The Asia Pacific FX Markets

The Asia Pacific FX Markets: Opportunities for Growth 29 41 01 03 05 11 17 23 5 6 7 9 19 21 31 32 33 35 36 36 37 17 41 43 12 14 15 25 25 26 Non-financial customers OTC trade reporting Central clearing of derivative transactions Prudential requirements MiFID II Global Code of Conduct (GCC) KYC and market infrastructure opportunities Other financial institutions Margin requirements Market participants Electronic execution and technology Reporting dealers Markets and Currencies Market liquidity Non-deliverable forwards Forwards, Swaps and Options Emerging technologies Market conditions (c) (b) (c) (d) (e) (f) (g) (b) (a) Appendices (a) Glossary (b) References (b) (c) (d) Regulation (a) methods of execution Evolution (a) Spot equivalence regulatory for Opportunities Introduction: Changing market landscape market Changing Introduction: (a) (b) (c) participants of market Changing nature (b) (c) Foreword summary Executive findings Key (a)

01 08 07 06 05 04 03 02 Content © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative with KPMG International Cooperative of independent member firms affiliated of independent member firms affiliated of the KPMG network of the KPMG network partnership and a member firm partnership and a member firm KPMG, a Hong Kong KPMG, a Hong Kong © 2017 © 2017 in Hong Kong. in Hong Kong. All rights reserved.All rights reserved. Printed Printed entity. entity.

The Asia Pacific FX Markets: Opportunities for Growth 2

The Asia Pacific FX Markets: Opportunities for Growth 1

Tom Jenkins Tom Risk Consulting Partner, Head of Financial Risk Management KPMG China

Foreword John Ball John Managing Director Pacific Asia Global FX Division – GFMA

Asia Pacific is comprised of diverse currency markets that are shaped by various and, at various by that are shaped markets currency is comprised of diverse Pacific Asia from global regulation to local capital controls. times, competing forces, of the foreign development and structure the is to examine of this study objective The market across the region, including the roles of different (FX) market exchange the regulatory and to illustrate It aims environment. participants, methods of execution their future the past decade and shed light on over in regional FX markets the changes direction. Global FX Division (GFXD) of KPMG and the by report has been jointly written The the statisticsAll used in the report (GFMA). Association the Global Financial Markets (BIS) International Settlements for are based on a combination of data from the Bank from 2004Activity to 2016; Market Exchange of Foreign Survey Central Bank Triennial sources; internal resources of the GFMA and from publicly available desktop research participants, including members of the KPMG; and multiple interviews with market GFXD. 01 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative with KPMG International Cooperative of independent member firms affiliated of independent member firms affiliated of the KPMG network of the KPMG network partnership and a member firm partnership and a member firm KPMG, a Hong Kong KPMG, a Hong Kong © 2017 © 2017 in Hong Kong. in Hong Kong. All rights reserved.All rights reserved. Printed Printed entity. entity. The Asia Pacific FX Markets: Opportunities for Growth

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. The Asia Pacific FX Markets: Opportunities for Growth 3 likelyto border - , hence possible OUTCOMES internationalisation harmonisation RMB shape global markets over the decade next greater todevelop Opportunities price discovery, improve market access and efficiency in onshore markets will benefit local economies Access to local markets and ability to incorporate new technologies will differentiate market participants will need to Marketparticipants leverageand newinnovate servicesto create capital efficiencies Accesslikely to remain restricted in certainmarkets Conduct requirements will continuetohelp shape business models Higher levelsof cross regulatory equivalence but not full bifurcation • • • • • • • ) 15 years - operation - borderco FUTURE TRENDS FUTURE Big & analytics data to machine learning influencedrive execution capability, platform development SDPs will need to evolve New technology likely to alter roles of current market participants, drivethe of new alliances formulation to capability Distributed ledgerdrive (5 term longer over efficiency Capacity for furthergrowth Potential for multiple global liquidity global multiple for Potential pools Developed market regulation has unintended consequences across emerging markets Greater cross- required Further concentration of liquidity Changing business models and alliances Continued adoptionof algos increaseNBLPs will influence across the region • • • • Electronic Execution & Technology • • • Regulatory Environment • • • Market Conditions • Market Participants • FX Asian Markets

for orders for up algos

CURRENT Diverse& complex application Inconsistent Challenges for strategy & technology Uncertainty overextraterritorial impact Opportunities Opportunities forlocal/regional banks NBLPs of influence Growing interdependencyInternational/local FDI & institutionalinvestorinflows Increased currency local activity Liquidity more concentrated Volatility more extreme and harder to predict Reduced risk appetite use Greater of Asia - playing catch Active marketingby SDPs and MDPs Drivenby best ex, cost reduction& STP Greater fragmentation Regulatory Environment • • • • Market Participants • • • • Market Conditions • • • • • Electronic Execution & Technology • • • • 02 SUMMARY EXECUTIVE © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth

in most jurisdictions indicating that liquidity is becoming more concentrated [1]

[1] BIS reporting dealers are typically large commercial and investment banks that are active in the local markets and regularly trade through [1] BIS reporting dealers are typically large commercial and investment banks that are active in the local markets electronic platforms In line with the region’s rapid development, average daily FX volumes traded in Asia have have Asia traded in daily FX volumes average rapid development, In line with the region’s has since 2013, growth, regional market This trillion. to US$1.16 climbed 20 percent since 2013 billion and a 52 percent to US$608 volumes percent increase in swap a 28 been supported by billion. to US$193 increase in forwards volumes Bank from their 2013-14 back recently fallen having (JPY), despite volumes yen Japanese The regional trade, with continues to dominate overall quantitative-easing (QE) peak, (BoJ) of Japan dominance continues, the renminbi (RMB) Whilst JPY’s percent since 2004. rising 172 volumes most traded non-G10 and the in the world traded currency has become the eighth most actively encouragement since 2009 authorities’ the Chinese in part, by has been driven, This currency. cross-border trade invoicing. account transactions and for current to settle to use the currency the Chinese authorities has been stabilityrecent priority the for and the strengthening However, impact short term may the internationalisation of the RMB which capital controls over of existing growth. future are non- restrictions across the region a number of currencies the widespread currency Given forward -- the (NDF) currencies globally traded non-deliverable of the top five Four deliverable. Dollar (TWD) -- Taiwan (CNY) and Yuan Chinese (INR), onshore Indian Rupee (KRW), Won Korean equivalents. than their onshore deliverable higher volumes most cases have and in Asia are from in the number of traded in the region there has been a fall Despite the increase in volume reporting dealers KEY FINDINGS KEY and can be divided into current conclusions, which key the following has identified study This regional FX markets. outcomes or implications for future emerging trends, and likely conditions (a) Market and emerging trends Current 03 across a smaller number of banks. © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. International banks that serve group of international and an extended offerings limited local currency regional clients, but have cross-border banks that compete with international banks for Regional currency G10 competitive to provide in the region but struggle flows liquidity liquidity banks that dominate domestic currency and the onshore Local in some restrictions be due to local currency can This client base. jurisdictions. Liquidity is likely to concentrate further among fewer institutions in the institutions to concentrate further among fewer Liquidity is likely ahead. years is still disproportionately FX market China’s Despite its rapid recent growth small as a percentage of GDP and primarily domestic, pointing to a clear further. to develop the market for opportunity of the RMB is set to be a major force ongoing internationalisation The It will make decade. the next over shaping the global financial system significant deeper and more liquid and have financial markets China’s The prices. trends and global asset investment international implications for be furthering this internationalisation while ensuring China will for challenge rate and capital flows. to the exchange disruptions the likely given stability, the impact of prudential regulation on banks’ ability to warehouse risk ability to warehouse on banks’ regulation of prudential the impact of continuing to participate in the market the increased cost through enhancing the gained have edge some institutions the competitive platforms sophistication of their (NBLPs) Liquidity Providers influence of Non Bank the growing (b) Market participants (b) Market and emerging trends Current split among: is still largely banking segment of the market The • • • Relationships initially appear. may divisions are more nuanced than they These symbiotic, with international banks partnering with local entities are often These access to local liquidity. products and provide that act as distributors for to secondary local banks looking for partnerships also act as a crucial market market. in the G10 risks and exposures recycle • • • Outlook A series of recent events has resulted in periods of extreme volatility and price volatility in periods of extreme has resulted recent events A series of the by been exacerbated that has in volatility the randomness increasing spikes FX market: in the changes structural following • • • • is that during changes of this combination of structural An apparent outcome but when there are events periods of price stability there is ample liquidity, the liquidity volatility disappears. resulting in extreme © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity.

