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Global capital markets, local market opportunities Who we are Euroclear is one of the world’s largest providers of domestic and cross-border settlement and related services, holding close on €27.5 trillion in assets across 44 different markets. As an international infrastructure, we offer a neutral and secure means for our clients to connect to local Central Securities Depositaries (CSDs), providing key support for international investors in their search for diversification and yield. We serve more than 2,000 financial market participants across the globe. They include over 100 central banks and supranationals, and 90% of the world’s top 50 banks. 2 We have a long history as a provider of efficient post-trade services, delivering automated solutions. We act as a marketplace enabler, applying our procedures and structures to help open up new markets for our clients. We have been rated AA+ by Fitch Ratings and AA by S&P for the past ten years. We are a by-word for strength, stability, safety and scale. We open doors We pave the way for global investors to seek diversification and yield in local markets globally. We work with local markets to help them provide certainty and easier access. Our aim is to deliver the same efficient and robust service standards that apply in the more established markets. This means collaborating with governments and market authorities to support the development of appropriate legal and regulatory frameworks. Consistency and stability at the core We open doors. We give investors the confidence to invest in domestic securities in local markets by ensuring they can operate within the same framework and in the same format as in the well-established markets. The result is consistency combined with security. We make it easy. “Through Euroclear’s i-link platform we will have access to an extremely large number of financial institutions that make up Euroclear’s core client base, the majority of which are also long-term investors. The development of this i-link will allow us to increase domestic liquidity, lower price volatility and reduce the financial cost of our sovereign bonds, ultimately boosting the development of the Peruvian public debt market.” “Euroclear’s i-link will permit local investors to diversify the counterparties they deal with while also connecting to a greater number of international investors. This platform will elevate the Peruvian capital market to the recognised standards of other developed international markets. It will also provide both local and international investors a unique and cost-efficient channel through which to access the Peruvian capital market.” Alonso Segura Vasi, Former Minister of Economy and Finance of Peru “ “ Together, we work to ensure every local market can offer the same robust levels of connectivity, control and post trade efficiency. 3 Case studies Mexican corporate bond market Before The solution After The market in Mexican corporate bonds – ‘Cebures’ – had historically been limited in size with little foreign investor interest. The high local borrowing costs deterred local corporates from raising money in the peso market. Keen to break this circle and stimulate the local corporate bond market, Mexico’s Ministry of Finance approached Euroclear in 2014 to discuss what was needed to make Cebures ‘Euroclearable’. Euroclear had supported Mexican government bonds and equities since 1995. Within six weeks of the new service opening, Pemex announced it was to raise MXN17bn (USD850m) in a Cebures issue, of which MXN9bn would be allocated to international investors. This meant large entities, such as Pemex, raised the bulk of their term debt in the form of international dollar issues. For international investors, there was little incentive to invest in Cebures as they did not figure in international corporate bond indices. The move gives international investors easy access to Cebures through their Euroclear account and makes it possible for the Mexican peso to qualify for inclusion in international indices. While Mexican issuers can now tap into international demand, international investors can more easily take advantage of the yield pick-up offered in the Mexican market. “ “ The solution was to change and simplify the way Cebures were treated for tax and align Mexico’s corporate issuance and asset servicing processes with international standards. In December 2014, the Ministry of Finance and Euroclear jointly announced that Euroclear would begin servicing Cebures from the start of 2015. The Pemex Treasurer, Rodolfo Campos, said: ‘Having Mexican peso-denominated securities settle through Euroclear will provide international investors access to the world’s leading post-trade services provider, and we believe it will help lay the foundations for the future growth of Mexico’s corporate debt market’. “By making the Cebures denominated in our national currency ‘Euroclearable’, we have put our local market infrastructure for corporate debt on an equal level with the highest, globally recognised standards.” Luis Videgaray, secretario de Hacienda, México MXN 9,000,000,000 was allocated to international investors 4 Bringing Euroclearability to Chile Before The solution After The Chilean market in local currency government bonds was not considered by international investors, with only 5% of foreign participation in the local bond market. Keen to change the situation and open the bond market up to foreign investment, the Chilean Ministry of Finance worked with Euroclear to investigate how the situation could be improved. With the necessary reforms in place, Chilean government bonds became fully Euroclearable in 2017. This was most likely due to the complex pro-rata based tax on transactions and existing regulations that did not fully recognise the omnibus account