legislation is provided below.
Firstly, depositors (i.e., intermediaries) and their clients are presumed to have co-ownership in deposited securities according to types, issues and quantity of securities recorded in client accounts (i.e., the intermediary’s books) and depositor accounts (i.e., the CSD’s books) - establishment of co-ownership. Secondly, book- entry transfer between depositor accounts held with KSSC for the transfer or pledging of securities has the same legal effect as the issuance of such securities. As a result, the possession and transfer of securities through book-entry become
066•2014/15 Knowledge Sharing Program with Lao PDR II legally valid and effective. Thirdly, deemed deposit, and joint and several liability were set forth in the SEA to strengthen the protection of clients’ property rights. The amended Act stipulated that securities shall be deemed to be held in custody at KSSC when a client deposits such securities in a securities firm, and that if the deposited securities are stolen or lost, not only the relevant securities companies but also KSSC and other securities houses shall be jointly and severally liable for such incident. The latter provision was intended to reinforce the protection of clients’ securities. Fourthly, legislation on the Consecutive Deposit System provided the legal basis for the registration of share certificates in the name of the transfer agent, KSSC. Fifthly, the Actual Shareholder System was introduced to recognize the clients of securities firms as actual shareholders. Subsequently, clients were legally recognized as the same shareholders as the shareholders of record, thereby being able to exercise their relevant shareholder rights vis-à-vis the issuer, either directly or indirectly. Backed by such legal underpinnings, the overall book-entry settlement system was implemented in earnest, ranging from the existence of the book-entry transfer institution and the provision of book-entry transfer service for the possession, transfer and exercise of rights in securities held centrally at KSSC. It should be noted that non-bearing of share certificates among deposited securities was legally permitted for KSSC. This contributed to rationalizing the custody of physical securities certificates.
3.2.3. Development and Growth of Securities Deposit and Settlement Infrastructure
As the capital markets grew in size, there was increasing demand for expanding the scope of instruments eligible for collective deposit and settlement, and curbing the issue volume of securities certificates. With an increase in the number of actual shareholders who were uninterested in an annual meeting of shareholders, listed companies had troubles holding their annual shareholder meetings. Accordingly, demand was mounting for improving the regime for the exercise of actual shareholders’ voting rights. In response to the changing securities market and the demand for institutional improvement, the 10th revision of the SEA took place in December 1991. The revision includes the following:
Firstly, the authority to designate depository-eligible securities was transferred to the Securities and Exchange Commission from the exchange, in order to vitalize the OTC stock market, and promptly respond to the diversification of financial instruments resulting from the globalization of the capital markets. In practice, the scope of securities subject to the securities depository and settlement regime was expanded to include i) OTC–traded securities, registered with the Korea Securities Dealers Association, and ii) unlisted securities whose trades are typically block deals. Secondly, legal grounds were laid for the shelf offering or registration of publicly
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•067 placed shares or bonds in the name of KSSC in their issuance stage at the request of investors participating in a public offering. This was called the En-bloc Depository System. Under this system, securities could be issued in the name of the securities depository upon their issuance, and at the same time, these issued securities were recorded in depositor accounts (KSSC’s books). The system makes securities holding possible without issuing physical securities certificates. Previously, the quantity of the certificates could be reduced only if the securities were already deposited with KSSC. In the issuance stage, however, securities were issued and distributed in the name of investors participating in a public offering, leading to explosive growth in the issue volume of securities certificates. Furthermore, these physical securities were placed in custody at KSSC, creating custody problems. As for share certificates, in particular, KSSC applied for the non-bearing of the certificates or wanted to receive physical certificates re-issued in large denominations. On the issuer side, 90% of securities issued in a huge volume became obsolete in one month. Subsequently, issuers wasted large amounts of money on issuance, and faced a heavy workload due to securities management. After the introduction of the En-bloc Depository System, however, issuers were able to issue securities in the name of KSSC while investors were able to hold and transfer rights in securities through book entry holding and transfer at KSSC. Issuers could drastically cut issuance costs, and reduce the time required for issuance as much as they could save time preparing securities statements. Investors enjoyed brisk securities trading thanks to shorter issuance timetable. Securities firms could greatly reduce their workload related to securities administration. Thirdly, the revised Act required actual shareholders to notify issuing companies of their absence or participation in an annual meeting of shareholders at least five days before the meeting was held. If actual shareholders fail to make such a notice, KSSC may exercise their voting rights on an item(s) of agenda, with no impact on shareholder rights, as prescribed by the law, in a way that its exercise would not affect the results of the shareholders’ meeting. This was to address problems in convening and operating annual meetings of shareholders, arising from indifferent actual shareholders and non-exercise of their voting rights.
Meanwhile, KSSC were transformed into Korea Securities Depository (KSD), a special public corporation under the SEA when the 11th amendment to the SEA occurred in 1993. It meant that deposit and settlement business could be created and regulated by a special act, instead of licensing system. KSD executed a rights issue to restructure the ownership structure with a focus on users, thereby diversifying its shareholder composition. Subsequently, it had 109 shareholders including the exchange, securities firms and banks. And KSD’s business scope was expanded to include the custody and settlement of foreign securities. By providing KSD with the authority to designate depository-eligible securities, KSD as the CSD was able to play a bigger role and enhance its presence.
068•2014/15 Knowledge Sharing Program with Lao PDR II Even after the 11th revision in 1993, the SEA went through several changes, which resulted in the broader and more developed business scope of KSD. The FSCMA, which came into force in 2009, solidified the legal basis for the securities depository and settlement infrastructure.
3.3. Economic Functions of Securities Deposit and Settlement Infrastructure33)
In a capitalist economy, the economic functions of any system or regime in general come down to efficiency and security (or safety). This section examines the economic functions of settlement system, as part of securities deposit and settlement infrastructure, which is closely related to economic benefits.
3.3.1. Enhancing the Efficiency of Financial System
As we all know, efficiency means realizing maximum effects at minimum cost. Efficiency consists of speed, accuracy and minimum cost. Given that, efficient securities settlement depends on whether block deals are settled at lower costs in rapid and accurate manners.
As described above, securities settlement system is designed to reduce huge costs and time spent on the delivery of securities and the payment of funds for securities transactions between financial institutions taking part in the system. As such, ensuring the convenience and efficiency of settlement through institutionalized system is a very important goal that capital market infrastructure should pursue in terms of social cost reduction and prompt settlement.
Economic efficiency in securities settlement infrastructure can be attested as follows. Firstly, the securities deposit system developed, thereby enabling book-entry settlement without actual movement of physical securities. Book-entry settlement reduces time and money spent on the physical movement of securities certificates, and also helps avoid the risk of loss upon the delivery and receipt of the certificates. Secondly, the choice of net settlement can increase the efficiency of securities settlement. Net settlement significantly reduces the size and number of securities and funds transfers necessary for settlements between participants, thereby making the securities settlement system more efficient, and drastically cutting settlement costs. At the same time, this method mitigates the magnitude of credit and liquidity risks incurred by market participants. The Lamfalussy Report, released by the Bank for International Settlements (BIS) in November 1990, unveiled that the number and value of settlements can be reduced by more than 50% when netting arrangements
33) Section 1.2.2.3 is based on KSD, Securities Deposit and Settlement System, 3rd Edition, Pakyoungsa, 2014, p241~244; KSD, ibid, p16~20.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•069 are used for foreign exchange transactions. For example, multilateral netting in Korea decreased the value of settlements by over 90% relative to the value of trading on the stock exchange. In addition, this netting reduces the size of credit and liquidity exposures incurred by market participants. Further, as for the securities settlement system using multilateral netting, a clearing or settlement organization has rigorous eligibility criteria for participants in that system, providing settlement guarantees for confirmed transactions. Clearing or settlement participants do not need to spend search costs to assess the credit position of counterparties. Thirdly, computerized settlement enables the massive volume of transactions to be handled rapidly and efficiently. This shortens the time period from transaction execution to settlement, and reduces outstanding position (unsettled balance), which represents settlement risk. Moreover, computer systems make it technically easier to identify or capture settlement risk, which is needed for risk mitigation.