The Asia Pacific FX Markets: Opportunities for Growth 6 The Asia Pacific FX Markets: Opportunities for Growth 7 Given the rising costs of compliance, the continued development of of compliance, the continued development the rising costs Given only technologies, required in new and the investment electronic platforms NBLPs will be in a position to act as a small number of banks together with liquidity providers. their and will grow role in liquid spot currencies a key NBLPs will play become niche and NDFs. Some may in more liquid local currencies offering in response to buy- in certain products, asset classes or markets players side demand. their traditional beyond find the cost of operating may institutions Local of be limited to being the main providers client base uneconomical and may liquidity in their domestic currencies. Electronic trading has gained ground in Asia in recent years, with providers with providers in recent years, Asia Electronic trading has gained ground in and widening their product markets up with the developed catch playing Secondary are generally managed out and client coverage. FX venues offerings to onboard regional not had the same focus so have York and New of London historically participants. High-frequency traders (HFTs) and NBLPs have market access to a where liquidity have markets is deeper and where they preferred less attractive. emerging markets make of secondary which multitude venues, (c) Electronic execution and technology execution (c) Electronic and emerging trends Current Outlook • • • NBLPs in Asia are becoming more significant in liquid G3 currencies where they where they currencies are becoming more significant in liquid G3 Asia NBLPs in their penetration into local strategies. However, market can use their developed and of access to the local markets a lack been limited by has so far currencies based, voice trading has traditionally been relationship because local currency of volatility. and subject to higher levels executed The role of the institutional investor has become more significant with the has become more investor role of the institutional The financial rising. by traded Forwards markets of capital into the region’s flow as investors more than doubled since 2013 (FIs) in the region have institutions of their portfolios. look to hedge the regional component © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. Regional e-trading volumes will continue to match those in developed those in developed to match will continue e-trading volumes Regional in regulation, increased surveillance changes by driven markets, obligations. execution requirements, cost pressures and best the learning have big data in areas like analytics and machine Advances On the one the FX industry. for potential to produce a paradigm shift can help the traditional market transformation driven hand technology greater internalisation and generate greater efficiencies, participants drive distinctions, enabling market while on the other it can eliminate some to compete with the traditional overheads firms with low technology participants. on their order typesInternational banks will migrate more to algo execution surveillance and eliminate potential conflicts of interest. SDPs to improve Outlook • • • Banks have actively migrated voice-executed trades onto their single-dealer onto their single-dealer trades voice-executed migrated actively have Banks Multi-dealer efficiency. and improve cost reductions to drive (SDPs) platforms to multiple access providing gained popularity by have (MDPs) platforms requirements. execution to satisfy client best enabling investors counterparties, primaryThe banks in the region due to are still popular with trading venues more them in the less liquid and gravitate towards tend to that flows the fact almost all of the central In addition, time zone. Asia conditions of the volatile is now renminbi (CNH) volume offshore limit order book (CLOB)/interbank on these venues. captive progress in the ability and to quote has been significant investment There starting a consequence, NBLPs are As at building their trading to look NDFs. NDFs. and liquid local currencies capabilities in more © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity.

The Asia Pacific FX Markets: Opportunities for Growth 8 The Asia Pacific FX Markets: Opportunities for Growth 9 The most significant near-term drivers of change will include the of change drivers most significant near-term The implementation of the Global FX Code of Conduct (GCC), the extraterritorial II (MiFID II)/ Directive in Financial Instruments impact of the Markets (MiFIR), and prudential Regulation in Financial Instruments Markets (FRTB), Book Trading of the Review as the Fundamental regulation such currencies. Asian could impact the liquidity of some which Despite greater dialogue and cooperation amongst regulators via the a more harmonised Financial Stability (FSB) and regional forums, Board to emerge in the near- is seen as unlikely regional regulatory framework will continue to act as a dampener to the of harmonisation lack This term. is the greater adoption One solution of the regional FX market. expansion in order to mitigate the impact of compliance or equivalency of substituted between regulation at the national level. differences Banks that have invested heavily in proprietary to heavily will struggle systems invested that have Banks not that investment new without significant technologies upgrade to new of entry’ the ‘cost to pay that are able Those will all will be able to afford. and/ utility platforms develop on building partnerships to need to focus with a be faced while others may third party systems, leverage or better alliances. new business models or develop decision to change Banks that have been actively developing and marketing their SDPs will be their SDPs will and marketing developing actively been that have Banks data advantage of big able to take client behaviour, generated from analytics In and efficiencies. internalisation greater learning to drive and machine clients to allow need to evolve SDPs will order to maintain relevance, access to other liquidity providers. • • Outlook Given the role of international banks in providing liquidity to regional market liquidity market to regional banks in providing the role of international Given consequences of the extraterritorial awareness participants, there is a need for lead to a can These and EU. the US like of regulation implemented in markets fragmentation and create multiple liquidity pools. of the FX market Despite the market and prudential regulatory and prudential agenda being agreed at the global Despite the market inconsistencies in local interpretation can create an that are often there level, that national regulators, in the there is evidence field. However, playing uneven started regulatory to consult on a more consistent have region and beyond, approach. Current and emerging trends Current the global post- both by regional regulatory has been driven The environment to protect local economies while ensuring financial crisis agenda and efforts presenting challenges and complex, It is diverse stability grow. as markets as multinationals that seek to implement to global and regional banks as well the region. models across standard strategies and technology (d) Regulation • • © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth

The slowdown of global trade from its 2013 peak of global trade from its 2013 slowdown The in other of volumes the reported value has reduced US dollar appreciation which currencies in monetary shifts and macroeconomic policies in prompted by of risk aversion Bouts fund management and activity impacted active that have markets developed partly reporting dealers, which, traded between in the volume percent uptick An 18 in the region 56 percent of volume due to the smaller presence of NBLPs, account for compared to 42 percent globally was 65 percent to US$608 billion, of which volumes A 28 percent increase in swap traded cross-border and 67 percent between dealers billion, with 59 percent traded by to US$193 A 52 percent rise in forwards volumes -- up from 41 percent in 2013 other financial institutions

INTRODUCTION: INTRODUCTION: Landscape Changing Market a contraction in global FX trading the BIS showed survey by most recent triennial The This also slipping. trading volumes currency Asian with activity the first time since 2001, for including: factors, to several is attributable • • • climbed 20 percent since in the region have traded daily FX volumes average the However, by: is broad-based and has been driven growth This trillion. to US$1.16 2013, • • • 04 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. 5% 52% 17% 26% 8% 2016 35% 56% 2016 5% 49% 13% 33% 2013 16% 27% 57% 2013 4% 52% 12% 32% 2010 14% 34% 52% 2010 Spot 4% 51% 11% 34% 2007 16% 24% 60% 2007 4% 54% 10% 32% 2004 15% 25% 60% 2004 Non-financial customers [2] 0 Forwards 0 800 600 400 200 800 600 400 200 1,200 1,000 1,200 1,000 (b) Asia Region (b) Asia Region Other Fls Swaps 8% 51% 42% 2016 5% 48% 14% 33% 2016 9% 53% 39% 2013 6% 42% 13% 39% 2013 [3] Options Reporting dealers 5% 13% 48% 39% 2010 45% 12% 38% 2010 6% 18% 40% 42% 2007 52% 11% 31% 2007 6% 14% 50% 11% 33% 2004 33% 53% 2004 ...... Figure 2: FX ADV by product product by ADV FX 2: Figure Figure 1: FX average daily volumes (ADV) by counterparty counterparty by (ADV) volumes daily average FX 1: Figure

1,000 2,000 3,000 4,000 5,000 6,000 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. [2] BIS, volumes adjusted for local and cross-border inter-dealer double counting double [2] BIS, volumes adjusted for local and cross-border inter-dealer counting double [3] BIS, volumes adjusted for local and cross-border inter-dealer In line with the region’s growing global role, Asian currencies have exhibited more global trading patterns with larger more global trading patterns exhibited have currencies Asian global role, growing In line with the region’s the region. One notable of this trend is into driver of trade and investment to hedge the flow traded offshore volumes Other restricted jurisdictions -- with the possible exceptions of Korea and India, both of which are relatively large -- exhibit large -- exhibit are relatively and India, both of which of Korea Other restricted jurisdictions -- with the possible exceptions and FX markets. income of liquidity in their fixed prospects due to a lack limited growth The second consists of markets with onshore regulatory barriers, lower volumes, lower cross-border and G10 volumes. volumes. cross-border and G10 lower volumes, regulatory with onshore second consists of markets lower The barriers, emerged as the leader in terms of has swiftly China, which categoryThis and, notably, India, South Korea includes recent entrant. despite being a relatively volume Asian FX markets can essentially be divided into two categories. The first is comprised of jurisdictions with large FX The can essentially be divided into two categories. FX markets Asian volumes currency limited local regulatorytrading volumes, restrictions, high cross-border activity and G10 (a) Markets and Currencies (a) Markets (a) Global (a) Global 1,000 2,000 3,000 4,000 5,000 6,000 The Asia Pacific FX Markets: Opportunities for Growth 12 The Asia Pacific FX Markets: Opportunities for Growth 13 [4] 2016 2004 Size 2016 2004 2016 2004 reflects Volume Size Size reflects Volume reflects Volume 100% 100% 100% SG SG 90% 90% 90% HK HK G10 currenciesG10 G10 currenciesG10 - AUD border activity, border activity, - - 80% 80% * 80% AU AU RMB JPY ctivity, ctivity, a a 70% 70% 70% High level of cross of High level High level of cross of High level border border - - Dominated Dominated by trade in non Dominated Dominated by trade in non- JP JP High level of cross-border activity, High level of cross-border activity, TWD Dominated by trade in non-G10 Pairs 60% 60% 60% offshore [5] TW TW High level of cross of High level High level of cross of High level KRW SGD Dominated Dominated by trade in the PairsG10 Dominated Dominated by trade in the PairsG10 50% 50% 50% INR Border TransactionsBorder Border TransactionsBorder - - ID MY ID MY % of currency traded currency of % 40% TH TH 40% 40% % of Cross of % % of Cross of % PH PH KR KR HKD 30% 30% 30% ctivity, ctivity, a a G10 currenciesG10 G10 currenciesG10 - border border - - non 20% Pairs Pairs IN IN ctivity, ctivity, a a 20% 20% CN CN border border - - 2004 – JPY (USD 403 billion) 2016 – JPY (USD 1,097 Billion) 2004 – JP (USD 206 billion) 2016 – SG (USD 511 Billion) 10% Low Low Level cross of Low Low Level cross of 10% 10% Low Level of cross-border activity, Low Level of cross-border activity, Dominated by trade in non-G10 Pairs Dominated by trade in non-G10 Dominated Dominated by trade in Dominated Dominated by trade in non- 0% Dominated Dominated by trade in G10 Dominated Dominated by trade in G10 Low Low levelcross of Low Low level cross of 0% Largest Market: Largest Market:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

