Grand Design for An Asian Inter-Regional Professional Securities Market(AIR-PSM)

March 2008

Shigehito Inukai

National Institute for Research Advancement (NIRA)
Capital Markets Association for Asia (CMAA)
21st Century Center of Excellence,
Waseda Institute for Corporation Law and Society

Editor and Author
Shigehito Inukai

March 31, 2008

Publisher: LexisNexis Japan Co., Ltd.
Tel 813-5787-3513 / Fax 813-5787-3512
URL: http://www.lexisnexis.jp
Sales agency: Yushodo Press Co., Ltd.
3-42-3, Ohtsuka, Bunkyo-ku, Tokyo 112-0012, Japan
Tel 813-3943-5791 / Fax 813-3943-6024
Copyright Ⓒ 2008 by NIRA
Printed in Japan, 2008
ISBN: 978-4-8419-0493-2

NoteThis report presents an English translation of revised excerpts from Ajia ikinai
kokusai-sai sijou sousetsu koso – Ajiabondo sijou e no roudomappu (“Vision for the
Establishment of an Asian Inter-Regional Bond Market – Road Map to an “Asian Bond”
Market”), by Shigehito Inukai, published on March 31, 2007 by LexisNexis Japan.
The report was produced as a collaboration between the National Institute for
Research Advancement (NIRA), the Capital Markets Association for Asia (CMAA), andthe 21st Century Center of Excellence of the Waseda Institute for Corporation Law andSociety.
Shigehito Inukai wishes to thank the SWIFT Group for its generosity in granting
permission to reprint the text of an address he presented at Sibos2007 in Boston on
October 2, 2007.
March 31, 2008
Shigehito Inukai

注記
本英文報告書は、2007 年 3 月 31 日にレクシスネクシス・ジャパンから発刊された単行本、犬飼重仁編著『アジア域内国際債市場創設構想-アジアボンド市場へのロードマップ』の、改定抜粋英訳版である。
本書は、NIRA、アジア資本市場協議会(CMAA)、および 早稲田大学 21 世紀 COE《企業法制と法創造》総合研究所 の３者によって完成されたものである。
また、犬飼重仁の Sibos2007（2007 年 10 月 2 日 Boston）における講演記録の本書への掲載は、SWIFT ジャパンをはじめとする SWIFT Group の皆様のご厚意によって実現したものであり、この場をお借りして謝意を表したい。
編著者 犬飼重仁

1

Contents
Executive Summary - Shigehito Inukai’s speech at Sibos2007, Boston, 02
October 2007 ---------------------------------------------------------------------------------P.3
1. The Need for Common Financial and Capital Markets in Asia------------------------------------------------------------------------------------------------P.13
2. International Bonds: Definitions and Explanations - What are Eurobonds
and Foreign Bonds? -------------------------------------------------------------------P.28
3. Proposal for the Establishment of an Asian Inter-Regional Professional
Securities (Asian Bond) Market - A Road Map to an Asian Bond PrimaryMarket - -----------------------------------------------------------------------------------P.30
4. Proposal concerning a Road Map for an Asian Inter-Regional Bond (Asian
Bond) Primary Market ---------------------------------------------------------------P.39
I.

Initiative to Establish the Capital Markets Association for Asia
(CMAA) ----------------------------------------------------------------------------P.41

II.

Points for Consideration concerning Practical Legal Issues related to
the Creation of an Asian Inter-Regional Bond Market --------------P.44

III.

Framework for a “Dual Core Asian Inter-Regional CSD” -----------P.47

5. Some Supplementary Remarks on a Common Currency Unit -----------P.52
6. NIRA-ADB Joint Forum: “The Prospects for an Asian Bond Market”(March 27, 2006) Questionnaire Results ------------------------------------P.53
7. An Asian Bond Market and Cross-Border Securities Settlement - Towards
Cooperation between Japan and Korea -----------------------------------------P.54
8. Issues related to Bond Market Legal Systems in Asia ----------------------P.69
9. Experience of a Japanese Law Firm in Legal Practice related to
Cross-Border Securities: Considerations concerning Euro & Samurai
Bonds, Foreign Exchange Control and Governing Law --------------------P.73
10. Development of a Securities Clearing System in Japan by the Japan
Securities Depository Center (JASDEC) ----------------------------------------P.87
Appendix: The Charter of the Capital Markets Association for Asia (CMAA) -----P.93

2

Executive Summary《Shigehito Inukai’s speech at Sibos2007, Boston, 02 October 2007》
Asian Inter-Regional Professional Securities Market (AIR-PSM)
It is a great honor and pleasure for me as a representative of the Asian region to havethis opportunity to speak at Sibos2007. (Please refer P.9-11 for session information)
Today I would like to offer a brief outline of issues involved in the future
establishment of a common Asian Inter-Regional Professional Securities Market or
AIR-PSM as a venue for companies in Asian countries to issue securities and forsophisticated regional investors to conduct securities transactions.
In preparation for my presentation today, I read the summary of the discussions atlast year’s Sibos session regarding the reform of Asian securities markets.
I was impressed by the seriousness of the discussion of the issues involved on thatoccasion.

Asian Regional Economy and Trade
•
•
•

•

Some Asian countries focus on their areas of comparative advantage, andspecialise in producing intermediate goods
A sophisticated division of labour structure has been formed across national
borders in the region
The result is superior and competitive “Made in Asia” products, e.g. electricalappliances and vehicles
Deeper trade interdependency between Japan and other Asian countries hasdeveloped

Last year the question was posed as to whether securities market reform in Asia
represents heaven, hell or purgatory.
The session record suggests that the majority opinion was that, regarding this issue,
we are in purgatory. However, in my opinion, such reform also represents a significant
opportunity for Asia.
When we discuss Asian market harmonisation, we should think about the issue by
dividing the market into two areas, a regional economy/trade side and a capital market
side.
Within Asia, manufacturing and trade are increasingly integrated, but in a way thatdiffers from the EU and NAFTA.
For example, trade in the Asian region is characterised by the fact that(1) some countries focus on their areas of comparative advantage, and specialise inproducing intermediate goods, and(2) a sophisticated division of labour has been formed across national borders in theregion.
The result is increased regional productivity and the manufacture of superior and3competitive “Made in Asia” products such as electrical appliances and motor vehicles.
Deeper trade interdependency is also developing between Japan and other Asian
countries.
As far as manufacturing and trade in the Asian region are concerned, this type ofstructure has formed over the past ten years, driven by necessity.

Features of Capital Markets
Markets are achieving a good balance in their domestic financing profiles despite theprevalence of bank-centered indirect financing systems in the region
Domestic Financing Profile (Dec‐2006)
Domestic Credit

Local CCY Bonds

Equity

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

However, despite the fact that finance and the flow of goods are two sides of thesame coin, the success achieved in trade cooperation in the region has not been matchedby a comparable level of success in the development of a common regional capital
market in order to increase regional competitiveness. However, I do not by any means
want to indicate that the situation is hopeless.
The discussion of the issue requires that we correctly understand the status of thedomestic capital markets in the major Asian countries.
There are two features of regional capital markets in particular that I would like tomention as background to the discussion.
First, domestic capital markets in the Asian region are achieving a good balance intheir domestic financing profiles despite the prevalence of bank-centered indirect
financing systems in the region. Asian financial markets have long been known asbank-centered markets. However, over the past few years, the proportion of financing
in the bond market has increased in China, Korea and other countries.
As this graph shows, the domestic financing profile, the split between banks, bonds
4and shares, is becoming well balanced in almost all the major Asian countries other thanHong Kong and Singapore.
The second feature of Asian financial markets is the policy of dividing the domestic
and foreign markets.
Apart from Japan, many countries are applying strict control of foreign exchange,
funds, and securities, and are limiting cross-border funds transfers between domestic
and foreign markets, based on their experience in the currency and financial crisis of
1997-98.

The Absence of Common Infrastructure•••

Domestic markets evolving
Cooperation and alignment between Japan, Korea and China is key
Common infrastructure needed to create common capital markets in Asia

Domestic Financing Profile in U.S.$Billions (Dec‐2006)
25,00020,000EquityLocal CCY Bonds
15,000

Domestic Credit

10,0005,000

0While domestic markets in Asian countries have evolved, we still face the problemof the absence of common infrastructure for the creation of a common capital market in
Asia.
An Asian Inter-Regional Professional Securities Market, which would enable theabundant savings in the region to be circulated within the region, is yet to be developed
as an important element in a common capital market.
As indicated in this graph, Japan, China and Korea are the largest domestic markets
in the region, and cooperation between them will therefore be important in thedevelopment of an integrated inter-regional capital market.
Please focus on the size of the markets. The total size of the regional market is5equivalent to more than 30 trillion US dollars.

Development of
Asian Bond Markets

Heterogeneity

Cross-border Bond Markets(Foreign Bond Markets
and Eurobond Market)• Issuance by non-residents• Cross-border circulation of savings• Different stages of economic
development and heterogeneityin legal and institutional
systems and infrastructure
Local Bond Market
in Asian countries

On-Shore

Homogeneity

Off-Shore
Asian Inter-Regional
Professional
Securities Market(AIR-PSM)• Harmonisation of heterogeneous rules
and regulations for professionals• Inter-regional circulation of savings• Creation of self-regulated regional
off-shore market for professional(qualified) market participants(Domestic Bond Market)
9 Fostering government bond markets

We need a
Road Map

9 Creation of benchmark yield curves
9 Fostering corporate bond markets
9 Circulation of savings in domestic markets

There are two camps in discussions related to the development of Asian Bond
markets.
One prioritises the further development of domestic markets, or, alternatively,
believes that the level of development of domestic markets is sufficient.
The other camp seeks to further develop domestic markets and to promote across-border inter-regional (offshore) market in the region at the same time.
This does not mean simply connecting domestic markets. A cross-border market
would be, rather, a non-domestic market that co-exists within the region with domestic
markets, but features the involvement of different players, rules and taxation schemes.
As an image of such a cross-border market, we might consider self-regulating
markets like the Eurobond market. While the EU has recently tightened regulations
and reduced the freedom of the market, the Eurobond market has traditionally been
regarded as a freely accessible market.
Cooperation between market players and regulators in Asian countries will be
extremely important in the development of a free and open market of this type in theregion. Because Japan is by far the largest market in the region, Japan should play aleadership role, and discussions involving Japanese market participants should bepromoted and facilitated.
However, harmonisation of traditional independent market practice in each of theregion’s countries may not be viable. If many to many interoperability among
domestic markets in the region is sought, the matrix will be extremely complex, and not
optimal for the region as a whole.
A preferable approach is to develop a common integrated market infrastructure forthe requirements of professionals. Professor Hal S. Scott of Harvard Law School also
indicates that off-shore integration is far more important than on-shore integration in the
Asian region.
6

Harmonised Markets?
•
•
•

•

Need to recognise diversity in Asia
Harmonisation – what degree is required?
Focus on common infrastructure i.e. a cross-border market accessible by Asian
countries
The concept of an Asian Inter-Regional Professional Securities Market(AIR-PSM) as a self-contained market, enabling savings accumulated in theregion to circulate within the region

Given the level of diversity in the region, I do not believe that harmonisation isrequired at the level of the operations of each domestic capital market in the region.
This is a virtually unachievable goal.
Instead, as I have indicated, a common, integrated infrastructure will be necessary.
By this I mean a cross-border market commonly accessible by Asian countries together,created by means of harmonising rules and infrastructure for professionals.
We may call such a market an AIR-PSM (Asian Inter-Regional Professional Securities
Market).
The AIR-PSM would be a self-contained market enabling savings accumulated in
the region to circulate within the region.
We can certainly see development in each of the domestic markets in the region as aresult of several arrangements in which the ADB, central banks and governments haveco-operated in the last several years.
However, it is time for us to concentrate on the establishment of an open and freemarket for professionals similar to the Eurobond market. Such a market would be
different from domestic markets and also different from NY and London.