Efficient securities settlement system, as [Figure 1-12] shows, cuts the costs of information gathering and settlement, which, in turn, increases investor returns on securities investment. And larger returns on securities investment create new demand for securities, pushing up securities prices. (E0 ⇒ E'). The increase in securities prices stimulates the supply of securities, ultimately raising the efficiency of the economy as a whole (E'⇒E1).
[Figure 1-12] Functions of Securities Settlement System
Security price
SO DO E’ DO SO P’O
EO E1 P1=PO
Size of O NO NO’ N1 funds
Source: KSD (2014), Securities Settlement System.
070•2014/15 Knowledge Sharing Program with Lao PDR II 3.3.2. Strengthening the Security of Financial System
Security (or safety) refers to the elimination or minimization of various risks. The security of the financial system relies greatly on the probability of proper fulfillment of rights and obligations arising from financial transactions, that is, the probability of settlement execution. Recent financial liberalization and globalization increased the links between domestic and international financial markets, and between financial institutions, leading to stronger interdependence among settlement systems. The changing landscape of the financial markets heightens the likelihood that a particular financial institution’s settlement default has rapid contagious effects on other financial institutions participating in the same settlement system, threatening the stability of the financial markets in the end. Therefore, countries around the world put an emphasis on making their settlement system more secure and safe to ensure the financial system’s stability. It is critical to build stable settlement system in the following three aspects.
Firstly, it is inevitable to secure the management stability of financial institutions which are members of a settlement institution. For that reason, the settlement institution monitors the financial or non-financial status of participants according to pre-defined financial or non-financial eligibility criteria on a regular or ad-hoc basis. Secondly, settlement processing method should be secure and safe. Therefore, settlement bodies in countries have established various safeguards, such as cash withdrawals on the settlement date, the adoption of DVP, and the buildup of a default fund, so as to minimize settlement risk in their respective settlement systems. Thirdly, securing legal stability is also important. Unless legal grounds are clear for securities settlement procedure, mandates or responsibilities, settlement participants are not aware of their responsibilities. This will increase systemic risk.
3.3.3. Contradictory Relationship between Security and Efficiency
Contradictory relationship exists between efficiency and stability (or security) that securities settlement infrastructure pursues. In other words, one function can be enhanced only at the expense of the other under optimal conditions. This contradictory relationship can be observed across the securities settlement infrastructure, ranging from settlement methods to the scope of participants. For instance, if the settlement institution provides credit for securities borrowing or settlement without collateral, this makes the settlement process more efficient but increases the default probability of financial transactions. As a result, it is highly likely to undermine the security and stability of settlement system. When it comes to the scope of participants, settlements are undertaken more efficiently if the number of financial institutions participating in the system goes up. However, this raises the probability of settlement fails by ailing financial institutions with bad credit quality.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•071 Despite this theoretical debate, securities settlement infrastructure is usually not in its optimal shape. Hence, efficiency and stability are enhanced simultaneously by overhauling settlement rules and practices or improving the settlement process. The merger of settlement institutions into a single body is a good example of how both efficiency and stability of securities settlement infrastructure can be enhanced.
072•2014/15 Knowledge Sharing Program with Lao PDR II ■ Section 3
IT Infrastructure for Korean Capital Markets
1. Introduction
Contrary to the capital market history in advanced countries, the Korean capital markets have achieved condensational growth in a short period of time, in terms of the major functions of stock, bond and derivatives markets.
This section mainly describes the Korean experience in developing capital market IT infrastructure. Korea has witnessed constant growth: the foundation for the primary stock market was set in the 1970s; stock trading volume was escalated in the 1980s; capital market liberalization policy was adopted in the 1990s; and the market is heading towards the globalization in the 2000s. What has boosted the market growth was IT infrastructure, mainly formulated and implemented by the Korean government.
For successful capital market operation, the Korean government issued government bonds, invigorated the corporate bond market to fund the private sector, and established infrastructure for the derivatives market, including the futures and options markets. In the early 2000s, the government introduced the KOSDAQ market to foster small-and medium-sized enterprises (SMEs) and venture capitals. All of the efforts demanded rapid evolution of IT infrastructure.
Meanwhile, Korea Exchange (KRX) put consistent effort into upgrading the IT infrastructure, which is now recognized for outstanding performance. Furthermore,
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•073 it promoted new business models with the combination of various derivatives products.
This research shows that establishing IT infrastructure in the early stage of economic growth requires standardized plans and policies led by the government to minimize trials and errors in the ongoing market operation.
2. IT Infrastructure Development for the Capital Markets 2.1. Overview
In the 1970s, the Korean capital markets saw the establishment of the foundation for the primary stock market. The capital markets have continued to grow over time, with explosive growth in stock trading volume in the 1980s, market liberalization in the 1990s under the Asian financial crisis; and globalization in the 2000s. This constant growth was greatly supported by relevant IT infrastructure development, driven by government policies.
Financial IT systems in advanced countries were established and developed with the expansion of the private capital market. On the other hand, IT systems for the capital markets in Korea were developed with government involvement. The government established a dedicated IT service provider for the financial industry as a part of its effort to facilitate direct financing and efficiently manage capital market IT infrastructure.
To provide more insights into the Korean capital markets, the evolution of IT infrastructure from the 1970s to the present is briefly explained below in five stages. Each stage was accompanied by the implementation of IT infrastructure to foster capital market development. The major footprints of IT infrastructure can be explained by the roles of KOSCOM as an financial industry IT service provider in the evolution of the IT infrastructure in each stage.
2.2. IT Infrastructure for the Capital Markets by Economic Development Stage
2.2.1. Early Government Bond Market: Introduction of Public Bonds
During this period, the Korean government began to increase the issuance of government bonds and special-purpose bonds to finance the 5-year Plan for Economic Development. Capital market IT infrastructure started to emerge in the late 1970s, starting with the first model of market data posting system and the stock
074•2014/15 Knowledge Sharing Program with Lao PDR II trading system for the exchange. It was an embryonic period for capital market IT infrastructure in the Korean capital markets.
2.2.1.1. Introduction Stage (1960~1979)
At this stage, the government enhanced the Plan for Economic Development and enacted the Public Corporation Inducement Law34) in 1973. Accordingly, the number of stock investors as well as listed stocks, and trading volume were sharply increased. Against the backdrop, the capital markets called for computerization of stock trading because manual processing had limitations in the growing market, and it was necessary to deliver market data to investors in a timely manner. The government and the exchange then established KOSCOM, a company specialized in implementing IT systems for the securities industry, to address the financial burden and staffing problems that securities companies might face in building their own systems. In 1979, the securities exchange relocated its headquarters in Yeouido, Seoul, to be prepared for future growth in the stock market. KOSCOM launched a market data posting system as its first project in July 1979, and started data distribution service to securities firms, which could replace the existing manual processing. This was the first step taken to computerize the securities market in Korea.
2.2.1.2. Fledgling Stage (1980~1988)
With the global economic expansion in the 1980s, the Korean economy developed and stock trading became largely active. Behind the explosive stock market growth were the government’s measures to stimulate the stock market and computerized infrastructure for securities trading which had been built up continuously since the early 1980s. KOSCOM started to provide securities information inquiry terminals in 1980, a joint online system for securities companies in 1983, and stock trading system for the exchange in 1988. These systems made stock trading more reliable and easily accessible, which, in turn, contributed to increasing stock issuance and trading, and expanding the investor base.