% transactions transactions %

executed between reporting dealers reporting between executed 0% 0%

10% 20% 40% 30% 50% 70% 60% 80% 90% Figure 4: Summary of trade in Asian currencies Asian currencies in Summary of trade 4: Figure Figure 3: Relationship between the volume of G10 pairs and the level of cross-border activity activity of cross-border and the level pairs of G10 the volume between Relationship 3: Figure 10% 20% 30% 40% 50% 60% 70% 80% 90%

100% Pairs Currency G10 in Transactions of % 100% Pairs Currency G10 in Transactions of % [4] BIS. Includes only transactions with G10 currencies on both sides of the transaction [5] BIS The yen continues to dominate regional trade, with volumes climbing 172 percent 172 climbing continues to dominate regional trade, with volumes yen The surging with volumes rising star, the RMB is the region’s since 2004. However, billion since 2004 it the most traded non-G10 times to US$202 to make 100 over the FI segment. International institutional investors are hedging their Asia asset Asia are hedging their investors the FI segment. International institutional monetary of extended increased as a by-product easing have which weightings, markets. in developed © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The region’s liquid, globally traded currencies are characterised by by characterised are traded currencies liquid, globally region’s The where activity spreads. Currencies bid-offer and tight high volumes speculation are to prevent is primarily restricted to onshore markets This and directional trading. wide spreads volumes, typified low by hedges and increases trading costs. natural of limits the availability which - notably the INR and KRW, there are exceptions However, There markets. onshore electronic trading and futures active have equity and presence in the Korean investor is a significant foreign financial institutions while onshore Korean income markets fixed FX market India’s Meanwhile, can also access the NDF market. in its equity and market alongside the growth has developed the last decade. international trade over the Singapore dollar currencies, Asian Among major unrestricted institutional (SGD) is among the more widely traded, particularly by Hong Kong traded offshore. with 56 percent of volume investors, with tighter bid-offer lower are comparatively dollar (HKD) volumes peg to the US dollar. spreads due to the currency’s since the authorities strongly grown have noted RMB volumes As cross-border as a means to settle began promoting the currency Hong transactions in 2009 and the introduction of the CNH in 2010. 39 percent is the pre-eminent CNH centre, accounting for Kong of deposit base on the back despite a falling of global turnover adversely have While this sentiment may recent RMB depreciation. to CNH/HKD demand is expected impacted the USD/CNH market, remain strong as RMB liberalisation continues. regional currency. This growth has been assisted by the emergence the emergence assisted by has been growth This currency. regional with the international markets centres linking RMB of offshore Chinese mainland. in late 2015 reinforced was process RMB internationalisation The Monetarywhen the International (IMF) designated the RMB Fund currency when the again in October 2016 as freely usable, and (SDR) basket. Rights Special Drawing included in the IMF’s was authorities has been the Chinese the recent priority for However, is This stability capital of existing controls. and the strengthening process, rather to be a pause in the internationalisation more likely than a retrenchment. remains FX market China’s Despite its performance, disproportionately small as a percentage of GDP indicating With the opening of the China potential. significant growth bondholders now and foreign in early 2016 market Interbank Bond to hedge currency market able to use the onshore FX derivatives further. to expand is expected market the onshore exposures, liquidity (b) Market

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 14 The Asia Pacific FX Markets: Opportunities for Growth 15 350 in [7] JPY 300 250 against spot ADV spot against [6] Restricted Currencies Trend of spreads and turnover from samedatatheavailable 2007,2010 in 2013 and 200 Billions) [8] ADV (USD 150 AUD 100 CNH SGD 50 CNY TWD IDR MYR PHP HKD INR THB KRW ... 0 2 4 6 8 10 12 14 16

April 2016 against the US dollar the US against 2016 April Figure 5: Relative spot bid-offer spreads spot bid-offer Relative 5: Figure

- Bid Relative (bps) Spread Offer ^ [6] Relative bid-offer spreads are calculated by dividing the absolute bid-offer spread for the day by the average the average [6] Relative bid-offer spreads are calculated by dividing the absolute bid-offer spread for the day by exchange rate of the day. double counting inter-dealer adjusted for local and cross-border [7] Volumes [8] BIS, Bloomberg Terminal Volumes and liquidity in the CNY NDF market, by contrast, have declined with declined contrast, have by and liquidity in the CNY NDF market, Volumes and counterpart to CNY, deliverable the introduction of CNH as an offshore a limited period. history for will co-exist suggests the CNH and NDF markets to the CNY NDF due to to turn participants continue said some market That not developed have the depth of liquidity in CNH or because they concerns over RMB. settle to enable them to physically the infrastructure The Korean NDF market is the region’s largest with daily volumes of US$30 largest with daily volumes is the region’s NDF market Korean The the fact has been helped by market The billion, up 54 percent from 2013. being non- despite KRW that the NDFs can be traded both on and offshore, Trade Exchange in the China Foreign weighting KRW’s The offshore. deliverable also euro (EUR) and JPY, USD, just behind the RMB index, (CFETS) System CNY exposures. hedge for used as a proxy means it is often Asia accounts for four of the top five traded NDF currencies globally. In most globally. traded NDF currencies of the top five four for accounts Asia -- onshore equivalents than their deliverable higher volumes cases NDFs have participants and freer trading dynamics. the result of a wider group of market (c) Non-deliverable forwards forwards (c) Non-deliverable © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth

2016, [9] HK 100% 2016, Size JP reflects Volume 2016, 2016 2004 TW 80% 2016, AU* 2016, ID 60% 2016, Transactions JP (USD 140 billion) SG (USD 368 billion) border MY TH - – – PH 2016, 2016, 2004 2016 2016, % of Cross 2004 – JP (USD 140 billion) 2016 – SG (USD 368 billion) 40% CN KR [10] 2016, 2016, IN Largest Market: 2016,

Largest Market:

20%

90% 80% 70% 60% 50% 40% 30% 20% 10% Figure 6: Growth of reporting dealer volumes and the level of cross-border of cross-border and the level dealer volumes of reporting Growth 6: Figure Asia markets activity in 100% country respective in Turnover FX Total of % a as volume Dealer Volume is also concentrated among dealers in the main trading hubs, particularly Hong Kong dealers in the main trading hubs, particularly Hong Kong is also concentrated among Volume since risen 63 percent and 27 percent respectively have and Singapore, where volumes have meanwhile in Japan Volumes emergence as CNH centres. their supported by 2013 onshore spot activity. slipped marginally due to a decline in [9] The percentages are different from those observed in Figure 1 as the volumes here are adjusted for only local inter-dealer double double only local inter-dealer [9] The percentages are different from those observed in Figure 1 as the volumes here are adjusted for counting. double counting unlike in Figure 1 where the volumes are adjusted for both local and cross-border inter-dealer double counting only inter-dealer adjusted for local [10] BIS, Volumes

(a) Reporting dealers (a) Reporting 70 percent accounts for which activity, inter-dealer remain dominated by markets FX Asian of regional activity to 52 percent in the UK and only 37 percent in the US. compared 05 Market of Nature Changing Participants © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. CN IN SG HK JP AU KR [12] 2016 [11] 2013 2010 2007 2004 0