An Asian Investment Banker’s Perspective
•
•
•
•

•

Huge Asian capital reserves provide an opportunity for Asian financial
institutions to take the lead in capital markets in Asia
Asian financial institutions are not leading the market in terms of capital
disbursement and price making – European and US financial institutions still
dominate in this area
Why is it that Asian issuers need to raise capital in London or New York?
Advanced Asian financial institutions have a responsibility to take the lead
Why not integrate Asian capital markets to create a viable alternative to London
and New York?

Purpose of Capital Markets Association for Asia (CMAA)
•
•
•
•

•

Formulate self-governing rules for issuing entities and other users
Coordinate opinions regarding legal systems and rules
Foster dialogue with CMAA participants
Conduct research, formulate proposals, increase awarenessThe ultimate purpose of the CMAA is to increase reliability and convenience for
all financial and capital markets in Asia and to establish appealing markets for
all users
7

The Capital Markets Association for Asia, or CMAA, has recently been formed withthe aim of establishing an AIR-PSM. The members of the CMAA are mainly Japaneseand Korean market professionals and practitioners. The screen shows the objectives of
the CMAA.
Given the recognition that the Eurobond market is becoming more regulated underEU rules, expectations are growing regarding a self-regulated off-shore professional
securities market in Asia. Naturally it is desirable that such a market should respect the
principles of globalisation and should involve participants from around the world. For
example, all the professional market players in attendance at SIBOS.
The value of such a market infrastructure will ultimately depend on how easy it is touse from the perspective of market participants, i.e., the extent to which it enables
regional savings to circulate within the region.

Road Map to an Asian Inter-Regional
Bond (Asian Bond) Primary Market•••

Financial markets are becoming increasingly integrated and globalised
In Asia, markets are fragmented because of regulatory and legal systems,
different stages of market development and economic size
Common rules for professionals would facilitate development of an efficient andliquid cross-border Asian Bond market

Market Characteristics
9 Issuing procedure
9 Syndicate rule
9 Governing law
9 Settlement (RSI)
9 Withholding tax
9 Accounting standards
9 Disclosure (filing)
9 Electronic disclosure
9 Documentation
9 Credit rating
9 etc…

CMAA Proposes
Harmonisation

Cooperation

Road Map to an
Asian Inter-Regional
Bond (Asian Bond)
Primary Market

The CMAA proposes a road map to an Asian Inter-Regional Bond (Asian Bond)
Primary Market including issuing procedures, syndicate rules, governing law, regional
settlement mechanisms etc… (Please refer P.39-51)
If you would like to learn more about the CMAA or the concept of an AIR-PSM, wewould be very happy to provide you with further information.
（Shigehito Inukai）

8

Related Information
EXTRACT From the SWIFT Home Page
Asia momentum - News for Asia Pacific customers and partners
New this year, Asia Momentum looks at Sibos from an Asian perspective, bringing you news fromthe conference that is relevant to Asia. We will share with you session highlights and commentsfrom some of the 600 participants attending Sibos 2007 from the Asia Pacific region.
・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・

MARKET HARMONISATION IN ASIA PACIFIC: DESIRABLE, DO-ABLE?

Asia Pacific must harmonise tostay competitive
The ‘Market harmonisation in Asia Pacific: desirable,
do-able?’ session took up the challenge laid down at Sibos
last year that “Asia Pacific has to look after Asia Pacific” if it
wants a more harmonised market in the region. In theabsence of region-wide regulatory impetus, efforts for harmonisation will depend on the desire
and involvement of the market players – and a spirit of cooperation rather than competition.
Speakers from the public sector, commercial banking, technology and academia put
forward their views.

Ian Johnston
Session moderator Ian Johnston, Head of Asia Pacific, SWIFT, opened the discussion
making an important observation “today we are focusing on harmonisation notintegration.” He added that “harmonisation is more of an Asian concept like yin and yang.”

Karen Fawcett
A compelling call to action to create a single Asia Pacific market was issued by Karen Fawcett,
Group Head, Transaction Banking, Standard Chartered Bank, at the session.
A single market could bring huge benefits to the region, said Fawcett, while failure to act could
be harmful to the region’s current growth, particularly as labour costs have been “increasing
astronomically” over the past couple of years. “What historically has been a relatively competitiveenvironment is going to suffer tremendously if we don’t sort out the complexity of dealing with amyriad of small, highly differentiated markets around Asia Pacific,” she observed.
“Imagine a harmonised economic block of three billion people. That would have real power.”
Karen Fawcett, Standard Chartered Bank

In terms of infrastructure, Fawcett’s “picture of Asia Pacific nirvana（涅槃・至福・解脱の境地）”
includes a single payments infrastructure, a single clearing house for commodities, bondsand equities and CLS across all currencies.
She also suggested a full commitment to electronic communication, and universal use of the
English language for cross-border communication, leading eventually to a single Asian currency
and a single economic environment.

9

“Given the number of countries involved in Asia Pacific, it is up to the people in this room to help
this process of harmonisation,” she said. Recognising that Asia Pacific is “messy”, she suggested
that the banking and business community needs to be far more proactive in working with the
public sector. “So far, lots of groundwork has been done but there have been very few results,”
she said. “Imagine a harmonised economic block of three billion people. That would havereal power.”
Harmonisation, stressed Fawcett, is essential in order to reduce business costs, speed up
transactions and simplify day-to-day practice.
However, it would not be good for everybody. “For the smaller, weaker players in the market, it
will mean potentially less revenues and a tougher competitive environment.”
On the government side, she added, there will be concerns about lack of differentiation andpressure to accept the forces of consolidation among the smaller players.
“But we believe that Asia Pacific must harmonise in order to stay competitive,” shereiterated.

Shigehito Inukai (Please refer P.3-8 for full speech)“I do not believe that harmonisation is required at the level of the operations of each domestic
capital market in the region. This is virtually an unachievable goal.”
Shigehito Inukai, National Institute for Research Advancement

On the other hand, Shigehito Inukai, Director of Policy Studｙ and Senior Fellow, National
Institute for Research Advancement, said “given the level of diversity in the region, I do notbelieve that harmonisation is required at the level of the operations of each domestic
capital market in the region. This is virtually an unachievable goal.”
He instead spoke about the need for a common, integrated infrastructure. “By this I mean across-border market commonly accessible by Asian countries together, created by means ofharmonising rules and infrastructure for professionals.”
Inukai went on to describe an Asian Inter-Regional Professional Securities Market as aself-contained market enabling savings accumulated in the region to circulate in the region.

George Pilakis“Asia Pacific can potentially leapfrog generations of infrastructure legacy, like it did with themobile phone.” George Pilakis, ANZ

On the role of technology in harmonisation, George Pilakis, Chief Information Officer andHead of Technology, ANZ, said the region could benefit from its lack of legacy and highlevel of IT literacy. “Technology is the pivotal tool that is the enabler for opportunity,” he said.
“Asia Pacific can potentially leapfrog generations of infrastructure legacy, like it did with themobile phone. The region doesn’t need to reinvent business solutions that have already beencreated, but take them to the next step. But what is developed internally should also be
extendable outwards.”

Esmond Lee
Esmond Lee, Head of Market Systems Development, Monetary Management &Infrastructure, Hong Kong Monetary Authority, added: “The objective of harmonisation is notanother working group or conference but to boost business and reduce cost. What the market
needs are more facilitators. Ideal solutions should be regional. Asia systems should be part ofglobal.”10

SWIFT standards
Responding to a question from the floor, the panelists agreed that SWIFT has an important role toplay in Asia Pacific. Inukai, said he had “tremendous hope of relations with SWIFT,” particularlyin the field of cash management. “In Europe, businesses do cash management very effectively,”
he commented. “Asian countries can learn about cash management processing from Europe –and that definitely requires the help of SWIFT.”
Acknowledging that SWIFT now has far more representation in the region, Fawcett suggested
this greater presence will make a “big difference” to all market participants. She called for aconstructive dialogue between SWIFT and public sector entities – but this does not mean
trying to achieve everything at once. “We should focus on specific things, like the use of SWIFT
standards for clearing systems in the various countries,” she suggested. “What if everybody
chose SWIFT for their standard? That would move us immediately down a path that is very
easy to follow. If we had all the clearing systems on the same standards that would do ahuge amount.”

Making progress in the next 12 months
To conclude the session, Johnston asked the speakers to provide a realistic assessment ofwhat delegates should go away and do, as the first steps towards harmonisation.
Over the next 12 months, Fawcett said, she hoped to see two more countries in the region using
SWIFT for clearing and settlement services, two more Asian currencies added to CLS and ten
more banks in the region on SWIFTNet TSU. “Those are capabilities that are in place already to
be adopted,” she said.
Pilakis said he hoped to see more agreement on the understanding of the barriers, such as
price, legacy systems and education, and a roadmap which defines where we are now as a basis
to move forward.
Inukai hopes to see greater acceptance of global standards, especially in Japan.
More thought on harmonisation for post trade settlement was highlighted by Lee as a focus area
for the next 12 months, as well as moving from thinking about projects to completing projects.

11

An academic perspective on market harmonisation in Asia
Q&A with Shigehito Inukai, Director of Policy Study and Senior Fellow, National Institutefor Research Advancement, Japan and Secretary-General, The Capital Markets
Association for Asia.
Q. How can the Asian capital market benefit from market harmonisation?
Asia has enormous capital reserves, and is rapidly forming capital via trade surpluses andeconomic growth. Given this, there is no reason that Asian financial institutions cannot take thelead in Asian capital markets.
Isn’t it somewhat strange that Asian bond issuers have to go to London or New York to obtainfunds from Asian investors? Why not integrate Asia capital markets to create a viable option in
addition to London and New York?
Q. What do you see as some of the challenges for an Asian Inter-Regional Professional
Securities Market?
Cooperation from financial institutions is necessary but Japanese financial institutions are notnecessarily proactive in dealing with business opportunities outside Japan. Regulation andmarket practice favours a focus on the domestic market – this is a challenge.
Q. Initially the focus for your Asian Inter-Regional Professional Securities Market is Japanand Korea, when do you plan to bring together a wider group of Asian countries?
In the next stage we plan to bring in China, Taiwan, Hong Kong and Singapore. We plan to do
this by the end of 2008.
Q. Do you believe that some of the topics and issues being discussed at Sibos are
relevant to Japan?
I feel that the topics being discussed at Sibos are extremely relevant to Japan, as well as helpful
and potentially very influential.
This networking occasion is extremely helpful. Unfortunately, in Japan we do not have this typeof event so I feel very privileged to be here. In Japan there is no equivalent cross industry
dialogue or opportunity to come together.