2.2.2. Era of Monetary Stabilization Bond: Growth Stage (1989~1997)
Demand for MSB issues dwindled in the 1990s due to trade and current account deficits. Previously, MSB had accounted for more than 50% of the government bonds and agency bonds outstanding. Companies turned their eyes to the corporate bond market in the face of the bearish stock market. These changes set the stage for
34) The law was enacted in December 1972 to facilitate corporate financing and improve corporate financial structure by encouraging companies to go public and inducing participation from the general public in the corporate sector.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•075 advancing IT infrastructure for the capital markets.
In this period, basic infrastructure was established to invigorate the securities market, as evidenced by the measures to vitalize the corporate bond market; preparation for the launch of the OTC stock market for SME funding; the implementation of IT systems for the financial sector as part of the computerization plan; and the opening-up of the capital markets to foreign investment.
As the stock market became sluggish in the 1990s, the foundation for the infrastructure was laid to foster the bond market. It includes disclosure system for OTC bond trades launched in 1993, and bond trade and settlement systems in 1994. As OTC stock trade became active, the KOSDAQ market was launched in 1996 with independent trading and settlement systems for OTC stocks.
Prior to the opening of the capital markets to foreign investors, the Foreign Investment Management System (FIMS) was introduced to manage investment limits on foreign investors in the stock market in 1992 and for bond market in 1994.
In 1996, Stock-Net, an exclusive network for stock trading was operated to modernize the communication systems of the securities industry and shore up the government’s plan to build financial information network. To provide key information on securities, Stock-Net enabled the main system of the exchange and the terminals at each branch of securities companies nationwide to be connected through high-speed network. Built upon the network, the Securities Supervisory Board (SSB) could computerize its supervision and oversight functions while securities companies established IT systems for handling their business activities to catch up with their large peers .
2.2.3. Post-crisis Periods
After the Asian financial crisis in 1997, the government pushed for financial sector reform, and introduced regulations and IT systems to boost government bond trading. Capital market IT infrastructure developed considerably during this takeoff stage. After the global financial crisis, which started with the US subprime mortgage problem, capital market IT infrastructure entered into the maturing stage. This stage is characterized by the development of high-speed systems in the midst of the globalization of the financial market.
2.2.3.1. Takeoff Stage (1998~2008)
At this stage, the capital markets were poised to be full-fledged, with the adoption of many IT systems. With the IT innovation, stock trades via Online Home
076•2014/15 Knowledge Sharing Program with Lao PDR II Trading System (HTS) were active as the number of the Internet users grew rapidly in the country. Meanwhile, IT security was emerged as a major interest.
As the 1997 financial crisis led to a sharp increase in government bond issues, a series of IT systems were implemented gradually to support government bond trading. In 1998, mark-to-market system was launched to meet the needs of mark- to-market pricing in the secondary bond market. Meantime, the Korean government introduced primary dealer (PD) system to absorb growing government bond issues in the market. Also, trading system for government securities was launched in 1999 to process block orders from PDs.
In addition to the increased government bond issuance, foreign investment in Korean won-denominated government bonds and stocks started to soar during this period. To prevent market disorder from massive foreign investment, the government recognized the necessity of monitoring and supervising foreign investment. In 1999, it introduced mandatory reporting on foreign capital flows via the foreign exchange network, and required foreign investors to invest in the domestic capital markets only through local securities intermediaries.
In 2000, systems for government bonds and corporate bonds were launched to support sharply increasing trades in both government bond market and corporate bond market. With the adoption of centralized quotation for OTC bond trading, a centralized platform for quote aggregation was launched in 2007. Through the platform, the transparency and efficiency of OTC bond trading improved, and various types of bond derivatives were generated using the trading data on the platform.
2.2.3.2. Maturing Stage (2009~)
The Korean economy fell into recession in the wake of the global financial crisis triggered by the subprime mortgage debacle. During the crisis, investment in capital market IT infrastructure was sluggish. As the financial market overcame the depression, rapid globalization began. The capital markets became brisk thanks to the development of high-speed systems and other various systems based on open source development platform. In 2014, Exture+, a high-speed trading system, was launched. It brought radical improvement to the matching system’s capacity to handle order volume daily. In addition to the enhanced matching system performance, Exture+ enables efficient, flexible and immediate response to market changes.
KOSCOM and other IT service providers in Korea have been contributed in various ways to capital market development, as attested by the introduction of recently
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•077 popular big data analytics to the financial market or the application of mobile technology to financial business models.
Evolution of Korea’s Capital Markets and IT System Implementation by KOSCOMStages Rules & Regulations IT Infrastructure
1968: the Act on the Furtherance 1977: established KOSCOM corporation Introduction of the Capital Markets. 1978: took over computerization tasks Stage 1973: the Public Corporation from Korea Futures Exchange. (1960~1979) Inducement Law. 1979: launched market data posting system.
1980: launched stock market data inquiry 1981: announced a long-term system. plan for the globalization of the 1983: launched common online system Fledgling capital markets. that securities firms could use. Stage 1983: announced the measure 1985: launched stock market composite (1980~1988) to expand the functions of the data inquiry system. capital markets. 1988: launched automated stock trading system.
1992: gradually expanded 1991: put the Stock-Net into operation. foreign investment limits . 1995: commenced information terminal 1995: the Dot-com boom & the service for institutional investors. Growth Internet popularization. 1996: launched stock index futures trading Stage 1996: launched the market for system. (1989~1997) stock index futures. 1997: launched stock index options 1997: opened the KOSPI 200 trading system. options market. The securities market became fully 1997: the Asian financial crisis computerized.
1999: Internet users reached 10 million. 1998: launched SAVE+. 2004: Began listing stock index 1999: introduced Primary Dealer (PD) futures and options on the system. Takeoff futures exchange. 2002: launched disaster recovery and Stage 2005: consolidated the securities backup (BCP) service. (1998~2008) exchange, the futures exchange 2007: launched PowerBASE. and KOSDAQ and launched Korea 2007: launched a centralized platform for Exchange (KRX). OTC bond quotes aggregation. 2008: the global financial crisis. 2009: launched Exture, the trading system. 2010: global economic depression. 2010: established the Center for 2012: opened the electronic Integrated Security Control. commerce market for 2011: rolled out trading system for the Maturing petroleum. Lao Stock Exchange. Stage 2013: revised the FSCMA 2012: implemented trading system for the (2009~) (Korea’s capital markets act). Cambodia Stock Exchange. 2013 : launched the KONEX 2013: developed KONEX market system. market. 2014: rolled out Exture+, the next 2014: opened the KRX gold market. generation trading system. Source: KOSCOM’s Growth and Development (2013), 55-year History of KRX (2011), KRX website (Retrieved in June 2015).
078•2014/15 Knowledge Sharing Program with Lao PDR II 3. Current IT Infrastructure for the Bond Market 3.1. Business Process Flow of the Bond Market
Bond market operations are largely divided into primary and secondary market activities, data handling and market control. Primary market activities include issuance request, auction, issuance approval and ISIN assignment. Secondary market activities are conducted in the exchange and OTC markets where issued bonds are traded. And data handling encompasses the collection of data generated from primary and secondary markets and the distribution of data to investors. Meanwhile, market control is undertaken by regulators to ensure fairness in bond trades and investor protection. All these organically connected activities have underpinned the growth of the Korean bond market.