400 350 300 250 200 150 100 Figure 7: Reporting dealer ADV by country by ADV dealer Reporting 7: Figure ADV (USD Billions) (USD ADV Given Asia’s growth and progressive globalisation, it would be reasonable globalisation, it would and progressive growth Asia’s Given increased since 2004. to have cross-border transaction volumes to expect mean Thailand Indonesia and Malaysia, in economies like slowdowns However, has risen, cross-border activity that while reporting dealer volume has declined. 75 reporting dealers accounting for in the number of has also been a fall There of Japan. notable with the in most markets, exception percent of volume International investment and commercial banks account for most of the trade most of the trade for banks account and commercial investment International corporate and multinational their global FI provide from where they in the hubs, services. on the markets, Onshore and settlement with hedging (MNC) clients are the primary liquidity and local banks which regional are led by other hand, own to both global banks and their in their domestic currencies providers clients. first are high- The into two types. be divided can in turn Onshore markets and India China, South Korea economies like large manufacturing-based growth, In are in the local currency. onshore trading volumes 80 percent of where over to meet local client base, but struggle a strong local banks have these markets, In addition, the requirements participants. market the needs of international The commercial trade documentation underlying in inefficiencies. results for as Indonesia, Malaysia, second type is smaller producing economies such sourced traditionally where onshore banks have and the Philippines, Thailand demand has seen their clients. Slowing for liquiditynon-local currency offshore contract. these markets [11] BIS, Volumes adjusted for local inter-dealer double counting only inter-dealer adjusted for local [11] BIS, Volumes [12] BIS data indicating the number of reporting dealers which account for 75 percent of turnover

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 18 The Asia Pacific FX Markets: Opportunities for Growth 19 100% SG Size reflects 2016, Volume 90% 2016 2004 80% HK 2016, AU* 70% 2016, (USD 124 billion) JP (USD 47 billion) SG 60% – – 2004 – JP (USD 47 billion) ID 2016 2004 Transactions 50% 2016 – SG (USD 124 billion) 2016, Border Border - 40% TH MY % of Cross Largest Market: [13] 2016, 2016, Largest Market: JP 30% PH 2016, 2016, 20% IN KR 2016, 2016, 10% TW CN 2016, 2016, 0%

Figure 8: Growth of other FI volumes and the level of cross-border of cross-border and the level of other FI volumes Growth 8: Figure Asia markets activity in 0%

10% 20% 30% 40% 50% 60% % of Total FX Turnover in respective Country respective in Turnover FX Total of % [13] BIS. Volumes adjusted for local inter-dealer double counting only inter-dealer adjusted for local [13] BIS. Volumes Historically, Japan has had the highest volume of forwards traded by FIs in the of forwards traded by has had the highest volume Japan Historically, this mantle has bank presence. However, region primarily due to a large trust to FIs has tripled of forwards traded by passed to Singapore, where the volume This or 52 percent of the regional total. and 2016, US$ 60 billion between 2013 rising significance as a global trading centre. reflects Singapore’s FIs account for 35 percent of the total FX volume traded in the region, with their traded in the region, of the total 35 percent FX volume FIs account for to to US$421 billion between 2013 total more than doubling trading volume forwards of both an increase in volumes by has been driven growth This 2016. as more looking to hedge portfolios investors institutional traded primarily by local and regional banks to used by capital to the region, and swaps flows manage volatility. (b) Other financial institutions US and European banks may have cut business lines and downsized their lines and downsized cut business have banks may US and European scale and access the but local and regional banks lack regional presence, for compete with international institutions to effectively currencies to G10 their home jurisdictions and in less operating outside global business. Banks to to reconsider their business models need may currencies liquid convertible takers or possibly on an agency should act as price they determine whether basis. This implies volume is being concentrated in the hands of fewer reporting reporting hands of fewer concentrated in the is being volume implies This of traditional liquiditydwindling number points to a in turn dealers, which costs of risk appetite and higher with reduced risk Taken providers. deposit base with access to a local banks this means commercial warehousing, share across the market to dominate liquidityare best positioned and grow region. © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. [11] Figure 7: Reporting dealer ADV by country by ADV dealer Reporting 7: Figure The Asia Pacific FX Markets: Opportunities for Growth

Restricted currency jurisdictions, with the exception of India and China, posted falls in volumes traded by financial institutions between 2013 and 2016 due to depreciating local currencies and declining net investments.

Regional swap volumes have exhibited similar patterns to forwards.In Japan, FI volume has moved onshore due to a change in investor behaviour influenced by the BoJ’s QE program. In 2010, 80 percent of the FI volume was traded cross- border compared to 33 percent in 2016.

Hong Kong and Singapore accounted for over half the region’s FI swap volume with a turnover of US$90 billion in 2016, up from US$59 billion in 2013.

In China, currency and access restrictions mean the market is illiquid in all but the shortest tenors. FI activity is thus dominated by spot and short-dated swaps traded by local banks providing settlement services or managing liquidity.

Figure 9: FX ADV with hedge funds by geography [14]

600 4% 1% 500

4% 400 Rest 4% SG, HK & JP 300 94%

ADV (USD Billions) (USD ADV UK and US 200 92%

100

0 2013 2016

[14] BIS

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. The Asia Pacific FX Markets: Opportunities for Growth 21 Retail activity has also declined since 2013 due to several factors that include factors due to several Retail activity has also declined since 2013 and tighter credit and margin requirements, the appreciation of the US dollar, and sophisticated historically the most active increased regulation. In Japan, QE program in and the BOJ’s volatility reduced market retail globally, market retail in in spot trading by traders who tend to thrive has led to a fall 2013-14 periods of uncertainty. Over the past two decades there has been a trend for multinationals to the past two decades there has been a trend for Over establish risk management and enable treasury regional centres to improve with of positions to reduce hedging and transaction costs, the internal netting locations. the preferred Singapore and Hong Kong FX volumes traded by non-financial customers have fallen 37 percent since 2013 2013 since percent 37 fallen have customers non-financial by traded volumes FX and spot trades. of a decline in both swap on the back billion in 2016 to US$102 in trade, particularly in commodity is primarily the result of a slowdown This markets. based export (c) Non-financial customers (c) Non-financial customers NBLPs will continue to play a key role in liquid spot currencies and will grow and will grow role in liquid spot currencies a key NBLPs will continue to play their business and NDFs. However, in more liquid local currencies their offering in certain products, players become niche and some may models will evolve demand. in response to buy-side asset classes or markets Hedge funds are becoming a growing presence in Asia’s key FX hubs from a key Asia’s presence in Hedge funds are becoming a growing rose from US$6 daily activity segment from this market Total very base. low billion originating in -- with US$11 billion last year to US$16 billion in 2013 this growth However, set up offices. have Singapore where a number of funds still only accounts for as hedge fund turnover in perspective should be kept under 2 percent of the regional total. © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth

China, where interbank trading of USD/CNY on CFETS is mandatoryChina, where interbank trading of USD/CNY on CFETS on two state- can only be undertaken of USD/KRW where electronic execution Korea, (API) connectivity of application program interface but a lack sponsored platforms hampers price transparency providers, India, where the central bank has encouraged competition between platform and liquid electronic USD/INR market resulting in an active

Evolution of Execution Execution of Evolution Methods the given is similar to that seen elsewhere Asia in execution proportion of electronic The spot While G10 pairs. conducted in G10 FX turnover high proportion, 65 percent, of regional together Hong Kong, Singapore and Japan can be traded electronically in all jurisdictions, restrictions local currencies, For in 2016. of the regional volume 86 percent accounted for and the Taiwan including Indonesia, in some markets, the electronic execution prevent Philippines. local currency for electronic platforms well-established their own have Other markets include: These interbank trading. • • • to rise further in plateaued, but are expected recently have of electronic execution Levels greater price transparency as requirements for algo trading as well response to improved to enhance price discovery and efficiency will present opportunities This and best execution. that could benefit local economies. in onshore markets are enhancing They their SDPs. on developing aggressively focused banks have Globally, and on-boarding algos and analytics, execution interfaces, improving by product offerings This and reduce costs. straight through processing (STP) to drive more clients in an effort 06 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. 52% Voice (b) Asia 48% Electronic Electronic [15] 45% Voice 55% Electronic Electronic Figure 10: Method of execution - 2016 - 2016 Method of execution 10: Figure focus is likely to continue as banks look to migrate additional order execution to to continue as banks look to migrate additional order execution is likely focus discretion and possible conflicts of interest. trader to avoid electronic platforms on primaryActivity dealers with has decreased as large international venues MDPs to internalise more client flows. moved have platforms functionally rich access to multiple counterparties, providing are also gaining popularity by of their clients. requirements satisfy best execution helping investors and so York Secondary or New tend to be managed out of London FX venues This participants. market Asian on attracting had the same focus not have may or to London compared of multi-dealer execution levels together with lower and showing that are active that the number of venues suggests York New trading hours. Asian during liquidity is lower where in markets are more active High-frequency traders and other NBLPs and access to secondary to ‘make’ venues have liquidity is deeper and they (a) Global [15] BIS, central bank websites, KPMG calculations

MDP volumes have also grown in Asia as platforms improve their product offerings and attract new clients. Changing regulation and being able to offer one perceived solution for best execution may see more volumes move on to MDPs worldwide.

The primary trading venues remain popular with a number of banks in Asia. In the less liquid and more volatile conditions that can be experienced in the Asia time zone flows tend to gravitate towards the primary venues. In addition, both venues have made a strong push to capture CNH volume, and now host almost all the CLOB/interbank CNH trade.