Asia“What was said about Asia was generally impressive, but I disagree with the comment that
institutions in the region are finding it hard to come together to achieve a collective view. I cansay from my experience that Asian institutions are very willing to change.”
Shigehito Inukai, Director of Policy Study and Senior Fellow, National Institute for
Research Advancement (NIRA)

121. The Need for Common Financial and Capital Markets in Asia
While the liberalisation of the flow of goods has made headway as a result of
negotiations on free trade agreements (FTAs) among Asian countries, the need toestablish a common foundation for the financial sector remains.
The Experience of the Asian Financial Crisis and Consensus on Strengthening theCompetitiveness of the Asian Region
Since the Asian financial crisis of 1997, Thailand，the Republic of Korea and other
Asian countries have been putting into place a variety of measures to prevent a similarcrisis from recurring. In 2000, the Association of Southeast Asian Nations and Japan,
China and Korea (ASEAN+3) concluded an agreement on the Chiang Mai Initiative，amutually supportive network designed to help countries in the event of a crisis. This
marked the first in a series of cooperative crisis-prevention measures in Asia.
It has also been pointed out that the absence of infrastructure that would enable
Asian countries to circulate their abundant savings within the region was one of thecauses of the 1997 crisis.
It was this perspective that gave rise to the idea that in order to prevent a recurrenceof a similar crisis, Asia needs to establish common and joint financial and capital
markets in which Asian capital can be invested within the region over the long term.
What specific problems have to be addressed in order to establish a common
foundation for Asia’s financial sector?
A Common Foundation (1) - Harmonisation of Market InfrastructureFirst and foremost, there is a need to harmonise laws and regulations governing
regional cross-border financial and capital markets and to establish a common
foundation of settlement and payment systems for cross-border transactions within
Asian countries. To enable the establishment of a viable bond and securities market, amarket for long-term capital, a variety of market infrastructures must be put in place,including legal and accounting systems, tax treatment (including a tax-exempt
environment for professional market players), a rating system, a credit insurance system
and an international securities clearing and settlement system.
For example, the European Union (EU) has established common principles
governing regulations in financial markets modeled after British laws, and is now
working to incorporate those regulations into each member state’s legal system.
What is noteworthy is the relationship between the EU and Britain. Market
integration may suggest monetary union, but Britain has retained its own currency while
taking the initiative toward financial market integration among the 27 EU member
states.
While it remains to be seen how successful this initiative is, this relationship could
serve as a very useful reference as Asian countries embark on the establishment of acommon foundation.
A Common Foundation (2) - The Asian Economic Community Model
What type of economic community should be established in Asia? Although Japanand other Asian countries are currently involved in establishing FTAs, it remains to be
seen what type of model for economic community will be explored after these13agreements are finalised. However, what seems very clear is that Japan, Korea andChina - the countries with the largest markets – need to take the initiative within theregion.
The “Double Goose” Model as A New Development Model in Asia
In 2004, Professor Kang Xie of the Institute of World Economy, Shanghai Academyof Social Sciences, proposed a new Asian development model called the “Double
Goose” Model, which calls for China on the one hand and Japan and Korea together on
the other to cooperate in taking the leadership role in the region, forming a “Double
Goose” that will fly in harmony.
This model merits serious consideration.
A Common Foundation (3) - Consensus on Strengthening the Competitiveness of
the Asian Region
The development of a consensus regarding the strengthening of competitiveness in
Asia as a whole is crucial. FTAs govern the flow of goods, but finance and the flow ofgoods form two sides of the same coin.
The competitiveness of the Asian region as a whole will not increase unless bothdevelop simultaneously. It is first necessary, however, to forge a consensus regarding
the strengthening of Asia’s competitiveness through a cooperative structure similar to
the EU or the North American Free Trade Agreement (NAFTA).
To that end, rather than remaining at the conventional level of government-led
initiatives, as in the case of the Chiang Mai Initiative, this effort must come in the formof a partnership between the public and private sectors and academia as well as market
professionals in the region, enabling actors from all fields across Asia to come together
to proactively explore ideas for building a harmonised Asian market.
The most important factor in ensuring sustainable growth of Asia’s economies is tostrengthen the international competitiveness of individual Asian countries as well as theregional market as a whole.
For some time now there has been a great deal of discussion in Japan on the subjectof the nation’s revival. However, this discussion has generally been conducted without
any awareness of the relationship between Japan’s revival and development in Asia.
Given the present reality, mutual cooperation of increasingly interdependent Asian
communities and strengthening of the regional market’s international competitivenessappear to be more important than any other issues.
Ever-Closer Trade Relations among Asian Countries
Here, the trade relationships in East Asia in recent years will be examined using the“degree of trade linkage,” an indicator of the closeness of bilateral trade relations. In thecase of Japan’s exports among six East Asian countries (China, Korea, and Asean-4) andthe United States, the linkage is strongest with Korea. The next highest index is forexports to the four ASEAN countries (Thailand, Malaysia, Philippines and Indonesia),
followed by China and then by the United States, with the lowest index. China has thedeepest ties with Japan in its exports, followed by Korea, the United States and fourASEAN countries, in that order. In the case of Korea, the closest linkages are with
China, Japan and the four ASEAN countries for both exports and imports, with the East
Asian countries dominating the first to third slots. In short, Korea, China and Japan14

mutually maintain the closest relations in terms of exports.
When we discuss Asian market harmonisation, we should think about the issue by
dividing the market into two areas, a regional economy/trade side and a capital market
side.
Within Asia, manufacturing and trade are increasingly integrated, but in a way thatdiffers from the EU and NAFTA.
For example, trade in the Asian region is characterised by the fact that(1) some countries focus on their areas of comparative advantage, and specialise inproducing intermediate goods, and(2) a sophisticated division of labour has been formed across national borders in theregion.
The result is increased regional productivity and the manufacture of superior andcompetitive “Made in Asia” products such as electrical appliances and motor vehicles.
As stated above, deeper trade interdependency is also developing between Japan andother Asian countries.
As far as manufacturing and trade in the Asian region are concerned, this type ofstructure has formed over the past ten years, driven by necessity.
However, despite the fact that finance and the flow of goods are two sides of thesame coin, the success achieved in trade cooperation in the region has not been matchedby a comparable level of success in the development of a common regional capital
market in order to increase regional competitiveness.
Who finances the U.S. current account deficit?
The close relationship among Asian countries is evident in the link between the U.S.
current account and foreign currency reserves held by Asian nations such as China,
Japan and South Korea. The U.S. current account deficit has increased sharply since
2000, reaching $811.5 billion at the end of 2006 (Figure 1-a, b).
(Figure 1-a)

U.S. Current Account Balances In $ Billions 1977‐2006
100
0
‐100
‐200
‐300
‐400
‐500
‐600
‐700
‐800
‐900

Source: US Department of Commerce, Bureau of Economic Analysis
International Economic Accounts "Balance of Payments“15(Figure 1-b)
1991
2.9

1992
-50.1

1993
-84.8

(In U.S. $ Billions)1994-121.6

1995-113.6

1996-121.6

1997-140.7

1998-215.1

1999-301.6

2000-417.4

2001-384.7

2002-459.6

2003-522.1

2004-640.1

2005-754.8

2006-811.5

Failure to Circulate Accumulated Capital was One Cause of the Asian Economic
Crisis
It is noteworthy that of more than $2 trillion in U.S. government bonds held overseas,
more than half are held by Japan, China and other Asian nations (Figure 2-a,b).
(Figure 2-a)Foreign Countries Holding U.S.Government Bonds From Left to Right
Japan
China

2006

Korea
TaiwanHong Kong
Singapore

2005

ThailandU.K.
Benelux countries

2004

Germany
Switzerland
France
Italy

2003

OPEC
Caribbean banking centers
BrazilMexico2002

CanadaOthers

0

500

1,000

1,500

2,000 Unit : US$ Billions

Source: U.S. Department of the Treasury(Figure 2-b) Holdings of U.S. Government Bonds(Unit: U.S. $ Billions)
2002
2003

2004

2005

2006

Japan
China
Korea
TaiwanHong Kong
Singapore
ThailandU.K.
Benelux countries
Germany
Switzerland
FranceItaly
OPEC
Caribbean banking centers
BrazilMexicoCanadaOthersTotal Foreign Holdings

689.9
222.9
55.0
67.9
45.1
30.3
15.0
95.8
74.4
50.3
41.7
20.1
12.9
62.1
51.1
15.2
32.8
33.3
233.5
1,849.3

670.0
310.0
69.0
98.1
40.3
33.0
16.1
146.0
68.3
49.9
30.8
30.9
15.4
78.2
77.2
28.7
35.0
27.9
209.1
2,033.9

622.7
398.0
66.7
59.3
53.8
31.3
16.9
93.7
80.8
45.9
34.3
26.4
13.2
110.0
79.8
52.1
34.9
26.9
268.0
2,114.7

378.1
118.4
38.0
37.4
47.5
17.8
17.2
80.8
49.9
37.3
34.0
22.9
16.3
49.6
50.3
12.7
24.9
10.4
192.1
1,235.6

550.8
159.0
63.1
50.9
50.0
21.0
12.0
82.2
52.1
47.8
46.1
17.0
13.0
42.6
47.3
11.8
27.4
24.2
204.8
1,523.1(Year-end figures)
16This can be said to indicate that the U.S. current account deficit is being financed byinvestments in U.S. government bonds mainly conducted by Asian countries.
As of the end of September 2007, China held U.S. $1,433.6 billion in foreignexchange reserves (the largest in the world) and Japan U.S. $945.6 billion (the second
largest), followed by Taiwan, Korea and India. Together, the Asian region’s foreignexchange reserves exceed U.S. $3.7 trillion, accounting for over half of the entire
world’s foreign currency reserves (about U.S. $6.5trillion) (Figures 3-a and 3-b).
(Figure 3-a)

Official Reserve Assets of the Asian Countries Sepｔ/2007(*August)
1,600
1,433.6
1,400

1,200

945.6

1,000

800

600

400
261.4

257.3

256.7
147.6

200

140.8

96.8

81.0

52.8

0
China

Japan

Taiwan＊

Korea

India

Singapore＊ Hong Kong Malaysia＊

ThailandIndonesia

Source: IMF, etc.
(Figure 3-b)
China
Japan
Taiwan＊Korea
India
Singapore＊
Hong Kong
Malaysia＊
ThailandIndonesia
Total(In U.S. $ Billions)
1,433.6
945.6
261.4
257.3
256.7
147.6
140.8
96.8
81.0
52.8
3,673.6

Sep-07
Sep-07Aug-07
Sep-07
Sep-07Aug-07
Sep-07Aug-07
Sep-07
Sep-07

It can therefore be said that savings in Asia have financed the bulk of the U.S.
current account deficit in recent years.
Lack of Infrastructure for Utilising Internal Funds in Asia
Funds accumulated in Asia are flowing into the United States and Europe throughinternational intermediaries, and the bulk of those funds are then being cycled back into
17

Asia as direct investment by the United States and Europe.
The problem lies in the fact that the intermediation of this flow of funds is largely
being handled by “international financial institutions and international clearing andsettlement systems outside the Asian region.”
Fundamental Issue underlying Asian Bond Market Scheme
For example, non-Asian financial institutions are dominant as lead managers ininternational bond and securities markets, even for Asia-related bond business.
Furthermore, they are effectively managing global custody services, or international
securities depository business in the region.
In other words, there may be a hollowing-out of the international financial
intermediation service function for Asia-based regional financial institutions in Asia.
From this perspective, it can be argued that an Asian Bond and securities market isneeded as a regional mechanism for directing savings in Asia toward investment inAsia.
In addition, Japan’s proactive involvement in initiatives to foster a bond andsecurities market in Asia will be instrumental in facilitating the globalisation of Japan’s
financial sector and the enhancement of its competitiveness, which has declined
significantly since the collapse of the bubble economy.
Former Malaysian Prime Minister Mahathir Mohamad and former Thai Prime
Minister Thaksin Shinawatra have both advocated the establishment of an Asian Bond
market in recent years. Their proposals are of tremendous importance and significancefrom the perspective of the region as a whole.
Good balance in the domestic financing profiles of Asian Countries
Any discussion of the issue of an Asian Bond and securities market requires that wecorrectly understand the status of the domestic capital markets in the major Asian
countries.
There are two features of regional capital markets in particular that should be
mentioned as background to the discussion.
First, domestic capital markets in the Asian region are achieving a good balance intheir domestic financing profiles despite the prevalence of bank-centred indirect
financing systems in the region.
Asian financial markets have long been known as bank-centred markets. However,
over the past few years, the proportion of financing in the bond market has increased in
China, Korea and other countries.
As Figure 4 shows, the domestic financing profile, the split between banks, bonds
and shares, is becoming well balanced in almost all the major Asian countries other thanHong Kong and Singapore.
The second feature of Asian financial markets is the policy of dividing the domestic
and foreign markets.
Apart from Japan, many Asian countries are still applying strict control of foreignexchange, funds, and securities, and are limiting cross-border funds transfers between
domestic and foreign markets, based on their experience in the currency and financial
crisis of 97-98.