[Figure 1-13] Business Process Flow of Korea’s Bond Market
Market Primary Market Information A company requests an Control Request issuance underwriter to issue bonds
The underwriter asks for Collect issuance data Book-building / Auction book building and conduct an auction
Apply for issuance / The underwriter requests Approval the supervisory to issue the bonds and get approval
Supervision The underwriter receives & Assign ISIN code Disclosure ISIN code from ISIN Store in DB Disclosure authority & (Information Data terminal, Deposit bonds The underwriter deposits processing Data Feed) bonds to the depository
Issuance approval & Corporate Secondary Market disclosure Bond trades on the market Exchange Market orfanized by the exchange Collect trading data OTC Market Bond trades on eht OTC market
Bond Pricing Credit Rating Seeelement
Source: KOSCOM Operation Manual (2014).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•079 To develop the bond market, a financing channel for the government and companies, the market needs to be well equipped with infrastructures including laws and regulations, market environment and IT systems. Moreover, these infrastructures should operate systematically. In Korea, institutions involved in the operation of the bond market perform their roles and exchange market information through their systems and networks to conduct their functions efficiently.
The roles of institutions and organizations in the Korean bond market are as follows: the Ministry of Strategy and Finance (MOSF) and the Bank of Korea (BOK) are responsible for issuing bonds. Korea Exchange (KRX) and Korea Financial Investment Association (KOFIA) cover bond transactions in the secondary market. Korea Securities Depository (KSD) provides depository service. KOSCOM has responsibilities for operating and managing bond market IT infrastructure. The Financial Supervisory Service (FSS) supervises the overall bond market. To ensure the fair value of bonds, there are four bond pricing agencies and four credit rating agencies. The roles and responsibilities of all stakeholders described above enable the Korean bond market to challenge comparison with other advanced bond markets in the world.
[Figure 1-14] Business Process Flow of Korea’s Financial System
MOSF
SEC FSS BOK
Organizers of market infrastructures KRX KSD KSFC KOSCOM KOFIA
Market Establishment Market Establishment Securities Bond Market OTC Market Banks Individual Exchange(KRX) (KOFIA) Invesolrs Market Insurance Participation Companies Insitutional investors Information Provision Foreign
Credit Rating Bond Pricing SMBS KMB Agency Agency
Source: KOSCOM Operation Manual (2014).
080•2014/15 Knowledge Sharing Program with Lao PDR II 3.2. Key Components of IT Infrastructure for Korea’s Bond Market
IT infrastructure for the Korean capital markets has grown into the present state from the 1970s and 1980s which saw a great increase in securities trading volume. Main contributors were the government’s consistent policies and related authorities’ persistent efforts. Along with the market system development, bond market infrastructure also developed, based on the experience of efficient stock market operation through IT systems. The table below describes the key components of IT infrastructures in Korea’s bond market and their operators.
Key Components of IT Infrastructure for Korea’s Bond MarketSystem Owned Developed / Main Purpose Name by Operated by
- Auction platform for government Auction System BOK BOK bonds and MSB - Book-building and auction for Book-building System KOFIA KOSCOM corporate bonds
ISIN System KRX - Assignment of ISIN codes KRX
- Report and approval of bond DART FSS issuance FSS - Electronic disclosure system
Depository System KSD - Depository and settlement system KSD
- Trading in the exchange market EXTURE+ KRX - Settlement information - OTC bond trading system (collection FREEBOND KOFIA of quotes)
B-TRIS KOFIA - Disclosure system for OTC bonds
- Data Terminal System: disclosure KOSCOM of primary and secondary market information through terminals Data KOSCOM - Data Distribution System: distribution of primary and secondary market information to the market participants
Source: Websites of each organization (Retrieved in June 2015).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•081 Systems for the primary market include auction system for government bonds, book building system for corporate bonds and ISIN system for code assignment. Auction system has developed into an electronic bidding system, replacing the manual bidding for efficient management and issuance cost-saving. ISIN system verifies the identification of bonds, and improves the process of issuance, trade and management.
As for market management system, the FSS has an electronic disclosure system known as DART, which provides a platform for bonds issuance application and approval. DART system reinforced the immediacy of disclosure, saved costs through electronic documentation, and improved transparency as it is linked to corporate financial data.
Bond trading systems for the secondary market include such KRX trading platforms as Ordinary Bond Trading System, Small-lot Public Bonds Trading System, Primary Dealer Trading System and Repo Trading System. For the OTC bond market, KOFIA operates FREEBOND and B-TRIS system.
To deliver and disclose market data from the primary and secondary markets to investors and institutions, KOSCOM operates market data systems including data distribution system and data terminal system. KSD, an institution for depository and settlement, operates SAVE+, the real-time data processing system for depository and settlement services.
The systems described above are managed and operated by different organizations, but they are equally significant as they provide reliability to the bond market and transparency to the financial market. The systems deliver the real-time market data to investors through networking and information sharing among different systems. As illustrated in the table below, the current systems can be seen as the result of continuous efforts by the Korean government and related institutions to build and upgrade the IT infrastructure for more vibrant and transparent bond market.
082•2014/15 Knowledge Sharing Program with Lao PDR II
Development of IT Infrastructure for Korea’s Bond Market and Depository and SettlementIT Infrastructure for IT Infrastructure for the Bond Market Depository & Settlement
1993 launched disclosure system for OTC 1993 launched KSD-Net service bonds 1999 launched SAFE21 2004 provided FundNet service 1994 launched FIMS for bonds 2006 launched real-time transmission launched matching system for system for government securities bond trading on the exchange data adopted electronic voting adopted ISIN system system (via the Internet) 1996 launched bond valuation system 2010 launched SAVE+ 1998 operated PD system & electronic 2011 launched new securities settlement 1999 auction system system launched systems for government 2012 launched platform for off-shore 2000 securities and new bonds fund service launched centralized platform for 2013 launched portal service for 2007 OTC bond quotation securities information launched FREEBOND 2010 launched book-building system for 2012 corporate bonds
Source: KRX website, KSD website, KSD Guidebook (2012).
3.3. Current IT Infrastructure for the Bond Market in Laos
3.3.1. Systems for the Exchange
[Figure 1-15] System Architecture of Lao Securities Exchange (LSX)
Server 1
UI Server Stocks Stock Trading Terminal Trading Stocks Stocks
Bond Trading Bonds Backup Terminal Bonds T Terminal Server 2 C Management Info Info Information P Bond Trading Terminal / I Deposit P Information Depository Deposit Terminal Ledger Processing
Broker’s(at Branch) Ledger Real-time Data Server 3 Terminal Leger System
Securities Biz
HTS Terminal Backup
Leased-line / Server 4 The Internet Depository Terminal for Listing Disclosure FIMS
Source: KOSCOM Operation Manual (2014).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•083 Established in 2010, the current system for Lao Securities Exchange (LSX) consists of UI server, stock and bond trading server, server for market data, ledger and depository. Each server is designed to maintain the continuity of trades with mutual backup system.
An order received from the terminal of broker or HTS goes to the ledger system to check the customer’s account and balance. Then, the order is delivered to the trading system through a channel. The trading system processes receiving, aggregating and settling the order.
The market data generated in the trading system, such as order execution and settlement results are transferred in real time to the information system, foreign investment management system, and clearing and settlement systems, which conclude a transaction from order submission to clearing and settlement.
The figure below describes the task structure of LSX, including market operation, depository, stock and bond trading. However, the bond trading system is not in operation since its legal basis has not been established. Instead, LSX is considering the implementation of small-scale system for the secondary bond market in the form of bulletin board where quotations in the market are posted using web technology.