(b) Forwards, Swaps and Options

Primary venues dominate the electronic NDF market and, with Asian NDFs among the most liquid with volumes highest during Asia hours, overall volumes have risen. MDPs have seen some success in providing liquidity for currencies such as KRW and INR, but recycled liquidity continues to be an issue. The Asia Pacific FX Markets: Opportunities for Growth

25 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. In response to the increased capital required to operate across multiple evolving to reduce costs, and leverage jurisdictions, banks will need to innovate will be able their platforms and marketing developing actively utilities. Banks and to take advantage of big data client behaviour analytics generated from and insights. greater internalisation, efficiencies learning to drive machine cost savings has the potential to deliver (DLT) Distributed ledger technology to be impacted are those that activities most likely The across financial markets. of operational risk, especially in post- high levels and involve complex are costly, trade transaction processing where there has been minimal recent technology smaller will involve This -- i.e. confirmation and trade settlement. investment and wider adoption years five the next proof of concept implementations over decade. the following over that will not require investments and upgrades may technologies new However, need to adjust their business meaning some may all institutions, for be feasible With market alliances to maintain their competitiveness. models or cultivate and cost pressures, there is an the same regulatoryparticipants facing shifts utility platforms partnerships to develop banks to form for opportunity attractive third-party systems. leverage and/or better (c) Emerging technologies (c) Emerging For swaps, as with spot, non-bank market participants in Asia are moving to are moving Asia participants in non-bank market as with spot, swaps, For Banks liquidity best execution. and demonstrate order to access better MDPs in liquidity rather than the high to MDPs more on providing are also focusing liquidity. historically provided have they APIs to which direct number of the last three years. share over market swap increased have Primary platforms additional banks as liquidity recently acted to on-board providers have They from volume generating new and other platforms taking from volume participants. market inactive previously the options trade, continues to dominate of the product, voice the nature Given across in option volumes fall With the overall larger deal sizes. particularly for declining hit by also fallen, have volumes execution the region, electronic Northeast options from SMEs and other and structured vanilla demand for has This and CNH depreciation. due to regulatory corporates Asian changes had been robust historically due to a high which directly impacted SDP volume clients in banks accessing liquidity for concentration of regional and private sizes. small ticket as they share of options traded on MDPs has historically been low market The of liquidity due to a lack or not liquid on these venues either not available were vanilla in trading become more active local banks have However, providers. position the challenging and competitive more pricing making on MDPs, options of SDPs.

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 26 The Asia Pacific FX Markets: Opportunities for Growth

27 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. The Asia Pacific FX Markets: Opportunities for Growth

The Asia Pacific FX Markets: Opportunities for Growth 29

Opportunities for Regulatory Regulatory for Opportunities Equivalence Asia’s economies and markets, of the region’s of development levels the varied Reflecting to both presents significant challenges This complex. regulatory and is diverse environment is also environment This operating across the region. global and regional banks and MNCs include: which forces, global being shaped by with local been implemented that have Global initiatives agenda: The G20 regulatory solutions to and cost to the design and build of technological add complexity variations when home and host additional challenges face compliance. International banks facilitate country requirements differ. Requirements (KYC): Customer Your (AML) and Know Laundering Anti-Money frequently vary from country to country burden of entities adding to the administrative in the client on-boarding operating across multiple jurisdictions, and leading to inefficiencies process and impacting service quality. Inconsistencies in the implementation of these requirements Basel capital requirements: entities non-locally incorporated for field in some markets playing could create a non-level there are In particular, interpretation at group level. a different by be governed that may it will will be interpreted, and how FRTB Committee’s uncertainties the Basel how about and options. currencies and liquidity of emerging market impact trading levels recently regulation.The the potential impact of emerging and future Questions also surround common guidelines to promote the integrity and proper GCC, designed to provide launched and in early 2018, is due to take effect II, which MiFID the EU’s operation of the FX market, Asia. trading in major implications for regulation will all have prudential the BASEL 07 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. privacy/ secrecy secrecy reporting impacting impacting Data filed Supporting documents required be to required Regulations [16] Other Local Reporting Transaction Transaction Central Bank Bank Central system system required? Local onshore Local onshore Offshore Deliverable CURRENCY RESTRICTIONS Convertible Requirement Requirement in place Other Other local regulations Margin Trading Platform Deliverable Not DeliverableNot PRODUCTS OTC DERIVATIVES REFORM ON FX FX ON REFORM DERIVATIVES OTC Central Central Clearing Voluntary Voluntary Voluntary At the local level, there are marked differences among jurisdictions in areas differences there are marked At the local level, as: such server Inconsistent requirements complicate and secrecy: privacy Data with mandatory the counter (OTC) and compliance deployments over cross-border for present challenges They reporting obligations. derivatives and and centralised management of client accounts booking arrangements positions. be unclear or prevent may Regulations platforms: trading Use of electronic of consistency has hampered the lack This altogether. platforms the use of such adoption of electronic trading in some jurisdictions. to place systems Requirements servers: and use of offshore Outsourcing with the authorities adds to the cost and onshore and to register software and the of maintainingcomplexity and securing multi-jurisdiction platforms security code. of source oversight, central banks with currency Designed to provide controls: Currency access, controls can include limit capital and/or limit market outflows transaction-based reporting to central banks and to present requirements for These underlying commercial trade documents to support FX transactions. electronic execution. for and opportunities impact operational efficiencies major global regulatory in more detail sections examine how following The FX market. Asian will impact the initiatives [16] BIS, EIU, FSB, IMF, central bank websites, KPMG research, various currency guides [16] BIS, EIU, FSB, IMF, Currency restrictionsCurrency IMPACT G20 OF Initiatives Reporting Reporting G20 TradeG20 Convertible Convertible Restricted Fully Partially FRTB Delayed Delayed Delayed Delayed Potentially planned Basel III Basel CAPITAL not been not 2.5 Basel is planned in/ progress Rules in force & impact of G20 reforms G20 of impact & Capital Adoption India China Korea Japan Adoption is not has / Table 1. Summary of the key regulations applying to the FX markets in the region region in the FX markets the applying to regulations of the key Summary 1. Table Taiwan

Thailand Australia Malaysia Indonesia Singapore Philippines Hong Kong

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative with KPMG International Cooperative of independent member firms affiliated of independent member firms affiliated of the KPMG network of the KPMG network partnership and a member firm partnership and a member firm KPMG, a Hong Kong KPMG, a Hong Kong © 2017 © 2017 in Hong Kong. in Hong Kong. All rights reserved.All rights reserved. Printed Printed entity. entity. The Asia Pacific FX Markets: Opportunities for Growth 30 The Asia Pacific FX Markets: Opportunities for Growth 31 No guidance in draft No guidance in draft rules Exempt Exempt Exempt Exempt Collect gross; post net Collect gross; post net Exempt where <2.5% Exempt ratio** Treatment of VM Treatment .bis.org/bcbs/publ/d317.htm No exchange – but No exchange risks should be properly managed No guidance in draft No guidance in draft rules Exempt Exempt Exempt Exempt Collect gross; post net Collect only Exempt where <2.5% Exempt ratio** Non-Netting Jurisdictions Non-Netting of IM Treatment No later than T+3 No later than Draft rules indicate on a indicate rules Draft regular basis No later than T+2 after being T+2 after No later than called No later than T+3 No later than Without delay Conducted promptly Collected on or before T+1 Collected on or before Collected on or before T+1 Collected on or before Collected on or before T+2 Collected on or before Collateral Settlement Settlement Collateral Timeliness VM can be exchanged if it VM can be exchanged is considered necessary to manage risk Subject to the margin rules regime in draft Subject to the BCBS Supervisory Guidance2 Subject to the BCBS Supervisory Guidance2 Subject to the BCBS Supervisory Guidance2 Subject to the BCBS Supervisory Guidance2 (not explicit) NA The Fed has formally has formally Fed The adopted the BCBS Supervisory guidance Subject to the margin regime* Treatment of VM for VM for of Treatment & FX Forwards Deliverable Swaps1 Treatment of physically settled FX forwards and swaps and reliance on FX forwards and swaps settled of physically Treatment BCBS Supervisory Guidance, resulting in interpretational enforcement and differences The scope of covered entities scope of covered The Table 2. Treatment of deliverable FX forwards and swaps and exchange of margin with non-netting with non-netting of margin and exchange and swaps FX forwards of deliverable Treatment 2. Table jurisdictions Korea India Hong Kong Singapore Japan Australia US CFTC Rules US Prudential Rules US Prudential EU 1 Under the BCBS/IOSCO Margin requirements for non-centrally cleared derivatives deliverable swaps and forwards are exempt from IM http://www 1 Under the BCBS/IOSCO Margin requirements for non-centrally cleared derivatives deliverable swaps and http://www.bis.org/publ/bcbs241.htm 2 BCBS Supervisory guidance for managing risks associated with the settlement of foreign exchange transactions * Delay granted for VM on FX forwards until earlier of 31 December 2018 or application of MiFID2 amendments. at group level ** So long as certain conditions met ratio of notional to total notional of all non-centrally cleared derivative • • Recognising that international inconsistencies could lead to regulatoryinconsistencies could that international Recognising Supervision on Banking and (BCBS) Committee the Basel arbitrage, (IOSCO) issued a of Securities Commissions International Organization non- to establish margin requirements for minimum standards for framework have Nonetheless, national regulators in 2015. derivatives centrally cleared OTC in a resulting differences, local market account for to adapted the framework as: that span areas such variations number of jurisdiction-specific (a) Margin requirements requirements (a) Margin © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative with KPMG International Cooperative of independent member firms affiliated of independent member firms affiliated of the KPMG network of the KPMG network partnership and a member firm partnership and a member firm KPMG, a Hong Kong KPMG, a Hong Kong © 2017 © 2017 in Hong Kong. in Hong Kong. All rights reserved.All rights reserved. Printed Printed entity. entity. Definitions of OTC contracts Definitions of OTC transactions reporting of packaged for Rules Dual or single-sided reporting obligations and their reporting treatment events Definitions of lifecycle timelines Reporting Treatment of exposures with counterparties in non-netting jurisdictions, jurisdictions, in non-netting with counterparties of exposures Treatment the ability limit to trade in these some participants of may which liquidity impacting costs and transaction thereby jurisdictions, costs additional funding create may which collateral settlement, Timing of with US counterparties entities trading Asian for (b) OTC trade reporting reporting trade (b) OTC reporting requirements also vary trade depending on derivatives OTC international particularly for jurisdictions, creating significant complications locations. Asian banks with trading activities in multiple not be reportable that are reportable in in one jurisdiction may Transactions in: another due to differences • • • • • of complexity by and Singapore add an additional layer Hong Kong Australia, in an affiliate reporting obligations, meaning trades booked imposing ‘nexus’ can be subject to reporting requirements. that most authorities Another issue is the unique transaction identifiers (UTI) no harmonised requirements are There require trades to carry when reported. and on Payments the Committee and while or use of UTIs, on the formulation guidance for published technical (CPMI) and IOSCO have Infrastructures Market this will work regulators addressing harmonisation, concerns remain as to how in practice. • • the substituted by be resolved may differences While some of these how jurisdictions, it is still unclear adopted by compliance arrangements only been have compliance assessments as substituted these will be applied and Japan. Australia completed by This margin requirements. not implemented have Asia in Some jurisdictions in those jurisdictions that are participants incorporated for creates challenges countries as a result of to comply with margin regulations in other still expected cross-border transactions. the region that are subject to home European and US banks operating in country placed at requirements due to their booking models are also potentially and could result in a bifurcation of the market This a commercial disadvantage. be passed on to clients. higher transaction costs that will eventually