18

(Figure 4)
Domestic Financing Profile (Dec‐2006)
Domestic Credit

Local CCY Bonds

Equity

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Source: BIS Quarterly Review, June 2007; data for Taiwan provided by the Taiwan Stock Exchange and the Central Bank of
Taiwan.

Necessity for an AIR-PSM (Asian Inter-Regional Professional Securities Market)
While the domestic markets of Asian countries have evolved, we still face theproblem of the absence of common infrastructure for the creation of a common capital
market in Asia.
An Asian Inter-Regional Professional Securities Market, which would enable theabundant savings in the region to be circulated within the region, is yet to be developed
as an important element in a common capital market.
As indicated in Figures 5-a and 5-b, Japan, China and Korea are the largest domestic
markets in the region, and cooperation between them will therefore be important in thedevelopment of an integrated inter-regional capital market.
The total scale of the markets in the region is more than 30 trillion US dollars.
(Figure 5-a)Domestic Financing Profile in U.S.$Billions (Dec‐2006)
25,00020,000EquityLocal CCY Bonds
15,000

Domestic Credit

10,0005,000

0Source: BIS Quarterly Review, June 2007; data for Taiwan provided by the Taiwan Stock Exchange and the Central Bank of Taiwan.

19

(Figure 5-b)Market

Japan
China
Korea
Hong Kong
Taiwan
Malaysia
Singapore
ThailandIndonesia
Philippines
Total

Domestic
Credit
9,527.3
3,699.3
976.3
255.1
818.9
193.8
99.4
223.3
154.6
53.6
16,001.7

Local CCY
Bonds
8,401.2
1,183.6
1,010.0
51.0
173.0
146.2
79.2
109.7
87.6
44.9
11,286.4(In U.S. $ Billions)
EquityTotal
4,614.1
1,145.5
834.4
1,715.0
595.6
235.6
384.3
140.2
138.9
67.9
9,871.2

22,629.2
6,029.7
2,821.1
2,036.1
1,587.5
576.3
570.3
475.0
381.1
166.3
37,272.5

Source: BIS Quarterly Review, June 2007; data for Taiwan provided by the Taiwan Stock Exchange and the Central Bank of
Taiwan.

Given the level of diversity in the region, we do not believe that harmonisation isrequired at the level of the operations of each domestic capital market in the region.
This is a virtually unachievable goal.
Instead, a common, integrated infrastructure will be necessary. By this we mean across-border market commonly accessible by Asian countries together, created bymeans of harmonising rules and infrastructure for professionals.
We may call such a market an AIR-PSM (Asian Inter-Regional Professional
Securities Market).
The AIR-PSM would be a self-contained market enabling savings accumulated in
the region to circulate within the region.
We can certainly see development in each of the domestic markets in the region as aresult of several arrangements in which the ADB, Asian central banks and Asian
governments have co-operated in the last several years.
However, it is time for us to concentrate on the establishment of an open and freemarket for professionals similar to the Eurobond market. Such a market would be
different from domestic markets and also from NY and London.
One Asian investment banker’s perspective
One Asian investment banker has commented as follows:
Asia has enormous capital reserves, and is rapidly forming capital via trade
surpluses and economic growth.
Given this, there is no reason that Asian financial institutions cannot take the lead in
Asian capital markets.
Isn’t it somewhat strange that Asian issuers have to go to London or New York to
obtain funds from Asian investors?
Asia’s capital markets are diverse, but it is essential for advanced financial
institutions to integrate Asian capital markets to provide Asian issuers with an option
other than London or New York.
Scale of Asian Bond Markets
The combined size of Asian bond markets is estimated at more than U.S. $ 11
trillion, comprising nearly one-quarter of the total value (U.S. $50 trillion) of the20

world’s domestic bond markets (Figure 6).
Breakdown of the World’s Bond Market Balances (2006)(Figure 6)(In U.S. $ Billions)

Corporate

Financial
Institutions

Governments

Total
Domestic

a

b

c

a+b+c

Global - Grand Total

5,746.7

20,530.2

24,008.6

50,285.5

18,448.9

U.S.

2,790.6

13,294.6

6,230.3

22,315.5

4,040.5

U.K.

23.1

379.4

835.1

1,237.6

2,509.1

Developed Europe (other than U.K.)

1,406.4

4,277.1

6,187.3

11,870.8

8,735.3

Offshore centers (other than HK,SG)

0.0

0.0

0.0

0.0

1,100.2

Japan

672.6

980.8

6,747.8

8,401.2

152.5

Offshore centers in Asia (i.e. HK,SG)

12.7

43.7

73.8

130.2

96.6

Asia other than Japan, HK and SG

496.9

673.2

1,910.6

3,080.7

227.7

1,182.2

1,697.7

8,732.2

11,612.1

476.8

20.6%

8.3%

36.4%

23.1%

2.6%

450.4

881.6

1916.83,248.8

999.3

Region by residence of issuer

Total Asia
Asia’s ratio to World
OthersInternational
Bonds

International organisations
0.0
0.0
0.0
0.0
587.7
Source: BIS Quarterly Review, June 2007; data for Taiwan provided by the Taiwan Stock Exchange and the Central Bank of
Taiwan. International bonds are classified by residence of issuer.

At the same time, Japan has the highest level of debt securities outstanding in the
Asian region. The second largest bond markets in the region are those of China andKorea, which are significantly smaller than the Japanese market (Figure 7-a, b).
(Figure 7-a)Domestin Bond Market Outstandings in Asia (U.S.$ Billions)
10,000

2001

2002

2003

2004

2005

2006

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

Source: BIS Quarterly Review, June 2007; data for Taiwan provided by the Taiwan Stock Exchange and the Central Bank of
Taiwan, etc.

21

(Figure 7-b)

Japan
China
Korea
India
Taiwan
Malaysia
ThailandIndonesia
Singapore
Hong Kong
Philippines
Total

Domestic Bond Market Outstanding
2001
5,509.7
238.3
438.7
0.2
113.3
82.8
37.2
49.2
51.4
52.1
24.2
6,597.1

2002
6,416.8
342.2
538.2
0.2
123.8
84.4
48.3
58.2
56.4
58.1
27.6
7,754.2

2003
7,882.4
448.8
759.9
0.7
135.6
98.8
59.6
65.7
61.5
60.5
30.7
9,604.1

2004
8,858.1
623.7
751.3
249.5
151.5
110.6
68.0
61.2
72.7
62.9
35.6
11,045.1（In U.S. $ Billions）
2005
2006
8,369.9
8,401.2
895.2
1,183.6
847.7
1,010.0
279.1
325.7
166.3
173.0
123.5
146.2
80.5
109.7
54.7
87.6
74.9
79.2
51.0
65.8
41.2
44.9
10,998.6
11,612.1

Source: BIS Quarterly Review, June 2007, Taiwan Central Bank, ADB, etc.

These figures make the Asian bond markets collectively a close rival to the U.S.
bond market in terms of scale. Asia’s bond markets should not remain isolated as they
are now. It is imperative to establish a common “market” to facilitate the effective
allocation and efficient flow of long-term capital accumulated in Asia.
There are two camps in discussions related to the development of Asian bondmarkets. (Figure 8)
One prioritises the further development of domestic markets, or, alternatively,
believes that domestic markets are sufficiently developed.
The other camp seeks to further develop domestic markets and at the same time topromote a cross-border inter-regional (offshore) market in the region.
This does not mean simply connecting domestic markets. A cross-border market
would be, rather, a non-domestic market that co-exists within the region with domestic
markets, but features the involvement of different players, rules and taxation schemes.
As an image of such a cross-border market, we might consider self-regulating
markets like the Eurobond market. While the EU has recently tightened regulations
and reduced the freedom of the Eurobond market, it has traditionally been regarded as afreely accessible market.
Cooperation between market players and regulators in Asian countries will be
extremely important in the development of a free and open market of this type in theregion. Because Japan is by far the largest market in the region, Japan should play aleadership role, and discussions involving Japanese market participants should bepromoted and facilitated.
However, harmonisation of traditional independent market practice in each of theregion’s countries may not be viable. If many to many interoperability among
domestic markets in the region is sought, the matrix will be extremely complex, and not
optimal for the region as a whole.
A preferable approach is to develop a common integrated market infrastructure forthe requirements of professionals. Professor Hal S. Scott of Harvard Law School also
indicates that off-shore integration is far more important than on-shore integration in the
Asian region.
22

(Figure 8)

Development of
Asian Bond Markets

Homogeneity

Off-Shore

Cross-border Bond Markets(Foreign Bond Markets
and Eurobond Market)

Heterogeneity• Issuance by non-residents• Cross-border circulation of savings• Different stages of economic
development and heterogeneityin legal and institutional
systems and infrastructure
Local Bond Market
in Asian countries

On-Shore

Asian Inter-Regional
Professional
Securities Market(AIR-PSM)• Harmonisation of heterogeneous rules
and regulations for professionals• Inter-regional circulation of savings• Creation of self-regulated regional
off-shore market for professional(qualified) market participants(Domestic Bond Market)
9 Fostering government bond markets

We need a
Road Map

9 Creation of benchmark yield curves
9 Fostering corporate bond markets
9 Circulation of savings in domestic markets

Looking at the individual bond markets in Japan, Korea, China and other Asian
countries, we find that their composition is extremely simple for their size (Figures 9
and 10).
Although Japan has by far the largest outstanding balance of bonds, 80% aregovernment and other public bonds, with only 20% made up of private sector bonds,
including bank debentures and ordinary corporate bonds. Unfortunately, the balanceof private sector bonds has not shown much growth in Japan (Figures 9-a, b, and c).
(Figure 9-a)Size of Japanese LCY Bond Market in US$ Billions
10,000
9,000
8,000
7,000

Fin Inst
Corp
Govt

6,000
5,000
4,000
3,000
2,000
1,000
0

Source: BIS Quarterly Review, June 200723

Size of Japanese Local Currency Bond Market(Figure 9-b)

(In U.S. $ Billions)

Date

Govt.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

Corp.

2,479.5
2,393.6
2,284.4
2,832.7
3,664.8
3,618.1
3,630.6
4,543.7
5,831.2
6,836.7
6,604.7
6,747.8

583.0
562.1
508.4
648.6
751.4
678.5
629.6
701.9
797.1
787.4
704.8
672.6

Fin. Inst.

Total

1,675.1
1,574.9
1,410.1
1,422.6
1,634.9
1,440.6
1,249.9
1,171.4
1,254.1
1,234.0
1,060.4980.8

4,737.6
4,530.6
4,202.9
4,903.8
6,051.0
5,737.2
5,510.0
6,417.0
7,882.4
8,858.1
8,369.9
8,401.2

Source: BIS Quarterly Review, June 2007, etc.