084•2014/15 Knowledge Sharing Program with Lao PDR II
Task Composition of LSXTasks Description Operated by
Channel - interface with other systems LSX
Matching Engine - receive, aggregate and execute orders LSX
- data processing for executed orders or settlement Trading Data results LSX - data generation for internal and external use - manage product information, common data and Stocks RDS (Reference parameters LSX Data System) - data management, market measures - receive execution results (stocks, bonds) Clearing & - settlement (tax and fee calculation) LSX Settlement - send settlement results to members and ledger - index data management, index calculation Index LSX - market measures for index - interface - receive, aggregate and settle orders & market Bonds LSX operation - batch work for data processing, market measures - terminal operation UI Server - classify a transaction by purpose, balancing LSX - real-time push - real-time index calculation Data - information distribution & processing LSX - a small-scaled disclosure
LSCO - foreign investment management FIMS (on behalf of - limit control, balance management LSX)
- registration, registration of transfer, cancellation, certification - bond deposit, return, book-keeping entry, cash Depository deposit and withdrawal LSX - settlement for stocks and bonds - contractual rights, principal and interest of bonds - issue ID for investors - account management (open, transfer, closing) Securities Firms - order execution and delivery Ledger (data provided - account arrangement, margin control by LSX) - settlement arrangement, balance check
Source: KOSCOM Operation Manual (2014).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•085 3.3.2. Systems for Securities Companies
At present, securities companies in Laos are not conducting bond trading, but stock trading only. Three securities companies are in operation in the market using the ledger service and HTS provided by LSX, as they are yet equipped with their own IT systems.
Stock trading is not active because most investors tend to buy and hold stocks for a long period of time. The number of currently opened accounts for stock trading is about 11,000. However, only 5,000 accounts are used and about 100 out of them are active in trading.
4. Economic Effects of IT Infrastructure on the Korean Capital Markets 4.1. Overview
The Korean government overhauled and revamped infrastructure for capital market development in line with its economic development plan from the 1960s. Stock trades, once handled manually, were processed through computer systems as the number and volume of listed stocks increased rapidly. This was a starting point for IT infrastructure to be introduced in the financial market. In the 1980s, the first computerized trading system was launched in the stock market to handle surging orders. As such, IT infrastructure development underpinned capital market development in the country, and also contributed to the government’s policies to facilitate direct financing via the stock, bond or derivatives market and the globalization of the capital markets.
4.2. Economic Effects of IT Infrastructure Development
4.2.1. Securities Market Expansion Driven by Brisk Stock Trading
In the 1970s, the stock market in Korea grew considerably in size, with the adoption of the Public Corporate Inducement Law. The government established a specialized organization for the computerization of capital market activities for the benefit of the securities industry.
In the 1980s, IT infrastructure for securities trading played an important role in the expansion of the stock market as demand for stock investment surged amid a
086•2014/15 Knowledge Sharing Program with Lao PDR II worldwide economic boom. More reliable and convenient securities trading through IT infrastructure made securities investment widespread and helped the market react flexibly to rising transactions and achieve stable growth.
4.2.2. Vibrant Capital Markets Supported by Relevant IT Infrastructure
In 1990s, Korea opened up its securities market to foreign investors to keep up with the globalization trend as it joined the Organization for Economic Cooperation and Development (OECD). The market opening was followed by the establishment of IT infrastructure.
In the wake of the financial crisis, the government strived to develop the financial market by placing infrastructure in place for nurturing the corporate bond market and creating the market for derivatives including futures and options. These efforts were made to facilitate capital-raising for companies. The government also introduced electronic trading system in the KOSDAQ market to foster SMEs and venture capitals. As with the NASDAQ market in the US, the KOSDAQ market positioned itself as a major funding market for companies in Korea.
Under the government’s plan to establish a dedicated network for the financial industry, an exclusive network for financial companies was launched with the expanded Internet access throughout the nation. Securities information was furnished efficiently through high-speed connection with terminals in the branches of securities companies. Such IT infrastructure provided the general public with easier access to the securities market, and helped the capital markets gain more vitality, and brought about rapid expansion in the overall financial market. Also, it enabled the volume of options trading to reach the top in the world in a short period of time.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•087
Trends in the Exchange Market & KOSDAQ MarketExchange Market KOSDAQ Market
Market Daily Market Daily No. of No. of Capitali- trading Capitali- trading Year listed listed Index zation value Index zation value compa- compa- (KRW b (KRW (KRW (KRW nies nies n) bn) bn) bn)
1997 776 376.3 70,989 556 359 973 7,069 4
1998 748 562.5 137,798 660 331 752 7,892 6
1999 725 1028.1 349,504 3,482 453 2,561 98,704 429
2000 704 504.6 188,041 2,602 604 525.8 29,016 2,400
2001 689 693.7 255,850 1,997 721 722.1 51,818 1,728
2002 683 627.6 258,681 3,042 843 443.6 37,403 1,205
2003 684 810.7 355,363 2,217 879 448.7 37,375 1,078
2004 683 895.9 412,588 2,232 890 380.3 31,149 625
2005 702 1,379.4 655,075 3,158 918 701.8 70,898 1,793
2006 731 1,434.5 704,588 3,435 963 606.2 72,137 1,731
2007 746 1,897.1 951,918 5,540 1,023 704.2 99,980 2,036
2008 765 1,124.5 576,928 5,190 1,038 332.1 46,186 1,246
2009 770 1,682.8 887,935 5,796 1,028 513.6 86,103 2,099
2010 777 2,051.0 1,141,885 5,620 1,029 510.7 97,972 1,925
2011 791 1,825.7 1,041,999 6,863 1,031 500.2 105,994 2,250
2012 784 1,997.1 1,154,294 4,824 1,005 496.3 109,122 2,129
2013 777 2011.3 1,185,974 3,993 1,009 500.0 119,293 1,823
2014 773 1915.6 1,192,253 3,984 1,061 543.0 143,088 1,970
Source: KRX website (Retrieved in June 2015).
4.2.3. New Business Model with IT Infrastructures
Since the 2000s, the Korean capital markets saw great growth in online trading owing to expanded IT infrastructure. Innovative technologies made it possible to develop diverse financial instruments and financing techniques for the bond market or the derivatives market. Continuously upgraded trading systems operated by KRX
088•2014/15 Knowledge Sharing Program with Lao PDR II provided better functionalities and generated new business models which combines various types of derivatives products.
In addition to advanced technologies, public IT infrastructures such as financial security and authentication services were introduced, which reinforced the role of KOSCOM as the IT solution provider in the globalized capital markets.
KOSCOM and other IT service providers have developed new types of business models adopting big data analytics and mobile platforms, the two main IT trends emerged after 2010.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•089 ■ Section 4
Policy Recommendations for Bond Market Development and IT Infrastructure Development
1. Introduction
Section 4 proposes policy recommendations for developing the bond market and building relevant IT infrastructure.
2. Policy Recommendations for Bond Market Development 2.1. Financial/Capital Market Development Phases and Bond Market Development Plan
Based on its average annual economic growth of 7%, Lao has observed rising demand for capital for investments and infrastructure improvements. Laos has already laid groundwork for bond market development by issuing not only government bonds but also foreign currency-denominated bonds. To establish a credible, liquid government bond market, however, Laos needs to overhaul relevant legal and regulatory framework, and infrastructure such as settlement system. For the Lao government bond market still at infancy, the Project suggests suitable policy actions derived from Korea’s know-how and ample experience of developing the bond market for a short period of time.
090•2014/15 Knowledge Sharing Program with Lao PDR II The Lao government has an investment-grade sovereign credit rating (BBB or higher) and is an issuer of government bonds, central bank bonds, and baht- denominated bonds. To help Laos enhance government bond market transparency and efficiency, establish a corporate bond market, facilitate the existing stock market, and enhance the funding function of the capital markets, this Project puts forth the following policy actions.