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 32 The Asia Pacific FX Markets: Opportunities for Growth 33 Not specified Not specified Not specified Not specified Reportable person who conducts activities relating to is located in execution Singapore. Trades on electronic platforms be captured. may Not specified Reportable if decision Reportable if decision to trade made in Hong or parameters Kong platform, electronic for are set in Hong Kong Not specified Reportable if Reportable acceptance of the to enter into the offer in contract is received (exemptions Australia apply Nexus Trade data Trade fields) (13 Trade data Trade (36 fields) Trade data Trade (100+ fields) Trade data Trade Trade data Trade (61 fields) Content Direct Direct Direct Direct agent Via Via agent Via Direct or via agent Direct of via agent Via agent Via Direct Direct or Via Agent N/A N/A Quarterly Regularly1 No public disclosure Daily & Monthly Real-time Under consideration Under consideration Quarterly Weekly Public Disclosure KRX, BoK Taipei Exchange Bank Bank Indonesia CFETS, China CFETS, Securities Internet System CCIL Trade Trade Repository Trade Trade Repository Trade Trade Repository, Regulator Trade Trade Repository Recipient N/A (Consultation paper issued in November 2013) N/A (Consultation paper issued in November Single Single Dual – inter- dealer; Single - All other Dual Dual Dual Dual Single or Dual-Sided Daily T+1 Hourly, Hourly, EoD. T+1 Within T+2 Within T+2 Within T+1 Weekly Within T+1 Timing Local Local Local G20 Local G20 G20 G20 G20 G20 or Local Table 3. OTC trade reporting requirements in the region in the region requirements reporting trade OTC 3. Table Korea Taiwan Indonesia Malaysia Thailand Philippines China India Singapore Hong Kong Japan Australia 1 Based on Taipei Exchange’s PFMI, Information Disclosure Report. FSB, ASIC, DTCC, HKEx, CCIL, SHCH, OTC Clear, SGX, TPEx, Various Regulator Websites SGX, TPEx, Various PFMI, Information Disclosure Report. FSB, ASIC, DTCC, HKEx, CCIL, SHCH, OTC Clear, Exchange’s 1 Based on Taipei A 2013 GFXD, study based on historical data of deliverable OTC FX options based on historical data OTC of deliverable study GFXD, A 2013 between January 2007 and exercised and currencies traded globally in 17 are capable of they estimated CCPs must demonstrate December 2011, (c) Central clearing of derivative transactions transactions of derivative clearing (c) Central in India and China, available is only Asia FX contracts in Clearing of deliverable contracts on local central counterpartywhere the clearing of USD/local currency is a result of This central bank. the clearing houses (CCPs) is underwritten by that state CCPs must understand the BIS/IOSCO principles introduced in 2012 liquidity risk to guarantee full and timely sentiment. of same-day and nature size © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. Available Available N/A N/A N/A Available Availability Availability of Client Clearing N/A [17] 1 DCO Exempt Not / Registered Exempt DCO Exempt DCO Exempt DCO Registered QCCP Status QCCP Status under CFTC Regulations DCO Exempt - ASX Clear only (Futures) No action relief Recognised Recognised Recognised Recognised Recognised QCCP Status QCCP Status under EMIR Recognised Not Recognised USD NDFs referencing USD NDFs referencing & INR KRW TWD, RMB, Spot and forwards USD/INR referencing None None USD NDFs referencing MYR, IDR, INR, KRW, RMB, TWD PHP, None RMB Spot in the following AUD, EUR, pairs: USD, GBP; USD/RMB JPY, HKD, forwards & swaps FX Products offered for for offered FX Products on local CCP clearing [17] ESMA, CFTC, FSB, CCIL, SHCH, OTC Clear, SGX, LCH Clearnet Ltd [17] ESMA, CFTC, FSB, CCIL, SHCH, OTC Clear, In the US, the Dodd Frank Act requires third-countryAct CCPs to apply for the Dodd Frank In the US, clearing from being recognised as a derivative registration or exemption to do so means that US banks and overseas organisation (DCO). Failure using these CCPs will incorporated subsidiaries) (but not overseas branches -- though US authorities have Act of the Commodity Exchange be in breach demonstrated a willingness to grant temporarily relief from these requirements House (SHCH). the Shanghai Clearing did recently for as they because (i) clearing been low generally of cleared FX products have Volumes FX products settled (ii) there is no solution to clear physically is not mandatory, and (iii) where voluntary clearing does take place the benefits from offsetting voluntaryThe clearing of NDFs on not been optimal. margin obligations have times between (LCH) increased five ForexClear Clearing House’s the London non-centrally the margin requirements for after 2017 and February 2016 August came into effect. derivatives cleared OTC managing same day liquidity shortfalls as high as US$161 billion - the result of billion - the result as high as US$161 liquidity shortfalls same day managing combined settlement the largest firms representing clearing two of the failure day. given on any currency in each obligations regulatory recognition of equivalent on the impact the regimes can also Rules to participants the ability of CCPs, potentially limiting status market of some ‘covered prevents example, European regulation, for clear in some jurisdictions. not received in third-country from participating CCPs that have persons’ Authority. European Securities and Markets recognition from the None FX Forwards None None None None None Mandatory Mandatory of Clearing FX Products OTC Clearing Hong OTC Limited (OTC Kong Clear) Clearing Corporation of India Limited (CCIL) Securities Japan Clearing Corp (JSCC) Exchange Korea (KRX) SGX Derivatives Clearing Limited ASX Clear, ASX Clear ASX Clear, ASX (Futures) Shanghai Clearing House (SHCH) Local CCP Table 4. Summary of the clearing environment for FX products across the region the region across FX products for environment Summary of the clearing 4. Table

Hong Kong India Japan Korea Singapore Australia China © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. 1 No action relief extended until the earlier of 30 November 2017 or the date on which the CFTC exempts the SHCH. 1 No action relief extended until the earlier of 30 November 2017 or the date on The Asia Pacific FX Markets: Opportunities for Growth 34 The Asia Pacific FX Markets: Opportunities for Growth 35 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15 Sep-15 March 2017 th Jun-15 [18] Mar-15 -