(Figure 9-c)

Breakdown of Funding Sources for Japanese Corporations(Unit: Million¥)
1,000,000,000
900,000,000
800,000,000
Other Borrowings LT

700,000,000

Other Borrowings ST
600,000,000

Bank Borrowings LT
Bank Borrowings ST

500,000,000

CP ST
Bond LT

400,000,000

Equity300,000,000
200,000,000
100,000,000
0Source: Bank of Japan, Japanese MOF.

24

(Figure 10-a)Asin Bond Markets Ratio by Type 2006
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Japan

China

Korea

India

Taiwan

Malaysia

ThailandIndonesia

Singapore

Hong Kong

Philippines

Int'l Bonds by residence of issuer

152.5

15.7

89.8

16.2

18.9

26.1

11.3

8.0

47.6

49.0

31.9

Fin. Institution

980.8

327.6

291.9

15.5

0.0

34.0

0.5

3.7

18.4

25.3

0.0

Corporate

672.6

70.4

258.2

5.3

68.2

53.0

36.3

4.0

4.9

7.8

1.5

Govt.

6,747.8

785.6

459.9

304.9

104.8

59.2

72.9

79.9

55.9

17.9

43.4

Source: BIS Quarterly Review, June 2007, Central Bank of Taiwan, ADB, etc.

(Figure 10-b)

Asian Bond Markets by Type 2006
Government
(1)

Japan
China
Korea
India

(In U.S. $ Billions)

6,747.8

Corporate(2)

Financial.
Institution
(3)

672.6

980.8

785.6
70.4
327.6
459.9
258.2
291.9
304.9
5.3
15.5
Taiwan
104.8
68.2
0.0
Malaysia
59.2
53.0
34.0
Thailand
72.9
36.3
0.5
Indonesia
79.9
4.0
3.7
Singapore
55.9
4.9
18.4
Hong Kong
17.9
7.8
25.3
Philippines
43.4
1.5
0.0
Total
8,732.2
1,182.2
1,697.7
Source: BIS Quarterly Review, June 2007, Central Bank of Taiwan, ADB, etc.

(In U.S. $ Billions)
Domestic
Market - Sub
Total(1)+(2)+(3)8,401.2
1,183.6
1,010.0
325.7
173.0
146.2
109.7
87.6
79.2
51.0
44.9
11,612.1

International
Bonds byresidence ofissuer
152.5
15.7
89.8
16.2
18.9
26.1
11.3
8.0
47.6
49.0
31.9
476.8

Grand Total
8,553.7
1,199.3
1,099.8
341.9
191.9
172.3
121.0
95.6
126.8
100.0
76.8
12,088.9

As shown in Figure 10-b, the Chinese bond market, while on par with the Koreanmarket in size, is also dominated by bonds issued by public institutions. The bondmarket in Korea is well-balanced among corporate bonds, financial institution bonds
and government bonds and also maintains a specific level in terms of scale, as a resultof tremendous efforts to promote the institutional development of the domestic financial
and capital markets.
Looking at the percentage of corporate bonds in each nation’s domestic bond market(Figures 10-a and 10-b), Taiwan, Malaysia, Thailand and Korea have relatively high25

ratios.
Considering the size of the domestic economies of Asian nations and the fact that allof them commenced with indirect finance systems centering on banks, we can see that a
considerable effort has been made with respect to private sector bonds, including
corporate bonds, from the time of the Asian currency crisis in 1997 up to the present.
Need to Foster Asia’s Financial and Capital Markets
Let us examine why and how we should promote regional financial and capital
markets in Asia in the 21st century.
It has been repeatedly pointed out by experts that one of the causes of the Asianfinancial crisis was the fact that there was no infrastructure enabling the abundantsavings held in Asian nations to be circulated within the region. While the series of
initiatives taken by Asian countries, including the Chiang Mai Initiative, a mutually
supportive network designed to help countries in the event of a crisis agreed uponamong ASEAN, Japan, China and Korea in 2000, are important as a short-term response,the idea has come to the fore that in order to prevent a recurrence of a similar crisis andto enhance market competitiveness over the medium and long term, Asia needs toestablish integrated bond and financial markets which enable Asian capital to beinvested within the region over the long term, in addition to further developing eachcountry’s domestic financial market.
Significance of Global Flattening of Yield Curves
The U.S. Federal Reserve Board began raising the federal funds (FF) rate target in
mid-2004 and pushed it up by more than 4 percentage points from 1.00% at the time to
5.25% in July 2006. Meanwhile, yields on long-dated U.S. government bonds did notincrease significantly, with 10-year yields standing at levels just below 5% as of
September 2006. This phenomenon is often referred to as a flattening of yield curves.
In his congressional testimony in February 2005, then Federal Reserve Board (FRB)
Chairman Alan Greenspan called it a “conundrum.” At the time, however, the FF rate
target stood at 2.5%, while 10-year bond yields were just above 4%. The flattening trend
has increased in pace over the last one and a half years. In June 2006, new Chairman
Ben Bernanke observed that it is difficult to narrow down the factors behind theflattening of the yield curve, and low long-term interest rates are complicating decisions
on monetary policy.
It is not well-known, however, that the flattening of yield curves is not limited to
the United States but has spread to bond markets around the world, including
emerging markets. Several factors occurring simultaneously around the world appear to
be causing the flattening, including global steady inflation rates, global money gluts andstrong appetites of pension funds and other institutional investors for domestic
long-term bonds.
However, of particular importance is the fact that inflation has been tamed inemerging economies around the world. Encouraged by this development, thesecountries, in their efforts to divest themselves of the status of developing economies andpromote savings and investment in their own or regional currencies, are overhauling old
systems built around bank-oriented indirect finance and moving ahead with thedevelopment of new systemic infrastructure for financial and capital markets, including
bond markets. In Asia, this trend is reflected in the drive towards the establishment of26

an Asian Inter-Regional Bond Market.
The flattening of yield curves, seen even in countries in which yield curves were
non-existent until recently, may be construed as a signal indicating the necessity for thefull development of regional as well as domestic bond and capital markets.
Development of “Asian Standards” and Shared Regulations and Infrastructure forFinancial and Capital Markets
The establishment of an Asian Bond market has to date been promoted by financial
authorities, central banks and politicians in the nations concerned. Going forward,
cooperation among market professionals, financial institutions, research institutions andpolicymakers will be important.
In particular, given the importance of the Japanese market, market participants,
including Japanese companies, financial institutions and institutional investors, shouldtake the initiative and cooperate in reforming the domestic financial and capital markets
as the core of the Asian financial and capital markets.
In order to ensure further social and economic development in Asia, in addition toefforts to develop and strengthen domestic bond markets by Asian countries, it isnecessary to foster inter-regional (cross-border) financial and capital markets(=AIR-PSM) within the region and develop various institutional foundations of markets
as a regional harmonised market infrastructure, functioning to organically link therespective domestic markets in the region.
To that end, innovation of market-related soft infrastructure has become
necessary, including common legal systems and self-imposed rules that would support
the region’s financial and capital markets.
Simply carrying out these initiatives in sequence can be expected to lead to theestablishment of unique “Asian standards,” a set of common principles of market
governance, and infrastructure for an Asian Inter-Regional Professional Securities
Market (AIR-PSM).
(Shigehito Inukai)
References:
・ August 2003, “The Establishment of Infrastructure for Japan’s Government Bond Market: Learningfrom Asia,” NIRA Policy Research, Vol.16, No.8,
http://www.nira.go.jp/pubj/seiken/v16n08.html,(related detailed paper: Research Report of the Asian Bond Market Study Mission – Proposal for
Institutional and Infrastructure Reform for the Development of Japan’s Capital Market – NIRA
Working Paper Series, available in English)
・ October 18-19, 2003, “KEIO-NIRA Asian Capital Market Study Forum” (Keio University Mita
Campus) [Minutes – available in Japanese and English],http://www.nira.go.jp/newsj/kanren/150/157/index.html
・ May 24, 2005, “Issues Involved in the Building of East Asia’s Common Financial and CapitalMarkets” (Lecture by Shigehito Inukai at the Great Hall of the People in Beijing, China) [China
Economic Summit 2005], A Report on Participation in China Economic Summit
http://www.nira.go.jp/newse/paper/pdf/02.pdf
・ January 2006, Article by Shigehito Inukai, “Another Economic Partnership in East Asia – Need to
Build an Asian Bond Market,” NIRA Policy Research, Vol.19, No.1
・ October 3, 2007, “Asian Inter-Regional Professional Securities Market (AIR-PSM)”(Speech by Shigehito Inukai in the session “Market Harmonisation in Asia Pacific: desirable,
do-able?” at the Boston Convention Hall, U.S.A) [SIBOS2007]
http://www.swift.com/index.cfm?item_id=63509

27

2. International Bonds:
Definitions and Explanations - What are Eurobonds and Foreign Bonds?
The term Eurobonds does not refer to bonds issued in the Euro zone. It refers tobonds denominated in specific currencies and issued on markets other than the domestic
markets of those currencies.
In other words, Eurobonds are bonds that are not registered on their respective
domestic markets. They are bonds meant for cross-border clearing and settlement thatare usually traded internationally by international syndicates. They are called“Euro-yen bonds” when denominated in the Japanese yen, “Euro-dollar bonds” when
denominated in the U.S. dollar, and “Euro-euro bonds” when denominated in the euro.
Because the Eurobond market is essentially beyond the reach of control by themonetary authorities of individual countries, it has to date functioned as a free market
with minimal regulations.
However, the originally free Eurobond market is beginning to become subject tothe regulations that are being created for the immense “national” territory represented
by the European Union. Some commentators therefore claim that Eurobonds are turning
into a type of domestic bond that is issued and traded within the framework ofquasi-national regulations in the region of Europe.
However, this assessment is premature. At present, the EU is attempting to create anentity that transcends national borders. The imposition of regulations from this level on
the Eurobond market for the sake of its more sound development should not necessarily
be regarded as negative, assuming that the public and private sectors cooperate in theestablishment of those regulations.
Foreign bonds are bonds issued by nonresidents and denominated in the currencyof the issue market. They are termed “Samurai bonds” when issued in the Japanesemarket and “Yankee bonds” when issued in the U.S. market.
Eurobonds and these foreign bonds may be termed international bonds.
Bonds issued by residents, usually denominated in the currencies of the country ofissue, are called domestic bonds when payments for bond purchases, interest payments
and redemptions are all conducted in the country of issue.
Given the above definitions, Asian Bonds or Asian Inter-Regional Bonds would
be identical with Eurobonds in their original sense, as traded on a free market, andwould be a type of international bond. Asian Bonds, however, would be bonds
denominated in Asian currencies that could be traded freely within and outside Asia on
a common non-domestic bond market (i.e., an Asian Inter-Regional Professional
Securities Market).
(Reference is made to relevant sections of Keiji Matsumoto, “Cross Border Securities
Transactions and Corporate Finance,” Kinzai Institute for Financial Affairs, Inc., 2006):
It is now presumably well known that the Euromarket is neither the Euro market,
28

in which the EU’s common currency circulates, nor Europe at large. However, there
are probably few people who could give a ready answer when asked what theEuromarket is in legal terms.
Legally and historically speaking, the Euromarket has been a market that is exempt
from the legal regulations that exist for the protection of the investing public in each ofnations free of securities and foreign exchange control regulations, including the eurozone.
In the relatively liberalised markets of industrialised nations including Japan, thedefinition of professional investors is made, and professional investors are exempt from
regulations under their respective national laws.
The global federated markets in which these investors operate may be defined as theEuromarket from the legal perspective.
Investment funds are professional investors, and individual investors can participate
in trading on the Euromarket through investment funds.
(Shigehito Inukai)29