First, policy efforts should be made to develop a stable money market, which forms the basis of all financial and capital markets. In general, the central bank uses market liquidity to adjust short-term interest rates. But without a well-functioning interbank market, market participants lose confidence in counterparties and thus become reluctant to use the market. Such a problem arises when the central bank and commercial banks fail to disclose basic information in a timely manner. This often leads to a market failure where counterparties who are unable to access their credit lines engage in bilateral transactions only via the central bank. Developing a transparent and credible interbank market is possible only by building a disclosure system and a data center based on credible financial information.
Money market development is a precondition for developing the foreign exchange and government bond markets (IMF & World Bank, 2001). Furthermore, a money market has high levels of interdependency on the government bond market. A highly developed money market facilitates the prevalent use of securities including government bonds as collateral in the interbank market, and makes clearing easier even if a counterparty defaults (IMF, 2003). Moreover, a highly liquid money market helps operate the foreign exchange market efficiently and enables the central bank to implement monetary policy. By the same token, an efficient government bond market is necessary to develop solid corporate bond, stock, and derivatives markets. Hence, policies to develop financial and capital markets should be designed according to development phases and financial market interdependency as shown in [Figure 1-16].
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•091 [Figure 1-16] Financial/Capital Market Development Phases
Asset-Backed Securities & Derivatives
Corporate Bond & Equity Markets
Government Bond Market
Treasury Bill Market & Foreign Exchage Markets
Money Market
Source: Karacadag (2003).
Second, it is necessary to improve legal and regulatory framework and infrastructure for the bond market based on the experience accumulated by issuing government bonds, central bank bonds, and foreign-currency denominated bonds. To help price discovery function well for all financial products, government bonds should be issued regularly with relevant information (issuance schedule, amount, and coupon rates, etc.) properly disclosed. Also, forming the benchmark yield curve by issuing bonds with diverse maturities will be of help. Among bond markets in the CLMV countries, the Lao bond market has the greatest potential after the Vietnamese market. But currently, it is still underdeveloped and illiquid because most investors hold their bonds until maturity.
Third, concentrating bond listing and trading activities on LSX will help Laos improve its primary and secondary markets and thereby address illiquidity. As learned from Korea’s experience, concentrating small issues on the exchange in the early-stage bond market improves market liquidity and transparency. Once the secondary market takes hold, it is worth considering the strategy to introduce and develop a market, based on electronic trading platform.
Given that government bonds tend to be used as benchmark bonds, a
092•2014/15 Knowledge Sharing Program with Lao PDR II concentration of transactions can improve efficiency and price discovery in the overall bond market. Enhanced liquidity in the secondary market will set a foothold for the efficient primary market for both government and corporate bonds. At the same time, this will lower financing costs of the public and private sectors and improve monetary policy efficiency. Korea’s experience of concentrating trades on the exchange and introducing electronic trading platform for enhanced liquidity and transparency demonstrates that large-scale bond issues, the concentration on the exchange, and electronic trading platform are the central elements of liquidity improvement in the bond market. Also, critically important is the market for repos and securities lending, which should be developed to facilitate bond trading and increase liquidity in the government bond market. By solidifying the price discovery mechanism, repos and securities lending will enhance market efficiency.
Fourth, it is desirable to formalize government bond market policies and bond market practices. For bonds to be issued and traded seamlessly, the market needs bond registration, depository, and disclosure systems. Currently, Laos fails to disclose basic information related to bond issuance in a timely manner, which undermines bond market transparency. In addition, when the market fails to ensure regular bond issues and timely debt service payments, it is hard to earn investor confidence, and therefore bond trading and circulation become difficult. Without obliging bonds to be registered and managed after issuance, it is difficult to acquire basic information such as the issuer, issue amount, coupon rate, etc.
Fifth, on top of government bond market development, a corporate bond market will have a grave impact in the Lao capital markets. Developing a market for corporate bonds, particularly infrastructure bonds, which enables mid- to long- term financing, is an important policy challenge as Laos achieves high economic growth and has growing demand for improving infrastructure. The Asian financial crisis taught us that a corporate bond market could serve as a mid- to long-term financing channel reducing the concentration of financial risk in the banking system. The drive for bond market development in Laos, coupled with the ASEAN Capital Market Integration and Asian Bond Markets Initiatives (ABMI), will create synergy. Going forward, baht-denominated bonds that have been issued for infrastructure development in the ABMI dimension will be an important benchmark in developing the Lao infrastructure bond market. Another area for improvement is the credit rating system for the purpose of bond market development as well as investor protection.
Sixth, investor diversification is required for bond market development. Now, state-owned banks are major bond investors. But it is one of the mid- to long-term challenges for Laos to nurture more diversified institutional investors including commercial banks, insurance companies, and pension funds. Institutional investors
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•093 not only enhance market efficiency but also improve the overall financial and capital market functions including financial system stabilization. Impavido et al. (2003) confirmed that a positive relationship exists between savings assets and overall bond market capitalization/GDP, and a 0.4% increase in overall bond market capitalization/GDP leads to a 1% increase in savings assets.
Last, modernization of stock market infrastructure required by pension funds provides the sensitive price discovery function, and improves clearing and settlement tools. As a result, this will enhance asset allocation, reduce transaction costs, and increase the amount of available funds in the market, which in turn facilitates industrial development and economic growth. In emerging markets, insurance companies and pension funds help improve infrastructure for trading, clearing, and settlement to lower down transaction costs and strengthen liquidity, thereby enhancing capital market transparency.
2.2. Recommendations for Establishing Securities Deposit and Settlement Infrastructure in Laos
The bond market in Laos is in its preliminary stage. Whereas institutionalized systems and infrastructure are in place for the securities exchange designed for stock trading, the bond market which is the subject of this study has yet been established. However, as shown by Korea’s case illustrated above, not only stocks but also bonds represent a significant proportion of direct financing via capital markets, and the issuance and trading of government bonds are essential to raise funding for large projects that a country needs to carry out. In this context, establishing infrastructure for issuing and trading bonds, and infrastructure for securities depository and settlement in particular, is extremely important.
The current securities depository and settlement systems in Laos focus on stock trades, and depository and settlement services are provided by LSX. Especially, a separate depository system does not exist, and securities are only registered and issued in the form of the global certificate.35) And it has been judged that the registrar (transfer agent) function and the deposit function have not been distinguished yet, given that the shareholder lists of issuing companies are managed by LSX.36) More precisely, Article 104 of the Decree of Securities Law of Laos states that one of the requirements when applying for establishment of a stock exchange
35) Article 25 of the Decree of the President of the Lao People’s Democratic Republic on the Promulgation for the Law on Securities (Decree of Securities Law of Laos) concerning share certificates stipulates that the share certificate of a listed company shall be in the form of a global certificate on which the name of the shareholder is not precisely stated, and that this share certificate shall be deposited in a depository (LSX). However, the depository shall have and manage database associated with the list of shareholders, and person(s) registered in the database shall be regarded as a legitimate shareholder. 36) Article 25-2 of the Decree of Securities Law of Laos
094•2014/15 Knowledge Sharing Program with Lao PDR II is that a stock exchange shall have clearing37) and settlement systems for trades, registration system, and depository system in place, and thus infrastructure has been concentrated in LSX. In the Decree of Securities Law of Laos, it seems as if there is a separate securities depository and this depository handles settlement of securities.38) However, since LSX is a depository by law, it is actually LSX which provides transfer agent services, as well as deposit and settlement services.
