Where are we in the integration of the ASEAN capital markets?

By Ma. Teresa T. Ledesma, 13 February 2014

"ONE Vision, One Identity, One Community" -- that is the ASEAN goal.

On Aug. 8, 1967, over 46 years ago, the foreign ministers of five small countries in Southeast Asia -- the Philippines, Thailand, Indonesia, Singapore and Malaysia -- signed a document in Bangkok, Thailand which led to the establishment of the Association of Southeast Asian Nations. The ASEAN has since expanded to include the Kingdom of Brunei Darussalam, Cambodia, Lao People’s Democratic Republic (formerly Laos), Myanmar (formerly Burma) and Vietnam.

The goal of the ASEAN then was (and still is) to promote economic, social, cultural, technical and educational cooperation among member countries. The ASEAN likewise sought to promote regional peace and stability through abiding respect for justice and the rule of law as well as adherence to the principles of the United Nations Charter.

Consistent with these objectives, in 2007, the ASEAN Leaders resolved to make the region a formidable economic force geared to meet the challenges of the European and Northern American markets. To do this, the ASEAN Leaders penned the Declaration of the ASEAN Economic Community (AEC) Blueprint, a master plan which identifies concrete integration measures, timelines and targets, and reinforces commitments for compliance.

Under the agreement, each ASEAN member country undertakes to abide by and implement the AEC Blueprint by 2015 with the view of transforming the ASEAN into a single market and production base, a highly competitive economic region, with equitable economic development, and a region fully integrated into the global economy. Pursuant to the AEC Blueprint, the Philippines and other member countries agreed to liberalize the following areas in finance:

• capital market trading for own account or for account of customers,
• participation in issues of all kinds of securities (subject to constitutional and legislative limitations),
• asset management, and
• settlement and clearing services for financial assets.

Taking an early lead last April 1, Malaysia, Singapore and Thailand adopted the ASEAN Disclosure Standards Scheme ("Scheme") for multi-jurisdiction offerings of equity and plain debt securities in the ASEAN jurisdictions. The Scheme is aimed at facilitating fundraising activities and enhancing investment opportunities within the ASEAN capital markets. Issuers in the covered countries offering equity or plain debt securities will only need to comply with a uniform set of disclosure standards for prospectuses, known as the ASEAN Disclosure Standards. The Scheme operates on an opt-in basis, i.e., ASEAN members may adopt the Scheme as and when they are ready to do so. Insofar as the Philippines is concerned, the Securities and Exchange Commission (SEC) started consultations on the Scheme last November and has since posted the rules on debt and equity listings on its Web site.With regard to the Bangko Sentral ng Pilipinas (BSP), the Monetary Board further liberalized the country’s foreign exchange regulations to prepare the Philippines for the anticipated integration of the Southeast Asian economies in 2015.

Under BSP Circular No. 815, non-resident issuers of securities listed on the Philippine Stock Exchange (PSE) are allowed to open peso accounts to hold the peso proceeds from their onshore sale of PSE-listed securities. To convert their peso proceeds into foreign currency, a non-resident issuer must apply for a BSP letter of authority and submit an application to purchase foreign exchange before the depository authorized agent bank can sell foreign currency equivalent to the peso proceeds held in the peso account of the non-resident issuer.
In line with this, BSP Circular No. 815 now allows Philippine custodian banks to register non-resident investments in PSE-listed equity securities issued by non-residents. This effectively means that non-residents can secure a Bangko Sentral Registration Document for their investments in non-resident listed equity securities, giving them access to purchase dollars from the Philippine banking system.

With the listing of non-resident equities in the Philippines, it is envisioned that trading in debt and equity securities by Philippine residents and non-residents will be more robust and bullish. Significantly, as in any financial transaction, tax follows by legal implication. Hence, the need for clear-cut tax guidelines, formulated through shareholder consultations, is vital and imperative, lest investors in Philippine capital markets be left speculating what rules to observe. By far, the task for the government has just begun. Maybe it is relevant to ask where the Philippines stands on the roadmap to creating an integrated ASEAN capital market. With 2015 less than a year away, will the government meet its timeline commitment under the AEC Blueprint? Let’s hope that the task does not end up to be a haystack of loose ends too colossal for the government to handle.

The author is a director at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may call (02) 845-2728 or e-mail the author at ma.teresa.t.ledesma@ph.pwc.com for questions or feedback.The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.