3. Proposal for the Establishment ofan Asian Inter-Regional Professional Securities (Asian Bond) Market- A Road Map to an Asian Bond Primary Market Executive Summary
Upgrading of Market Participants and Market Infrastructure in the Asian Region
The development of an Asian financial and capital market as a regional asset isvital to the development of an Asian economic community. The upgrading of regional
market infrastructure and the ability of market participants is an essential condition forthe development of this market.
We must engage in full-fledged efforts to nurture financial professionals in Japanand Asia capable of “playing” in the global arena and build an international standard“stadium” for these players, in order to overcome the backwardness in the developmentof the Japanese and Asian markets.
The creation of a professional league, like the J-League and Asian League in theworld of professional soccer, is necessary in the world of the financial and capital
markets.
Leadership of this league should first be assumed by Japan and South Korea,
which lead other Asian nations in terms of the scale and level of development of theirdomestic capital markets.
Necessity for an “Asian Inter-Regional Bond Market” as the Primary andSecondary Market for International Bonds
Recent developments in East Asia centering on Japan, have created the basic
conditions, with efforts on the part of the relevant actors, for the establishment of aninter-regional financial market, like the Eurobond market, in which market professionals
are able to freely conduct transactions. Such a market would ensure the further
development and continued competitiveness of the region.
The establishment of market infrastructure such as legal systems and settlement
systems has made some progress in the domestic financial and capital markets of majorcountries in the region. However, the development of a self-contained “Inter-Regional
Bond Market” in Asia, a market in which international bonds are issued and traded, hasbeen decisively delayed. Moreover, there is little recognition of the necessity for sucha market.
With regard to international bonds, market participants in Asia still depend on theEurobond primary and secondary markets, a cooperative system involving Britain andthe three Benelux countries predicated on the utilisation of financial institutions in
London and international securities clearing and settlement systems based in Europe.
In other words, it is a given that, outside domestic markets, the dealers andprofessionals (including intermediary agents involved in issuance, trading andredemption, rating organisations, lawyers and accountants) involved with securities
issued by Asian issuers, and the systems (securities clearing and settlement systems andrelated legal systems, etc.) relevant to those securities, will not be Asian, but will rather30

be based upon Eurobonds market system.
Given this, issuers in Japan and other Asian nations do not enjoy the same costadvantages or the same convenience (issuing in their own currencies, etc.) as Europeanor U.S. issuers.
International bonds denominated in Asian currencies other than the Japanese yen
face a variety of constraints in issuance and secondary market trading not only within
their own countries but also in the Eurobond market. In addition, an environment
enabling Asian financial institutions, including Japanese financial institutions, to honetheir professional skills in order to compete with their European and U.S. counterpartson equal terms has not been fostered.
The establishment of an Asian Inter-Regional Bond Market (a Eurobond-type Asian
Bond market) the type of shared regional offshore market that has not yet clearly taken
shape in Asia, would not only be of great significance in providing a venue for the
nurturing and training of regional professionals and the generation of market
innovations, but also as creating a self-contained, highly cost-effective internationalbond market that also enables trading in bonds denominated in the respective currenciesof the nations of the region, enabling regional savings to circulate within the region.
The realisation of such a market would require the establishment of a variety ofdifferent types of market infrastructure for a Eurobond market-type Inter-Regional Bond
Market, based on specifically Asian elements and requirements.
By linking the domestic markets of Asian countries in a natural and organic manner,
it would have the function of preventing a regional spread of economic contagion, as
seen in the Asian financial crisis.
At present, what is required are more concentrated efforts to remove a variety of
immediate institutional constraints (constraints in domestic legal systems, including
inadequate familiarisation, constraints in tax laws, the absence of an efficientinternational securities clearing and settlement system) on the initiative of major market
participants in the countries of the region, including Japan.
The potential for the development of an economic community is beginning to beapparent in East Asia, and it may be assumed that the main issuers and investors in an
Asian Inter-Regional Bond Market would come from Asian nations. The involvementof market participants from outside the region would also be assumed. In other words,
an Asian Inter-Regional Bond Market would be open to markets and market participantsaround the globe.
Creation and Sharing of a Vision for an Asian Inter-Regional Bond (Asian Bond)
Market is Required
The Asian Bond Markets Initiative (ABMI), which has been promoted by Asian
governments and the Asian Development Bank (ADB) over the past several years, is anextremely important initiative, and has produced a variety of important achievements.
More than ever, it is necessary now for market participants (market professionals)
such as public sector securities-issuing organisations, private sector issuers, brokeragefirms and institutional investors, all of which should be participants in an Asian capital
market, to develop and share a vision for an Asian Inter-Regional Bond (Asian Bond)
Market.

31

Proposal for a Road Map to an Asian Inter-Regional Bond (Asian Bond) PrimaryMarket
The major points of the proposal are:(1) Necessity for market for Asian Inter-Regional Bonds (Asian Bonds)
denominated in Asian currencies and proposal for a concrete program (roadmap) for its realisation,(2) Proposal on points to consider regarding legal systems for an AsianInter-Regional Bond (Asian Bond) Market (for Japanese issuers, Asian Bonds
should be clearly defined as different from domestic corporate bonds under
the new Japanese Company Law and should be issued with Japanese law as
the governing law; we consider this to be possible),(3) Proposal for the establishment of the Capital Market Association of Asia
(CMAA), (CMAA was established in 2007)(4) Proposal of a Dual Core approach as the securities clearing and settlement
method.

Background to the Proposal
The National Institute for Research Advancement (NIRA), in cooperation with the
Corporate Finance and Treasury Association of Japan and the Japan Capital Markets
Association (JCMA), launched the Study Group on Principles and Rules for a
Regional Market and the Study Group on Integrated Regional Market Infrastructure(Chairperson: Prof. Hideki Kanda of the University of Tokyo Graduate School of Law)
in July 2005 for the purpose of formulating proposals for a strategic vision toward theintegration of financial and capital markets in East Asia.
Following this, consultations were held with market professionals, working groupmeetings were organised as required, and several exchanges of views were held with
South Korean capital market experts in Japan and South Korea. In 2006, South
Korean market experts who share a common sense of purpose with the team members
volunteered to join the study groups, and intensive discussions were held between teamsof Japanese and South Korean market experts. Since late 2005, the team has also been
exchanging views with the Asian Development Bank (ADB), which has been promoting
the Asian Bond Markets Initiative (ABMI).
On March 27, 2006, a NIRA-ADB joint forum was held in Tokyo, at which theresults of studies conducted over the past eight months were presented to participants asa NIRA policy proposal (interim report). At the conclusion of the forum, the draft
proposal prepared by the NIRA study team was endorsed by approximately
three-quarters of the participants. The results of a questionnaire survey conductedfollowing the forum are shown on Page 53.
The revised proposal presented in this paper is based on discussions held at theforum, and also reflects further consideration and discussion by study group members
and other relevant individuals following the forum.
We would also like to mention the fact that this proposal has been formulated on thebasis of voluntary and future-oriented collaboration and cooperation between private
sector market experts in Japan and South Korea.
32

Detailed Discussion
Background: Basic Role of a Local Currency-Denominated Asian Bond Market
The main factor that brought about the Asian financial crisis and that also lies
behind the continuing instability of the Asian currencies and economies is the dollar peg
system. In other words, the major causes of these problems are the requirement for therevaluation of Asian currencies against the U.S. dollar and bloated foreign exchangerisks associated with issuing securities denominated in dollars.
On the other hand, while settlements for regional trade among Asian countries are
made in U.S. dollars, the dollars used in trade settlements are exchanged into therespective currencies of the countries involved; as such, the countries’ own currencies
can be said to be used in regional trade. Therefore, an Asian Bond market using local
currencies would save these countries foreign exchange fees, and to the extent that they
are backed by export claims (particularly long-term claims such as exports of plants),
the existence of exchange risk-free local currency-denominated debts is necessary andwarranted.
In addition, long-term capital remains fixed in local currencies when capital isexported to establish production bases in other countries. If funds for direct investment
could be raised by issuing bonds denominated in the currencies of the countries inwhich production will be carried out, the issuers would be able to avoid exchange risks.
From the 1970s onwards, Japanese companies procured the funds necessary tosupport their rapid growth in the Euro capital market in the form of low-cost equity
financing (convertible bonds and bonds with warrants); European and U.S. investors
invested in Japan’s high economic growth.
At present, the same relationship can be observed between Japan and South Korea,
East Asia’s industrialised nations, and the ASEAN nations, which are trying to catch up
with them. Japanese and South Korean institutional investors, including investment trust
funds, can play the role of providers of capital in yen-denominated andwon-denominated equity financing by companies from ASEAN nations. This is clearlyshown in the current BRICs boom.
In Asia, a broad practical base for the above-mentioned local currency-denominatedbonds and equity-linked bonds already exists in the form of trade and direct investment.
In addition, physical distribution is very active given the close geographical proximity
of countries in Asia, and it therefore goes without saying that local
currency-denominated bonds and equity-linked bonds are necessary and warranted in
the region.
What is described above represents a flow of economic activities that would be
generated naturally without any policy initiatives from the governments of countries in
the region. Given the circumstances of foreign exchange policy, the degree ofliberalisation of currency trading and accounting and disclosure practices in the various
countries of the region, however, the starting point should be an Asian Inter-Regional
Bond Market created by professional investors, on the model of the Eurobond market.
The Eurobond market itself remains fundamentally restrictive to major Asiancurrencies other than the Japanese yen. Given the fact that even the Korean won still33

faces limited access to the Eurobond market, bonds denominated in other Asiancurrencies will find it difficult to utilise the market for some time to come.
Individual Issues and Assumptions
Q: How should we proceed with the building of a 21st century Asian common
inter-regional bond market? Specifically, what problems will have to be dealt with inestablishing a common Asian market infrastructure in financial and capital markets?
A: First, Asian countries need to harmonise their professional market-related legal
systems. To date, financial authorities, central banks and politicians in Asian countries
have made extraordinary efforts towards establishing an Asian Bond market. At present,
continued efforts are under way within the framework of the ASEAN+3 Asian Bond
Markets Initiative (ABMI), led by the Asian Development Bank (ADB) with the supportof regional finance ministries. What will be important in future, in our opinion, is
multifaceted cooperation among market professionals, financial institutions, think tanks
and policymakers.
In particular, given the importance of the Japanese markets, Japanese issuing
companies, institutional investors and others involved in market activities need to takethe initiative in reforming Japan’s domestic financial and capital markets as the core of
the Asian financial and capital markets.
In addition, for the sake of the socioeconomic development of Asia, it will benecessary to foster regional financial and capital markets that transcend the boundaries
of domestic markets as common regional professional market infrastructure, andestablish the institutional base for such markets. What is necessary to that end iscommon Asian institutional systems that go beyond the existing frameworks of eachcountry and support common financial and capital markets in the region.
For example, flexible and simple systems need to be put in place to ensure that legal,
tax and other systems related to domestic financial and capital markets will not hamper
issuance and secondary trading of international securities on the offshore markets.
We also need to develop simple rules to govern the disclosure and registration of
information regarding such securities as well as international securities clearing andsettlement systems (which should be designed to be self-contained within the Asian
region to make the use of Europe-based clearing and settlement systems unnecessary).
Furthermore, it is hoped to develop a venue (presumably, a stock exchange) to list
(i.e., disclose and register) securities that are issued in the joint inter-regional bondmarket rather than in the domestic markets of participating countries.
We also need to create an independent organisation of market participants toformulate voluntary trading rules for the joint inter-regional bond market.
What is required is specifically Asian soft infrastructure innovation to create aninter-regional securities market that can rival other existing international markets,
including the Eurobond market, which has developed an integrated total system forregistration of disclosure documents, clearing and settlement of securities, and issuanceand secondary trading through the cooperation of Britain and the three Benelux
34