Meanwhile, a depository is defined as part of the Securities Exchange, and stipulated to be in charge of the following six functions. (1) registration of securities, (2) deposit of securities, (3) transfer of securities, (4) preparation of securities register book, (5) undertaking of duties on behalf of listed companies, and (6) exercise and execution of rights and obligations approved by the Securities and Exchange Commission.
Yet, OTC trading is more common in bond markets around the world. As for listed bonds, separation of securities registration, depository and settlement systems from trading system is a globally universal practice. This is because the purpose of the trading system aimed at efficient discovery of best price, and registration, depository and settlement systems which address the property rights of securities differ fundamentally, and such difference may cause a conflict of interest. Whereas securities trading system values discovery of the best price through competition among multiple exchanges, registration, depository and settlement systems require stability over competition, and involve not only exchange trading but also OTC trading. Therefore, it shall not provide depository system only for the securities exchange.
In this regard, to promote the formation and development of the bond market in Laos, it is necessary to separate the securities depository function from the securities exchange, as seen in Korea’s case, and define it as an institution which takes charge of deposit and settlement of all securities.
In addition, depository and settlement systems ultimately secure the rights of the final owner of securities, and reflect the final result of the trading. Therefore, it is also necessary to clearly set legal grounds. The current securities law of Laos does not have any regulations on the legal nature of depositing securities, the effect of book-entry transfer, and the establishment of security. Securities trading can take many forms other than simple sale and purchase activities, and in particular, secured transactions are most frequently carried out next to sale and purchase of securities.
37) Lao Securities Exchange (LSX) has prepared related regulation for clearing and settlement of securities on December 3, 2014. The official title of this regulation is ‘Clearing and Settlement Regulation”. 38) For example, Article 111-3 of Decree of Securities Law of Laos
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•095 Under the circumstances, when separating depository system from the exchange’s systems, legal grounds for the depository system must be clearly set.
Lastly, the role of securities registration system should be clearly defined. Under the current Decree of Securities Law of Laos, securities registration system serves as a transfer agent, and is not a system which issues securities in electronic form under electronic securities system. The basic role of a transfer agent is, literally, management of the list of investors such as shareholders in relation to issuance of registered securities on behalf of the issuer. As such, it is not related to the securities depository system, and not at all related to the securities trading system. Recent global trend is that securities are issued in electronic form, and in most countries, bonds in particular are issued in electronic form. It is impossible to clearly identify the reason why a share certificate is issued in the form of a global certificate. However, global certificates are typically issued to provide economic efficiency and meet requirements under property law when it is unable to issue securities in electronic form. Against this backdrop, it will be more efficient to issue bonds not in a global certificate but fundamentally via electronic registration, and to serve as both the transfer agent and securities depository at the same time.
Capital market infrastructure is an essential necessity for market development. Considering that the capital markets in Laos are only in their infancy, it may be slightly strenuous to establish market infrastructure, fully equipped with necessary IT systems. Yet, it does not require massive costs to make institutional arrangement for the separation of the securities depository function from the exchange and lay the relevant legal foundation. In addition, dematerialization of securities will also be possible without incurring heavy costs if the system which LSX currently has in place as a transfer agent for management of the list of investors such as shareholders can be adapted. Since Korea Securities Depository (KSD) has ample experience in such fields, advisory service through KSD will be also available in the future.
3. Policy Recommendations for IT Infrastructure Development 3.1. Recommendations for the Markets Newly Adopting IT Systems
The degree of computerization of the major global exchanges varies considerably. The process of IT infrastructure development for the Korean capital markets is different from that of advanced countries. For developed countries, capital market IT infrastructure developed and improved, without government involvement, in order to satisfy investors’ needs related to securities trading in the
096•2014/15 Knowledge Sharing Program with Lao PDR II already-established capital markets. On the other hand, the Korean government took the initiative in developing capital market IT infrastructure. For example, it established Korea Securities Computing Corporation (KOSCOM) to exclusively provide financial IT services.
Led by KOSCOM, the computerization project for stock trading system was preemptively launched in the early 1980s when trading in the stock market was yet to be vibrant. In the 1990s, the government established institutional infrastructure and computing systems in preparation for opening the capital markets to foreign investment and stimulate transactions in the securities market. This later resulted in active trades by market participants and stable direct financing for companies in late 1990s.
For developing countries, it is imperative to carefully review their economic development level and financial market environment before accommodating any IT systems. Otherwise, the outcomes of system implementation would fail to meet their expectations if they adopt IT systems tailored to advanced capital markets, without taking into account their unique conditions.
Most developing countries push for facilitating trades on the exchange to provide corporations with easier access to finance, and ultimately boost exports and economic growth. However, computerized stock trading system alone would not be sufficient to build well-functioning capital markets without financial infrastructure, laws and regulations, and information infrastructure in place. In short, Laos, which considers establishing capital market IT infrastructure, needs to benchmark the successful case of Korea because the government’s strong commitment, financial market conditions and others are similar to those of Korea in the late 1970s and 1980s.
3.2. Direction for Establishing IT Infrastructure
3.2.1. Suggestions on Operation Method
Direct financing markets are advanced and securities trades are active in developed countries including the US and European countries. Also, there are multiple exchanges that have built their own IT systems.
On the other hand, in developing countries with underdeveloped direct financing markets, IT systems for the exchange are introduced by the government. In this process, it requires high initial costs for overhauling laws and regulations, establishing infrastructure. And joint efforts from related authorities need to be made.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•097 A fair illustration can be found in Korea in the 1970s and 80s when the government enacted laws and regulations, set up responsible departments and established institutions for computerization of market activities. Large initial investment is necessary to build IT systems for capital markets. To achieve desirable outcomes, it is recommended for Laos to formulate legislation for financing IT infrastructure development, and then request financial support or contributions from stakeholders including the government, securities market authorities and operators, and securities companies under the applicable law.
3.2.2. Suggestions on the Phase of System Implementation
3.2.2.1. Systems for the Exchange
The priorities in the computerization of a securities exchange are i) trading system, ii) clearing and settlement systems and iii) depository system. The adoption of these systems should be determined, based on a country’s economic environment and financial market development level. For instance, the status of securities market is a deciding factor when introducing trading systems.
Korea’s securities market has developed over the last few decades in the order of the stock market, corporate bond (government bond) market, futures and options market and OTC stock market. It should be noted that the trading system has gradually expanded its coverage: in the initial stage, there were only a few stock items traded via computerized trading system until the system was stabilized.
In recent years, however, there is little cost difference in installing comprehensive solution package or separate trading systems for stocks, bonds, futures and options, and OTC stock trading thanks to faster database processing speed, IT advances, and system standardization. Consequently, it is desirable to implement the systems collectively, and decide on their respective operations according to the market development.
3.2.2.2. Systems for Securities Companies
Securities companies should introduce order delivery system (front-office) and ledger management system (back-office) in the initial stage. Given the lack of financial resources and know-how in Lao securities companies, it is recommended to adopt an integrated system for both front- and back-office, meaning a joint online system for members. Considering the market conditions, this system can be introduced in securities firms’ headquarters and branches in the metropolitan areas, then constantly being expanded to other regions.
98•2014/15 Knowledge Sharing Program with Lao PDR II Study of IT Infrastructure and System for Bond Market Development in Lao PDR•99 In Korea, the joint online system for members (securities companies) was launched in 1983. However, it was 1987 when the system was widely used by securities companies across the country. For Laos to introduce the system for the first time, it should consider nation-wide networks and Internet penetration before determining the range of system use.
To maximize the benefits of the system, it is important to standardize the business process among securities companies, and related institutions located in Laos, thereby enhancing business interoperability. The government may consider advising the stakeholders to have business process system in place in the early stage of the securities market.