set-up. Substantial efforts were made to rationalise the local market regulations and to undertake tax reforms. “ The Chilean Central Bank also updated its regulation to fully recognise the ICSD omnibus account setup. Following that example, legacy government bonds were made Euroclearable as from February 2017. Bond index companies are currently considering increasing the weight for the Chilean government bond in their indexes. In April 2017, the weight in the JPM index had already gone up to 1.34%. “Our partnership with Euroclear has yielded this important milestone for our capital markets. Being able to tap into the liquidity provided by international investors is tremendously important for the continued development of our local market. And, it should yield tangible benefits such as reducing the cost of borrowing, increasing liquidity in our local markets and furthering investment in our economy. By making our bonds Euroclearable, we have aligned our capital market infrastructure with the globally recognised standards that are synonymous with Euroclear’s robust, resilient and sound risk-management principles.” Rodrigo Valdés, Minister of Finance of Chile “ This resulted in a very low weight in the JP Morgen local currency government bond index (0.1%). Tax laws were changed in 2016, implementing record date based taxation. The first government bond in the new system was issued in January 2017 and saw a record participation of foreign investors (> 20%). 5 Case studies Russia – before and after Before The solution After International investors faced a number of difficulties. Liquidity in Russia’s government debt (OFZ) market was low, with no possibility of trading OTC. The Russian authorities were keen to rationalise their local infrastructure, simplify the legal and regulatory framework and align on-exchange trading to international standards. With the reform of corporate actions, which took effect in mid-2016, Russia became fully ‘Euroclearable’. International investors can now choose between dealing through an international firm or direct through a segregated brokerage account on MOEX without complex account opening requirements and with the comfort of full asset protection through their Euroclear account. Trading in equities was fragmented between two main exchanges. Clearing and settlement were complicated by the lack of any functional central counterparty. With hundreds of securities depositaries and 48 different registrars, settlement finality could be a complex issue. To trade, foreign investors had to open beneficiary owner accounts. Corporate actions were all paper-based. 6 Starting in 2010, Euroclear conducted workshops to identify the key issues and advise on reforms. A succession of tax, legal and regulatory reforms followed, including the important clarification of the asset protection and settlement finality offered by foreign omnibus accounts. Euroclear launched its OTC service in OFZ in February 2013 and its on-exchange service the following month. Russian corporate and municipal bonds, and then equities, followed over the course of 2014. With the removal of withholding tax and the introduction of OTC trading, foreign holdings of OFZ have climbed from 3% to 25% of total issuance. For investors in corporate bonds and equities, the ongoing management of positions is facilitated by the establishment of a central information source at the NSD and a unified approach to corporate actions processing that includes electronic voting. Foreign holdings of OFZ have climbed from 3% to 25% of total issuance Anton Siluanov, Minister of Finance of the Russian Federation “ “ “We have been working in cooperation with NSD and Euroclear to launch the post-trading services for the Russian corporate and municipal bonds. We endeavour to attract investors, to make our market more transparent and to raise interest in Russian securities. I am confident that this is an important step towards establishing an International Financial Centre in Moscow that aims at providing better accessibility and lower cost of long-term financing for Russian companies.” Russia 7 What we do Our goal is to connect global investors with local issuers in the most efficient manner possible. Euroclear expands the range of investment opportunities on offer by making local markets more easily and securely accessible. 2,000 We serve more than financial market participants across the globe. They include over 100 central banks and supranationals, and 90% of the world’s top 50 banks. We understand investors have concerns over market accessibility, liquidity, asset protection and settlement finality. We also understand local market authorities have concerns about the quality of investors, AML/KYC practices of investors’ jurisdictions, hot money flow and impact on their currency. This is why we partner with local market authorities. Together we design solutions that provide better standards of accessibility, liquidity, asset protection and settlement finality in line with developed markets. We call what we do ‘making a market Euroclearable’. “We are proud to say that Panama’s economy has the highest rate of growth in Latin America. In order to continue to contribute to this stellar economic performance, and to consolidate our position as a regional financial services hub, we are very pleased to be part of this initiative, led by Euroclear and Latin Clear, which will allow Panama to access a broader base of foreign investors and diversify our funding sources. The international link with Euroclear will be a defining moment in the way Panama’s issuers connect with domestic and international investors.” Darío A. Espinosa R, Former Deputy Minister of Finance of Panama 8 “ “ This means global investors can make your investment decisions without having to make secondary judgments about the efficiency of local markets. How we do it 1.We listen to our clients’ needs, their concerns and the difficulties they have accessing various local markets. 