countries, and which is the representative primary and secondary market for free tradingof international securities issued by blue-chip issuers.
Fundamentally, securities denominated in Asian currencies other than the Japanese
yen still face a welter of constraints in issuance as well as in secondary market trading
not only within the borders of the countries in which they are issued, but also in foreign
bond markets including the Eurobond market. For example, in the Eurobond market,
securities denominated in Asian currencies other than the yen either cannot be issued
institutionally, are difficult to issue or are subject to delays in clearance and settlement.
The establishment of an Asian Inter-Regional Bond Market which can accommodate
issuance and secondary market trading of local currency-denominated bonds by Asianissuers would therefore be of great significance, in that it would enable issuance to becompetitive even in terms of issue cost, which is impossible on the Eurobond market.
However, there are two important conditions:(1) The infrastructure of an Asian Inter-Regional Professional Securities Market
should be designed to accommodate not only bonds but also issuance and secondary
market trading of equity securities, and(2) A common Asian Inter-Regional Professional Securities Market infrastructure
established in Asia should not be restricted exclusively to use by market participantsfrom the Asian region. Asian market participants must not forget the fundamental
requirement:
we need to build an advanced and open inter-regional securities market infrastructure in
Asia, one that is open to all participants in global capital markets.
Continued efforts by means of independent and voluntary cooperation among
governments, issuing companies, securities underwriters, rating organisations, lawyers
and other market professionals and researchers in Asian countries should lead to theestablishment in the near future of common market governance principles that can betermed “Asian Bond Standards” or “AIR-PSM Standards.”
Japanese market professionals and market experts, in addition to the Japanese
government, as “all-star players” in the “Asian league,” have a tremendous
responsibility to assist in this procedure.
“Asian Bond Standards 1” – Towards an Asian Bond Market
The Asian Bond Markets Initiative has been launched, and specific issues relevantto the development of an Asian Bond market are now being considered by the1(Reference) The new agenda agreed upon at the ASEAN+3 Finance Ministers’ meeting held in Istanbul on May 4,
2005.
1. Study on the possible issuance of Asian currency-basket bonds (a Japanese proposal in the road map to theABMI) - Seek economies of scale for the region as a whole by creating a common bond-issuing currency
2.
Self-assessment by member countries (a Japanese proposal in the road map to the ABMI) - Seek to foster amore user-friendly bond market, with member countries conducting studies of obstacles to investment in an
Asian Bond market pointed out by market participants.
3.
Asian Bond Standards (a South Korean proposal) - Conduct a long-term study on the fundamental
requirements for fostering an international bond market in East Asia (establishing market infrastructure andissuing procedures, etc.)35

governments and finance ministries of Japan and other Asian countries, with the AsianDevelopment Bank serving as secretariat. A variety of important achievements havealready been made. Among these was the proposal of Asian Bond Standards in Korea.
To build on these achievements and to help further facilitate the realisation of theinitiative, a NIRA research project is being carried out by a team led by market
participants to offer concrete and highly feasible proposals regarding the developmentof market infrastructure, issuing procedures and other issues, which may be termed
Asian Bond Standards.
The issues and points for consideration that have to date been identified in thisresearch are discussed below.
Issues and points for consideration:
1. Is it possible to develop an Asian version of the flourishing Eurobond market (whichcenters on Britain and the three Benelux countries) by employing the basic featuresof the self-imposed rules for the Eurobond market (the rules first set by the IPMA 2
and inherited by the ICMA 3), but as a uniquely Asian market created by Asianmarket participants?
2. Instead of a grand design encompassing the entirety of the primary and secondary
markets, is it feasible to commence with an intensive consideration of issues related
to a primary market for Asian Bonds, given that it is more realistic and of greater
importance and necessity? Considering the scale of the domestic financial andcapital markets of Asian countries, the levels of understanding among market
participants and the degree of development of relevant domestic legal systems andother infrastructures, it would be of great significance if Japan and South Korea
were to cooperate in this consideration (We might recall here the successful hostingof the World Cup by Japan and South Korea).
3. What role should Japanese market participants play to that end? Who should takethe initiative among government agencies, public and private sector issuers, regional
economic bodies, intermediary organisations and investors? (Issuers may be of thegreatest importance because they take the initial action in issuing securities). How
should the role of intermediary organisations, particularly financial institutions that
operate in cross-border Asian financial and capital markets, be considered?
4. South Korea can be an important partner for Japan as its market is the second largest
in Asia after Japan’s and it is seriously addressing the utilisation of market functions.
What institutional constraints and obstacles to progress in the project exist in South
Korea?
5. Among specific points for consideration, the following items can be considered ofparticular importance (for more detail, see the attached “Road Map to a PrimaryMarket for Asian Inter-Regional Bonds (Asian Bonds))”:① It is necessary to establish a “Capital Market Association for Asia” (CMAA) (inthe initial stage, looking toward the creation of a primary market for Asian
Bonds led by the private sector) consisting of Asian issuers and Asian financial
institutions, etc.
2
3

IPMA: International Primary Market Association
ICMA: International Capital Market Association36

② How should issuing procedures and syndicate rules be developed for Asian
Bonds as Eurobond-type Inter-Regional Bonds (international bonds not issued
on domestic markets)?
③ How should legal frameworks for issuance of Asian Bonds be shaped (andwhich countries’ legal systems should be chosen as the basis for them)?
・There are calls for recognition under the new Company Law that Japaneseissuers of foreign bonds (including Asian Bonds) should be able to use Japanese
law as governing law, and to make this point explicit in the Company Law
Enforcement Regulations. The CMAA proposal discussed below is part of thismovement.
The requirement for the assignment of commissioned banks for corporate bonds
under the Company Law will not represent a constraint in the development of“Made in Japan” international bonds (foreign bonds), because the requirement
can be waived and a fiscal agent (FA) appointed
1) in the event that the value of each bond is one hundred million yen or
higher (based on a conditional clause of Article 702 of the existing Company
Law), and2) in the case that a figure of less than 50 is obtained when the total value ofthe bond issue is divided by the lowest value of the individual bonds (Article
169 of the Company Law Enforcement Regulations). In addition,3) the CMAA is proposing that in the specific case of foreign bonds, therequirement for the assignment of a commissioned bank could be waived ifofferings are made exclusively to professional investors, which are notbound by the securities and foreign exchange regulations of their homecountries.
・Can South Korean issuers issue bonds using South Korean laws as governinglaw?
Are there any problems with capital controls?
What are the constraints under the South Korean legal system and how can they bereconciled?
④ How should the clearing and settlement infrastructure for Asian Bonds as
Eurobond-type Asian Inter-Regional Bonds be addressed?
How should Eurobond-type Asian Inter-Regional Bonds in Asia be designed sothat they are not regarded as domestic bonds even when they do not utilise theEuropean settlement systems?
As one suggestion, we propose a Dual Core Asian International CSD (central
securities depository) approach. This proposal is based on a consideration of
how two major international central securities depositories, Euroclear (Belgium)
and Clearstream (Luxembourg), are utilised.
The Dual Core Asian International CSD approach means that when residents ofJapan issue Asian Inter-Regional Bonds, they would use the South Korean CSD
as the international central securities depository (ICSD), and when residents ofSouth Korea and other non-Japanese issuers issue Asian Inter-Regional Bonds,
they would use the Japanese CSD (Japan Securities Depository Center, andothers) as the international central securities depository (ICSD).
Utilizing the central securities depositories that exist in different Asian countries
as “Dual Core” ICSDs, just as Euroclear and Clearstream are utilised, it would37

be possible to create a self-contained Asian Inter-Regional Bond Market inwhich Asian Bonds could be issued and traded within Asia without relying on
the two major central securities depositories in Europe.
Incidentally, when bonds issued by British residents are cleared and settled
through Euroclear or Clearstream, those bonds are recognised as Eurobonds(international bonds), rather than as British domestic bonds. It should be notedthat bonds issued by Belgian residents are recognised as Eurobonds only when
they are cleared and settled through Clearstream, not through Euroclear.
⑤ How should withholding taxes, which are supposed to be exempted on theinternational bond markets, and other taxes be treated in the Asian Bond market?
⑥ How should disclosure of information and registration of disclosure documents(registration, filing or listing) be handled for Asian Inter-Regional Bonds, which
are international bonds? (For example, could the Tokyo or Osaka Securities
Exchange be used as the junction point with Asia?)⑦ It may be necessary to re-acknowledge and re-affirm the roles of Japanese andAsian financial institutions regarding international securities underwriting,corporate bond management and comprehensive investment management(global custody business).
（Shigehito Inukai）
References：
・
・

・

・
・
・

“KEIO－NIRA” Asian Capital Markets Study Forum Agenda, 18-19 October, 2003
http://www.nira.go.jp/newsj/kanren/150/157/gijiroku-e.pdf
N. Yoshino (Keio University) and S. Inukai, “Japanese Banks must be Proactive in Fostering an
Asian Bond Market – A Mechanism for Circulation of Funds within the Region is Essential –“,Kinzai Weekly, 19 January, 2004
http://www.nira.go.jp/newsj/kanren/130/135/003.pdf
S. Inukai, “Toward Common Financial and Capital Markets in East Asia,” China Economic
Summit 2005 (Address at the Great Hall of the People, 24 May, 2005)
http://www.nira.go.jp/newsj/kanren/150/159/keizais.html(Presentation Material in Japanese, English and Chinese)
S. Inukai, “JERI Report: The Necessity for a Common Bond Market in East Asia” (Original text:
Korean), JoongAng Ilbo, 18 November, 2005
S. Inukai, “(Special Feature) Reviving Japan’s Banks: From Vertically Compartmentalised
Administration to a Focus on Customer Service,” Kinzai Weekly, 28 November, 2005
K. Matsumoto, “Cross-border Securities Transactions and Corporate Finance,” Kinzai Institutefor Financial Affairs, Inc., 2006

38

4. Proposal concerning a Road Map to an Asian Inter-Regional Bond
(Asian Bond) Primary Market
Based on the view that we should commence with what is immediately feasible, thetable below provides an outline of the market infrastructure, which may be termed
Asian Bond Standards or AIR-PSM Standards that should be developed as aframework for the primary market (setting aside the secondary market for the moment).
This road map is based on discussions between Japanese and Korean experts and thediscussions at the NIRA-ADB Joint Forum held on March 27, 2006.
In preparing the framework below, the author drew upon the “Framework for a Road
Map for an Asian Bond Format Modeled on the Eurobond Format,” circulated in amemo regarding “Asian Bond Standards” 4, a new agenda for discussion in the ABMI
proposed by Korean experts and agreed upon at the ASEAN+3 Finance Ministers’Meeting held in Istanbul on May 4, 2005.
Road Map to an Asian Inter-Regional Bond Primary Market 5
Category(Element
proposal)

1.