When the securities market is expanding, following lessons learned in Korean capital market can be adopted for Laos: for the back-office system, which requires renewal less often, joint online system for ledger management can be used and updated when necessary according to economy of scale. However, the front-office system should be developed with expandable options in the initial stage. Or, securities firms can launch a customized front-office system in the later stage. As the number of smart phone users in Laos is increasing, Mobile Trading System (MTS) can contribute to trigger the securities market with higher participation from individual investors.
3.2.2.3. Systems for Financial Information
To provide financial information to market participants, information distribution system is primarily necessary to deliver the trading system’s real-time market data, trading history of members and investors, and market index.
Exclusive data terminals for investment analysis are required for professional or institutional investors, including securities companies, banks and insurance companies, to analyze and process domestic and international market data. In addition, information sources need to be diversified to provide data on overseas capital markets.
As the capital markets mature, comprehensive financial information system should be introduced to provide a large amount of data from stock, bond and foreign exchange markets and other financial information in various forms to meet the needs of clients.
3.2.2.4. Other IT Infrastructure
Dedicated network (stock-net) service is the most fundamental infrastructure
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•99 to ensure safe and secure financial transactions. The regional coverage should be gradually expanded from the metropolitan area, hub cities to other regions. At the same time, back-bone service network is necessary to ensure secure management against system failures.
Disaster recovery system is another service required for data protection in the event of natural disasters or emergencies. It is recommended to adopt a single disaster recovery system funded by the government or a group of securities companies. It is because individual disaster recovery system for each securities firm is less efficient in terms of cost and technical ability.
With the wide-use of electronic trading, data protection service should be enhanced to safeguard private information against counterfeiting, and cope with cyber terrorism or security breach due to hacking or virus.
Suggestions on System Introduction by Market Growth StageEmerging Growing Advanced System Market Market Market Stocks ● ● ● Trading System Bonds ◐ ● ● Exchanges for Exchange Futures & Options ○ ◐ ●
OTC Market System ○ ◐ ●
Online Systems for Securities ● ● ●
Online Trading System (HTS) ◐ ● ● Securities Millennium Trading System (MTS) ◐ ● ● Companies FX Dealing System ◐ ◐ ●
STP-HUB ◐ ◐ ●
Information Distribution System ● ● ● Market Information Terminal System ◐ ● ● Information Service for Historical Data ◐ ◐ ●
Exclusive Network for Financial ● ● ● Transaction IT Infrastructures Disaster Recovery Service ◐ ● ●
Service for Data Protection ○ ◐ ●
Note: Level of Recommendation (High: ●, Middle: ◐, Low: ○). Source: KOSCOM’s Growth and Development (2013).
100•2014/15 Knowledge Sharing Program with Lao PDR II Study of IT Infrastructure and System for Bond Market Development in Lao PDR•101 3.3. Implications for Bond Market IT Infrastructures
3.3.1. Policy Recommendations
The stock markets in emerging countries like Laos are not functioning well as the funding market. Therefore, they need to nurture the stock and bond markets to diversify financing channels. The current sluggish stock market in Laos is expected to revive once the bond market begins to operate and become vibrant.
As illustrated above, IT infrastructure is an imperative to have the well- functioning capital markets. The bond market needs the IT system as well for its reliable operation. Thus, the country should formulate its system implementation plan when establishing a long-term plan for bond market policies. It is recommended for the government to benchmark IT infrastructure in the neighboring countries, develop the implementation plan tailored to its own unique circumstances, and provide continuous policy support. Unlike advanced countries that have established developed IT infrastructure after capital market development, Laos may consider developing the stock and bond markets by developing IT infrastructure in advance.
As for the primary bond market, the introduction of book-building system, as used in Korea’s OTC market, will make bond issuance easy. For the secondary market, the IT infrastructure already established in LSX will help reduce the cost burden of system implementation.
If KOSCOM’s abundant experience in implementing and operating IT infrastructure for the Korean bond market is properly used, this can be very helpful in planning IT infrastructure for the bond market in Laos.
3.3.1.1. Implications for the Primary Market
Basically, IT infrastructure for the primary bond market should consist of action system, ISIN code assignment system for transparent bond data collection and notice, and disclosure system which helps capture issuer information.
The Bank of Lao PDR (BOL), the issuance authority for government bonds, is recommended to set up auction system through which not only qualified investors but also the all market participants can participate in auctions. It could be possible to develop an efficient plan for the primary market infrastructure, if the country benchmarks Korea’s infrastructure such as the auction system operated by the BOK, and the book building system provided by KOFIA.
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•101 Other systems required are: disclosure system, which allows issuers, financial institutions or regulators to deliver investment information to investors as quickly and easily as possible; ISIN system, which is essential for bond transaction, depository and disclosure process; market data system, which standardizes the data and distributes them to market participants.
The proposed IT infrastructure model for the primary market would be a single system which integrates auction, ISIN and disclosure systems for the convenience of market participants. In Korea, on the contrary, these systems are operated by separate organizations: auction system by the BOK, disclosure systems by the FSS and KRX, and ISIN system by KRX. This creates hassles for market participants.
In addition, the community of bond market participants (regulators, financial institutions, the central bank and the depository institution) can be formed as part of market infrastructure through unified messenger platform. It could increase efficiency in market operation and future connectivity to the secondary market.
3.3.1.2. Implications for the Secondary Market
LSX has a platform for bond trading. However, the global trend of bond trading is negotiated transactions in the OTC market, rather than auctions in the exchange market. For the secondary bond market in Laos, system for negotiated transactions needs to be established. FREEBOND system operated by KOFIA will inspire the country’s system for the secondary bond market. Moreover, it is necessary to draw up a long-term plan for web-based bulletin board system for bond trading, which is currently considered by the Lao government, to connect it to negotiated trade system in the future.
In the Korean OTC bond market, transactions were executed and confirmed by phone, but later by private messenger systems. The supervisory agencies have difficulties monitoring the private messengers. And system failures tend to influence the entire secondary market. To avoid these issues, it is recommended to provide a centralized messenger system for bond trading in the early stage.
Therefore, if bond trading takes root in Laos through standardized trading system provided by a government agency or LSX for either auction in the exchange market or negotiated transaction in the OTC market, it is possible to ensure transparency and easier oversight in the market. That is because access to bond data will be enhanced through data aggregation and distribution platform. Ultimately, this will facilitate bond market development in Laos.
102•2014/15 Knowledge Sharing Program with Lao PDR II Study of IT Infrastructure and System for Bond Market Development in Lao PDR•103 3.3.1.3. AMBIF IP (Information Platform)
Recently, the ABMF (ASEAN+3 Bond Market Forum) has recognized the necessity of common platform for bond issuance in ASEAN+3 countries. This platform is designed to make cross-border bond issuance possible among the participant countries by streamlining bond issuance procedure, and reducing the gap in institutional arrangements and IT infrastructure among the countries. The use of AMBIF IP would help the Lao government issue bonds denominated Thai baht or other foreign currencies.
[Figure 1-17] Concept of AMBIF IP Structure
AMBIF Information Platform
Business Logic ■each country’s Laos Thailand Document Form DB Required Document Bond Library Issuer Issuance Issuer ■ based on Market Guide Form ■Rule Engine by each ISIN Regulatory Process country’s Regulation Regulator Institute Algorithm
Routing Logic Algorithm
Check& Check& Alert Function ISIN Regulator Admission Admission (e-mail, SMS, etc) Institute
Bond Bond Investors Information Information Investors Search Issuance Information Search Publication(ISIN) Web UI Web UI
ISIN Issuer Regulator Investors Institute
country C
Source: KOSCOM (2015).
Study of IT Infrastructure and System for Bond Market Development in Lao PDR•103 References
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