2. We also engage with local markets based on the needs of their stakeholders. At times, some markets approach us directly expressing their desire to make their markets Euroclearable. A sign of approval What do we look for? • Index companies have added ‘Euroclear eligibility’ as a criterion for inclusion of a market in their emerging market bond indices To be ‘Euroclearable’, a market must offer: • Euroclear is designated as a critical national infrastructure in seven countries • internal multi-currency settlement • recognition of the omnibus structure 3. We collaborate with international agencies such as the World Bank, IFC and the EBRC, which look to promote the development of less well established capital markets. 4. We partner with local market authorities to create the right infrastructure and regulatory framework that would encourage sustainable foreign investment and local capital market development. • a robust legal framework that guarantees asset protection and settlement finality • simple, standard tax processes • comprehensive asset servicing The focus is on making each market feel and function like any other well established market. In short, making it Euroclearable. “ “The Reserve Bank is working with the Finance Ministry on a new platform for settlement of government bonds, on the lines of the world’s largest securities settlement system.” The RBI is working on a fresh Euroclear model with the government. Trading and settlement under the new platform will be on the RBI platform.” Harun Rashid Khan, Former Deputy Governor of the Reserve Bank of India “We have already seen growing confidence in the currency among some large international investors, which means, in the near future, we should be able to issue international bonds in rupees, which would minimise our exposure to exchange rate movements .In this endeavour, we are working to cooperate with the Euroclear System to facilitate us to trade our bonds in their system in the future. Such an initiative will increase the efficiency and effectiveness of settlement for investors, and increase the pool of savings available for investment in domestic securities.” “ Indrajit Coomaraswamy, Sri Lankan Central Bank Governor 9 Euroclear’s global capital markets * Fixed income and equities ** Equities through link with Australia Canada* Czech Republic United States* Poland* Romania Hungary Cyprus Israel* Mexico* Panama Brazil* Chile South Africa Argentina* 2013 10 FEB 2013 APR 2014 FEB 2015 RUSSIA OFZ SERVICE LAUNCHED TAIWAN OFFSHORE RMB SERVICE MEXICO PEMEX ISSUANCE (First corporate bond issuance) 2014 PANAMA LINK 2015 PERU MoU 2016 2017 JAN 2014 SEPT 2014 JAN 2015 JAN 2017 RUSSIA CORPORATE SAND MUNICIPAL BOND SERVICE RUSSIA EQUITIES MEXICO CORPORATES (Announced Dec 2014) (Launched Jan 2015) CHILE (First bond government issuance) Euroclear Capital Market Links Russia* Japan* Hong Kong* Dubai* Thailand* Malaysia Taiwan Philippines Singapore* Australia* New Zealand** Business timeline Euroclear has a long track record working with growth markets beyond Europe to help strengthen their capital markets infrastructure and connect their issuers with international investors. Argentina Australia Austria Belgium Brazil Canada China Czech Republic Cyprus Denmark Dubai Finland France Germany Greece Hong Kong Hungary Ireland Israel Italy Japan Luxembourg Malaysia Mexico Netherlands New Zealand Norway Panama Philippines Poland Portugal Romania Russia Singapore Slovak Republic Slovenia South Africa Spain Sweden Switzerland Taiwan Thailand UK USA 11 Euroclear in numbers Year end 2016 Scale provider of post-trade services €27.7 trillion assets held in custody for our clients +60% +50% Eurobond holdings European capital 196 million €655 trillion Netted transactions processed annually in turnover +40% +3% Offshore Renminbi holdings Year-on-year growth Access to >1.7 million securities worldwide Asset safety and resilience AA+ AA Fitch Ratings Standard & Poor’s Ratings Breadth of participation 90 44 50 16 Countries where our clients are located Links to major markets Settlement currencies Languages in which we support our clients Collateral Highway The Place for Funds €1 trillion €1.8 trillion 11.1 million Collateral mobilised daily Funds under custody Connecting with over 1200 fund administrators Fund orders routed annually Global client franchise 100 central banks 90% of the World’s 50 largest banks 2000 clients More information 145,000 investments funds processed by Euroclear Sudip Chatterjee Tel. 32 2 326 9134 - [email protected] © 2017 Euroclear SA/NV, 1 Boulevard du Roi Albert II, 1210 Brussels, Belgium – Tel: +32 (0)2 326 1211 – RPM Brussels number 0423 747 369. Euroclear is the marketing name for the Euroclear System, Euroclear plc, Euroclear SA/NV and their affiliates. All rights reserved. The information and materials contained in this document are protected by intellectual property or other proprietary rights. All information contained herein is provided for information purposes only and does not constitute any recommendation, offer or invitation to engage in any investment, financial or other activity. We exclude to the fullest extent permitted by law all conditions, guarantees, warranties and/or representations of any kind with regard to your use of any information contained in this document. You may not use, publish, transmit, or otherwise reproduce this document or any information contained herein in whole or in part unless we have given our prior written consent. Your use of any products or services described herein shall be subject to our acceptance in accordance with the eligibility criteria determined by us. euroclear.com Euroclear is a carbon neutral company PAS2060 certified • M4028 • 05-2017