900 800 700 600 500 400 300 200 100

Figure 11: Monthly volume of NDFs submitted for clearing at the clearing for of NDFs submitted Monthly volume 11: Figure LCH Monthly Notional Value (USD Billion) Billion) (USD Value Notional Monthly [18] LCH; volumes cumulated up to 20 The most recent study showed that the SA generates an overall capital generates an overall that the SA showed most recent study The the times for compared to 1.6 levels requirement of up to 2.5 times current 5.3 times higher than the capital requirements were FX risk, the SA IMA. For IMA. Banks that satisfy the P&L attribution test will gain approval to use IMA internal test will gain approval that satisfy the P&L attribution Banks the published results of banks undertaking the test show risk models. However, SA. on the back banks to fall forces which a particularly high rate of failure (d) Prudential requirements requirements (d) Prudential that will change is an ambitious framework FRTB Committee’s Basel The significant implications have banks assess risk and could potentially the way all of the framework version Under the current the regional FX market. for will which (SA) Approach Standardised to adopt the revised banks will have be used to set a floor on the capital banks able to use the Internal held by because both will require significant investment This (IMA). Approach Model undertake that banks currently to the way calculate risk differently approaches applied internal purposes. In addition, the risk weightings risk management for non-liquid in the IMA disadvantage applied and the liquidity horizons in the SA and options. currencies A similar pattern seems unlikely in Asia. Of the four local CCPs clearing FX CCPs clearing local Of the four Asia. in seems unlikely pattern A similar (SGX) Exchange (HKEx) and Singapore Exchange only the Hong Kong products with an ability participants local market While these provide NDF clearing. offer favour banks international and time zone, the same jurisdiction to clear in NDFs on the LCH due to the liquidity currency and Asian voluntarily clearing same platform. clearing both sides of a trade on the margin benefits of © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The obligation to provide personal data obligation to provide subject to local data The privacy or entities so transaction reporting legislation to EU trading venues obligations are met with a European entity all counterparties trading requirement for to The is not mandatoryAsia Entity in Identifier (LEI), which a registered Legal have not widespread and therefore as entities trading with European of account repapering required extent The agreements to sign revised cases have counterparties will in many (f) Global Code of Conduct (GCC) the Group (FXWG) to promote Working Exchange the BIS Foreign by Developed in launched the GCC was market, of the wholesale FX integrity and efficiency participants, including sell- to apply to all FX market It is expected 2017. May operators, and other entities providing NBLPs, trading venue side and buy-side, that GCC is a broad initiative The services. and settlement execution brokerage, (including execution sharing, governance, as information areas such covers (e) MiFID II MiFIR are aimed at MiFID II and 2018, date of 3 January, With an effective reducing risk in financial protection, enhancing investor transparency, improving abuses. market and preventing markets is subject to the interpretation European national regulators of the directive As into local regulations, there is a risk of multiple being adopted before FX example, the same requirements. For being required to meet approaches and transactions entered into as a spot transactions, security conversions there is However, not considered financial instruments. are means of payment meaning a short- a means of payment, no clear guidance on what constitutes jurisdiction but subject to regulation in in one dated forward could be exempt another. of MiFID II reach uncertainty the extraterritorial is also considerable There over execution the different entities, particularly given Asian impact it may and how outcomes. FX that could result in different and booking models used for entities trading with European Asian facing immediate concerns The counterparties include: • • • The regional impact of FRTB will depend to a large extent on how national on how to a large extent will depend impact of FRTB regional The and Hong Kong Singapore Australia, -- to date interpret the rules regulators weightings The implementation of the framework. delayed all officially have non-liquid trading banks to reconsider force may SA both IMA and applied under and options, potentially impacting liquidity currencies execution and increasing banks booking emerging are also concerns that international There costs. be disadvantaged could FRTB transactions in jurisdictions implementing market required. due to the higher capital levels

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 36 The Asia Pacific FX Markets: Opportunities for Growth 37 Actions required Actions Strengthening Front Office Control functions, governance structures and policies structures governance Control functions, Office Front Strengthening and procedures. conduct metrics to structures reward and Aligning incentives reporting, and escalation co-ordination Improved of confidential dataConduct including use colour of market Provision discretion including pre-hedging associated with execution Conflicts of interest External communication rooms, email and chat to cover surveillance technology and monitoring Improved communication channels voice to link conversations channels between Ability reference to cross Ability transactional activity to link with surveillance segregation of the Order taking desk Physical and reduced Higher percentage through electronic channels of orders routed trader discretion obligations execution Best Clarity of role and mark-ups Greater transparency in pricing models risk priority, practices including execution Clear communication of execution management and pre-hedging in risk taking activityReduction basis on a fee Execution functionality and client interface Improved and testing deployment algo development, controls over Improved Enhanced analytics • • • • • • • • • • • • • • • • • • • • • Orders Training Surveillance Client disclosures execution Agency Electronic execution 1st Line of Defence 1st Line of Table 5: Summary of the impact of the global code the impact of the Summary of 5: Table Business Model Strengthening the Control Environment Central bank members of the FXWG have indicated they will demonstrate they indicated Central bank members of the FXWG have will expect adopting the Statement, and they their commitment to the Code by their regular FX trading counterparties to adhere to its principles. In addition, decided to publicly link have Committees Exchange a number of Foreign membership with adherence to the Code using the Statement. Authorities and industry bodies are currently employing a number of different and industry a number of different Authorities employing bodies are currently Financial Conduct UK’s The to ensure adoption of the GCC. approaches could use stated that they have Authority Regulation and Prudential Authority Association while the compliance, to enforce the Senior Managers Regime membership. Cambiste Internationale has made adherence a prerequisite for The GCC does not impose legal or regulatory obligations. However, it GCC does not impose legal or regulatoryThe obligations. However, participants to sign market does include a Statement of Commitment for demonstrating their commitment to conducting their FX business in accordance taken appropriate steps to align their have with the Code, and to confirm they activity to its principles. For Asian entities, this will create a clear need to review business models business models create a clear need to review entities, this will Asian For in will require investment This control environment. and refine the front office processes (policies and procedures) and people (training and control functions), platforms). surveillance, (monitoring and electronic execution systems requiring market participants to be clear about the capacities in which they act), act), they to be clear about the capacities in which participants requiring market and risk management. © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The lack of a regulatory framework permitting reliance on the information reliance on the information permitting of a regulatory framework lack The and documentation utilities provide in documentation requirements between jurisdictions Differences Interoperability limitations cybersecurityVarying and data requirements privacy Material outsourcing and data secrecy constraints (g) KYC and market infrastructure opportunities infrastructure and market (g) KYC vary requirements on-boarding region, making client widely across the KYC service to affects adversely costly and time-consuming,processes which negatively across firms duplicated are also often processes These customers. to the same information to provide have that often impacting customers investment found Reuters Thomson by survey 2016 A counterparties. numerous diligence million on customer due of US$100 spend an average Asia banks in of US$30 million. and retail and regional an average banks annually, (CPMI), Infrastructure and Market on Payments the BIS Committee noted by As these addressing towards utility could go a significant way a standard KYC reducing checks, KYC for template or gateway a single providing issues by consistency and enhancing accuracy, resubmissions of identical information and efficiency. jurisdictions in the region, already emerged that cover A number of utilities have Thomson registry, the SWIFT KYC including Bloomberg Entity Exchange, are still in cases they in many and Markit/Genpact. However, Accelus Reuters critical mass. stage and lack the development are addressed, including: factors to remain limited until several is likely Adoption • • • • • also point to opportunities they banks, for While these gaps present difficulties more and facilitate a that address these shortfalls utility platforms to develop procedures. to KYC standardised approach

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 38 The Asia Pacific FX Markets: Opportunities for Growth

39 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. The Asia Pacific FX Markets: Opportunities for Growth

Association Cambiste Internationale Association Commission Securities and Investments Australian Securities Exchange Australian Supervision on Banking Committee Basel Indonesia Bank of International Settlements Bank Negara Malaysia Bank of Japan Bank of Korea Bank Clearing Corporation of India Ltd. The Commission Trading Commodity Futures Authority European Securities and Markets of India Association Dealers’ Exchange Foreign Financial Authority Conduct Financial Stability Board Financial Times Association Global Financial Markets Exchange Hong Kong MonetaryHong Kong Authority International Monetary Fund Securities Clearing Corporation Japan Corporation Brokerage Money Korea Exchange Korea Monetary of Singapore Authority

APPENDICES (a) Glossary Regulatory & Other Institutions/Corporations Bodies ACI ASIC ASX BCBS BI BIS BNM BoJ BoK CCIL CFTC ESMA FEDAI FCA FSB FT GFMA HKEx HKMA IMF JSCC KMBC KRX MAS 08 © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The People’s Bank of China Bank People’s The of India Bank Reserve Commission and Futures Securities Exchange Singapore House Shanghai Clearing Services Brokerage Seoul Money Exchange Taipei Trade Organisation World Average Daily Turnover/Volume Interface Application Programming CounterpartyRisk Credit Customer Due Diligence System Trade Exchange China Foreign Central Counterparty Clearing House Clearing Organisation Derivative Forwards Deliverable Distributed Technology Ledger Electronic Communications Network Regulation Infrastructure European Market Financial Institutions Direct Investments Foreign Book Trading of the Review Fundamental Group Working Exchange Foreign Global FX Code of Conduct High Trading Frequency Rate Offer Interbank Hong Kong Initial Margin Internal Models Approach Customer Your Know Clearing House London Entity Identifier Legal Multi Dealer Platforms Regulation in Financial Instruments Markets Directive in Financial Instruments Markets Multinational Corporates Multilateral Trading Facility Liquidity Providers Non Bank Forwards Non Deliverable Non-Modelable Risk Factors the Counter Over Trading Facility Organized Proprietary Trading Firms Qualified Central Counterparty Quantitative Easing Quantitative Impact Study Other Abbreviations ADV PBOC RBI SFC SGX SHCH SMBS TPEx WTO API CCR CDD CFETS CCP DCO DF DLT ECN EMIR FI FDI FRTB FXWG GCC HFT HIBOR IM IMA KYC LCH LEI MDP MiFID MiFIR MNC MTF NBLP NDF NMRF OTC OTF PTF QCCP QE QIS

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 42 The Asia Pacific FX Markets: Opportunities for Growth 43 Regulated Market Regulated Gross Settlement Time Real Standardised Approach Platforms Single Dealer Rights Special Drawing Small & Medium Enterprises Straight Through Processing Cost Analysis Total Unique Transaction Identifier Margin Variation “Triennial Central Bank Survey of foreign exchange and OTC derivatives derivatives and OTC exchange Survey of foreign Central Bank “Triennial – of International Settlements Bank 2016, 2013, 2010, 2004, 2007, markets”, from http://www.bis.org/publ/rpfx16.htm Retrieved of the global FX market anatomy The A. (2013). & Schrimpf, Rime, D., Survey. Triennial through the lens of the 2013 FX markets: Downsized (2016). V. A., & Sushko, Moore, M., Schrimpf, causes and implications. forwards: impact of Non-deliverable C. (2016). R. N., & Shu, McCauley, reform. internationalisation and derivatives currency forwards: 2013 Non-deliverable C., & Ma, G. (2014). R. N., Shu, McCauley, and beyond. markets? Emerging derivatives M. (2016). Valli, C., & Upper, Arrangements on Exchange Report “Annual International Monetary Fund, 2016). October (Washington, Restrictions” and Exchange statistics derivatives Exchange-traded of International Settlements, Bank from http://www.bis.org/statistics/extderiv.htm - Retrieved (2017) – Debt Securities Statistics (2017) of International Settlements, Bank from http://www.bis.org/statistics/secstats.htm Retrieved databank. [Custom cross-tabulation World of data] – (2016). Bank. World from http://data.worldbank.org/ Retrieved [Custom cross- Profiles. Trade Organisation. (2016), Trade World from http://stat.wto.org/CountryProfile/ tabulation of data] – Retrieved WSDBCountryPFHome.aspx?Language=E 2017), (2016, Reports, Regulation Economist Intelligence Unit, Forex The Eleventh Reforms: Market Derivatives “OTC Financial Stability Board, from http:// Retrieved 2016), (August on Implementation” Report Progress www.fsb.org/wp-content/uploads/OTC-Derivatives-Market-Reforms- Eleventh-Progress-Report.pdf

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. (b) References RTGS SA SDP SDR SME STP TCA UTI VM RM © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. Australia – Reserve Bank of Australia (RBA), Australian Securities and Australian (RBA), Australia of – Reserve Bank Australia Authority Regulation Australian Prudential ASIC, Commission Investments (APRA), “RMB Tracker Monthly reporting and statistics on Renminbi (RMB) (RMB) and statistics Monthly reporting on Renminbi Tracker “RMB 2017), (29 March becoming an international currency”, progress towards from https://www.swift.com/our-solutions/compliance- Retrieved SWIFT, and-shared-services/business-intelligence/renminbi/rmb-tracker/document- centre Bank, Development Asian Philippines, 2017”, Monitor – March Bond “Asia from - https://asianbondsonline.adb.org/documents/ Retrieved ADB, © 3.0 IGO License - CC BY abm_mar_2017.pdf, Development Asian Philippines, 2016”, Monitor – November Bond “Asia from - https://asianbondsonline.adb.org/ Retrieved ADB, © Bank, 3.0 IGO License - CC BY documents/abm_nov_2016.pdf, Country-wise AUC FPI/FII National Securities Depository Ltd, FPI Monitor, from https://www.fpi.nsdl. Retrieved countries) data (Dec 2016) (top 10 co.in/web/Reports/ReportDetail.aspx?RepID=74 Twelfth Reforms: Market Derivatives “OTC Financial Stability Board, from http:// Retrieved 2017), (June on Implementation” Report Progress www.fsb.org/2017/06/otc-derivatives-market-reforms-twelfth-progress- report-on-implementation/

Relevant Country Regulatory, Exchanges and Central Bank related and Central Bank Exchanges Country Regulatory, Relevant sources 1. 14. 15. 16. 1 7. 18.

© 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity. The Asia Pacific FX Markets: Opportunities for Growth 44 The Asia Pacific FX Markets: Opportunities for Growth 45 China – The People’s Bank of China (PBOC), State Administration of Foreign of Foreign Administration State of China (PBOC), Bank People’s The China – Clearing House (SHCH) Shanghai (SAFE), Exchange Monetary Exchange – Hong Kong Hong Kong (HKMA), Authority Hong Kong (HKEx) Clearing Corporation of India (CCIL), The of India (RBI), India – Reserve Bank Indonesia, Indonesia – Bank (BoJ), of Japan – Bank Japan (KRX) Exchange Korea (BoK), of Korea – Bank Korea Bursa Malaysia Negara Malaysia, – Bank Malaysia Sentral ng Pilipinas (BSP) Bangko The Philippines - Singapore – Monetary Singapore Exchange of Singapore (MAS), Authority (SGX) Exchange Taipei of China (Taiwan), of the Republic – Central Bank Taiwan (BoT), Thailand of – Bank Thailand (ESMA), Authority Other Sources – European Securities and Markets of England, Federal Commission (CFTC), Bank Trading Commodity Futures Central Bank The of Canada, Bank Norges Bank, York, of New Reserve Bank Federation of the Russian

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. © 2017 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss (“KPMG International”), a Swiss with KPMG International Cooperative of independent member firms affiliated of the KPMG network partnership and a member firm KPMG, a Hong Kong © 2017 in Hong Kong. All rights reserved. Printed entity.

member firm’s appointment by some of China’s most prestigious companies some of China’s appointment by member firm’s been the foundation for accumulated industry in the Chinese for and is reflected been the foundation experience, commitment to the China market, together with an unwavering focus on quality, has on quality, focus together with an unwavering commitment to the China market, August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early This can trace its origins to 1945. office the Hong Kong Additionally, 2012. August mainland China to convert from a joint venture to a special general partnership, as of 1 venture from a joint mainland China to convert venture licence in mainland China. KPMG China was also the first among the Big Four in also the first among the Big Four China. KPMG China was licence in mainland venture In 1992, KPMG became the first international accounting network to be granted a joint KPMG became the first international accounting network to be granted a joint In 1992, is a legally distinct and separate entity and describes itself as such. KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm Each entity. (“KPMG International”), a Swiss KPMG International Cooperative around the world. The independent member firms of the KPMG network are affiliated with independent member firms of the KPMG network are affiliated The around the world. services. We operate in 152 countries and have 189,000 people working in member firms 189,000 people working countries and have operate in 152 We services. KPMG is a global network of professional services firms providing Audit, Tax and Advisory and Tax Audit, services KPMG is a global network of professional firms providing China can deploy experienced professionals efficiently, wherever our client is located. our wherever efficiently, professionals experienced China can deploy SAR and Macau SAR. With a single management structure across all these offices, KPMG across all these offices, With a single management structure and Macau SAR. SAR Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong Tianjin, Xiamen, Hong Kong Shenzhen, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Fuzhou, Chongqing, Zhongguancun, Chengdu, Foshan, in Beijing, Beijing KPMG China operates in 16 cities across China, with around 10,000 partners and staff and staff partners 10,000 cities across China, with around KPMG China operates in 16 http://www.gfma.org. the European, Asian and North American members of GFMA. For more information, visit information, more of GFMA. For American members and North Asian the European, Financial Markets Association (SIFMA) in New York and Washington are, respectively, are, respectively, Washington and York in New (SIFMA) Association Financial Markets KPMG China Financial Markets Association (ASIFMA) in Hong Kong and the Securities Industry and the in Hong Kong and (ASIFMA) Association Financial Markets Markets in Europe (AFME) in London and Brussels, the Asia Securities IndustryAsia the & and Brussels, in London in Europe (AFME) Markets agenda and to promote coordinated advocacy efforts. The Association for Financial for Association The efforts. coordinated advocacy agenda and to promote leading financial trade associations to address the increasingly important trade associations to address leading financial regulatory global The Global Financial Markets Association (GFMA) brings together three of the world’s three of the world’s (GFMA) brings together Association Global Financial Markets The About GFMA GFMA About

Jia Ning Song Financial Services Partner, Advisory +852 2978 8101 Tel: Email: [email protected] Partner, Regional Head, Financial Regional Partner, Services 8608 7007 +86 (10) Tel: Email: [email protected] Simon Gleave KPMG James Kemp James Managing Director Global FX Division 2705 +44 (0) 203 828 Tel: Email: [email protected] GFMA John Ball John Managing Director Pacific Asia – Global FX Division GFMA +852 2531 6512 Tel: Email: [email protected] Authors

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Publication number: CN-MS17-0004

Publication date: September 2017