2.

of

Issuing
Procedure

Syndicate rule
(Subscription
rules)
3. Governing Law(Issuing)(Governing law for
issuance)

FY2006-7(Starting Point)

FY2007-8(Original target year (at the point of2006)
for enforcement of theInvestment Services Law [Financial
Instruments and Exchange law] ofJapan)ICMA (themarketassociation for
the Eurobond
market)Eurobond
syndicate(ICMA)English law(“Made in the
U.K.”)
Due toconstraints under
the Commercial
Code in Japan,
since 1993 allbonds have been
issued underEnglish law

An Asian self-regulatory organisation→Creation of CMAA 6 (Initially, anassociation of issuers and issue
markets in Asia)
Asian Bond market primary standards(A model to be created on the basis of
ICMA rules)
Laws of Asian countries 7・ It has been confirmed that Asian
Bonds as foreign bonds, can beissued under Japanese law (Madein Japan) (CMAA proposal P.46)
・ Whether laws in Korea, anOECD member state, can be usedas governing law needs to beverified・ Singapore law, others(In the Eurobond market, the accepted
practice is to allow issuers fromadvanced countries to issue bonds
under the law of their home countries)

4

FY2009-10(Original target year
for enforcement of
the Japanese versionof the Financial
ServicesandMarkets Law)
Harmonisation bylegal enforcement +CMAA
Asian Bond market
primary standards
Laws
ofcountries

Asian

http://www.mof.go.jp/english/if/regional_financial_cooperation.htm
http://asianbondsonline.adb.org/documents/Asian_Bonds_Standard_2005_May.pdf
5
It will be necessary to study rules for the secondary market separately as the primary market develops.
6
CMAA: Capital Markets Association for Asia
7 See Keiji Matsumoto, “Cross Border Securities Transactions and Corporate Finance,” Kinzai Institute for Financial
Affairs, Inc., 2006

39

4.

Settlement-(PleaseP.47-51)

refer

5.

Withholding
Tax

6.

AccountingStandards

7.

Euroclear(Brussels,
Belgium),
Clearstream(Luxembourg)
Depending upon
the policy ofissuer’s country
Decidedbycountry of bondissuer

Disclosure(Filing)(including the filingof an Asian MTN
Programme)
8. Electronic
disclosure

Securities
exchange(MainlyLux)

9.

Use of Eurobond(ICMA) format
Market practices,market judgment

Documentation

10. Credit ratings

LSE,

Introducedbyeach country

Dual Core 8 Asian Inter-Regional
CSD Approach (As a realistic solution
enabling the early launch of themarket, approach using custodian
services (Plan C), and setting up a
new and simple “Asian Inter-Regional
CSD” (Plan A and A’) are option)
May be exempt, based on the use ofInternational Settlement as discussed
above (to be confirmed)
Harmonisation of some accounting
standards(Differenceswithinternational standards can be dealt
with by specifying the differences)
Major securities exchanges in Asia
・ JPN (For instance, Tokyo or Osaka
Securities Exchange)
・ KOR (KRX)・ SGP (SGX)
Harmonisation of regulations, linkage
with EDINET 9 with XBRLDevelopment of Asian Bond format(CMAA will develop a model format)
Market practices, market judgment(Market practices, including use ofJapanese rating organisations)

Dual Core AsianInter-Regional CSD
or
Asian
Inter-Regional(Core) CSD
Depending upon thepolicy of issuer’s
country
International
accounting
standards are hoped
Securities exchange(JPN, KOR (KRX),SGP (SGX), etc.)

Harmonisationofregulations, linkage
with EDINETUse of Asian Bond
formatMarketpractices,market judgment

With an eye on future progress toward the Asian Currency Unit (ACU) for Asiancurrency basket bonds now under consideration by the ADB, and in a bid to help makethe positive efforts being exerted more fruitful, it seems essential to implement extra
measures and, for example, create ACU-denominated bond futures and currency futures
markets on securities exchanges within Asia (on the Tokyo or Osaka Securities
Exchange, for instance) to make the Asian Inter-regional Bond (Asian Bond) Market
more user-friendly.
Explanation of the Three Key Items in the Proposal for a “Road Map to an AsianInter-Regional Bond (Asian Bond) Market”
I
II
III

Initiative to Establish the Capital Markets Association for Asia (CMAA)
Points for Consideration concerning Practical Legal Issues related to the Creation of an AsianInter-Regional Bond Market
Framework for a “Dual Core Asian Inter-Regional CSD”

8

The “Dual Core Asian Inter-Regional CSD” approach is one in which Japanese residents use, for example, theSouth Korean CSD as the international central securities depository (ICSD) when they issue international bonds(Asian Inter-Regional Bonds), and residents of South Korea and other non-Japanese issuers use the Japanese CSD as
the international central securities depository when they issue Asian Inter-regional Bonds. By utilising the central
securities depositories in different Asian countries as “Dual Core” ICSDs, analogously to the two major central
securities depositories for the Eurobond market, Euroclear and Clearstream, it will be possible to create a joint AsianInter-Regional Bond Market enabling Asian Bonds (Asian Inter-Regional Bonds) to be issued and traded exclusively
within Asia without relying on these two major central securities depositories.
9
EDINET (Electronic Disclosure for Investors' NETwork) is a network system for electronic disclosure of
information operated and provided by the Financial Services Agency (FSA) for investors as one of its administrative
services. “An electronic disclosure system for disclosure documents such as financial statements based on the
Financial Instruments and Exchange Law.”40

Ⅰ. Initiative to Establish the Capital Markets Association for Asia
(CMAA)
Given the likelihood that the Eurobond market, which has a long history as aninternational and offshore bond market, will increasingly become more like an onshore
market following the EU directive for an integrated market, we propose the creation anddevelopment of an Asian Inter-Regional Professional Securities Market (AIR-PSM ;the offshore capital market as an Asian regional shared international bond market), with
Asian issuers that have previously actively employed the Eurobond market and Asian
underwriters as the main market participants and with support from the AsianDevelopment Bank and U.S. and European financial institutions. Non Asian issuers andunderwriters are also invited.
In terms of its relation to regulations employed in the domestic markets of thenations involved, the AIR-PSM would from the beginning be clearly defined as acommon offshore inter-regional bond market, and we would seek to establish a market
structure that would not impede the flow of funds between the onshore and offshore
markets of the region, soliciting cooperation and coordination among the regulatory
authorities of the countries concerned in order to avoid friction when domestic laws arerevised.
The AIR-PSM would be a gateway for common international bonds denominated in
Asian currencies that have not to date been accepted on the Eurobond market, andwould enable these bonds to be cleared and settled within Asian time zones.
Considering the degree of maturation and market depth of Asian domestic markets
as well as the level of development of domestic traders and institutional investors in
Asian countries, it is desirable that major Asian issuers with considerable experience of
issuing on the Eurobond market act as the main participants, with major Asian dealers
and international securities companies with excellent records in cross-bordertransactions within the Asian region and elsewhere as advisors, in forming a CapitalMarkets Association for Asia (CMAA) as an entity that will promote the establishmentof The AIR-PSM by setting rules and market practices for the primary market (issue
procedures, syndication rules, and methods for information disclosure and filing andannouncement of disclosure documents).
The concept of involving issuers in addition to underwriters at the initial stages of
establishment of the framework emerges from the fact that the AIR-PSM is conceivedof as a venue for procurement of long-term industrial funds, and also that, as Japan’s
experience of corporate bond market reform commencing with bond placement by theformer Nippon Telegraph and Telephone Corporation suggests, the leadership andcooperation of issuers as users of the capital market will be necessary to ensure active
trading in an Asian secondary market.
With regard to the establishment of the secondary market in particular, securities
companies and investment banks that act as brokers of market transactions andintermediaries of financial transactions can do no better than avoiding the risk ofholding their own positions by buying or selling against the market. Therefore, even
without reference to reform of the Japanese corporate market, the firm commitment andleadership of bond issuers are obviously necessary for the establishment anddevelopment of a secondary market with limited liquidity.
The Asian Capital Markets Study Group, created in Tokyo in October 2003 at the41

initiative of the National Institute for Research Advancement (NIRA) and the Japan
Capital Markets Association (JCMA), were reorganised in 2007 with the participation ofmajor Asian securities dealers and a small number of international securities companies
with excellent records in cross-border transactions within and outside the Asian region
to enable the creation of the CMAA.
Major private sector issuers with considerable experience in issuing on theEurobond market will, as users of an Asian Inter-Regional Professional Securities
Market, propose a framework of user-friendly market practices, and securities dealers
participating as advisors will provide advice and guidance to help in the design of an
institutional framework that is also acceptable to underwriting participants.
With respect to institutional design, the following working groups are to beestablished within the CMAA, and will discuss the formulation of proposals andrecommendations in their respective areas. We recommend that some of these working
groups present their first set of recommendations by the middle of 2008, to coincidewith the Road Map.
1.

Working Group on Market Practices, Law and Documentation (New Issue
Practices, Market-making Rules, Syndication Rules, Disclosure, Governing Law
and Underwriting Contracts)
2. Working Group on Market Systems Infrastructure, Clearing and Settlement* Recommendations from the International Primary Market Association (IPMA) (now theInternational Capital Market Association (ICMA)) will be used as a reference when the
Working Groups are engaged in consideration of details.

Role and Scope of the CMAA with the IPMA as a Reference
The CMAA will be concerned with new issuing procedures, including proceduresfor disclosure, in an Asian Inter-Regional Professional Securities Market, but it will beneither an exchange nor a regulator empowered by statute. The CMAA’s rules will takethe form of recommendations, which will be based on the general agreement of the
major participants in the AIR-PSM. This agreement is to be secured on the basis ofconsensus among issuers and underwriters. The CMAA will have no power to sanction
and members will be free to ignore any particular recommendation when launching an
issue.
The CMAA will be mandated by its members to facilitate the operation of the
AIR-PSM. The smooth functioning of the markets may involve legal or documentationquestions, best market practice, clearing and settlement, regulation, disclosure and otherfactors.
In line with an increase in the number of major Asian dealers participating in thecommon Inter-Regional bond market and the development of the market itself, it islikely that an Asian Capital Market Dealers Association will be formed separately tohelp promote the market with the CMAA and an association of issuers. Until then,however, it is assumed that the CMAA will function as a self-regulatory organisation.
Practical issues·Experience in cross-border transactions within and outside the region→ Almost all the dealers that qualify are Japanese42

·Liquidity(Disparity in capital strength, financing capacity, trading capabilities, etc. among
dealers within the region)·Disparity in the depth of domestic financial and securities markets of countries in theregion·Differences in the securities trading environment
Universal banking → Countries other than Japan, South Korea = Non-OECD
Separation between banking and securities businesses→ Japan and South Korea = OECDCountries under Articles IV, VIII of IMF Articles of Agreement→Differences in regulations on foreign currency trading andforeign currency-denominated bond trading(Hirohiko Suzuki)

43

Ⅱ. Points for Consideration concerning Practical Legal Issues related
to the Creation of an Asian Inter-Regional Bond Market
1. Starting point for foreign bonds in the Japanese market(1) Domestic bonds
Protection of bondholders: Commissioned banks and meetings of bondholders under
the jurisdiction of Japanese courts
Commissioned banks, appointed by issuing companies, are “obliged to manage
corporate bonds for bondholders fairly and honestly on the basis of the duties of a goodmanager.”
Under the new Company Law, the duty of a commissioned bank is more clearly
defined as in respect of “receipt of payments, protection of claims of corporate bonds
and other matters concerning management of corporate bonds.”
Historically, this approach to the role of commissioned banks has been based on thethinking that because corporate bonds are acquired by the investing public, the principal
should be guaranteed in the same way as bank deposits. Thus, the function ofrefinancing loans provided by the main banks was the historical starting point ofcorporate bonds.
(2) Foreign bonds
With respect to foreign bonds, by contrast, the international approach to theprotection of bondholders of the place of issuance (the US or Europe) apply, based on
the principle of bondholders’ own risk, and Japan follows this thinking.
2. 1993 Revision of the Commercial CodeIn exchange for the abolition of issue limits on corporate bonds, the appointment ofcommissioned banks became mandatory. As a result, all foreign bonds of Japaneseissuers have been issued using foreign laws as governing law.
Because fees associated with the heavy responsibility of commissioned banks were
too high, trustees (despite the name, having rights but no duties) and paying agents or
fiscal agents (mere paying agents for issuers) charging relatively low fees as per US or
European market practice, or the method of no direct relationship between issuers andbondholders as per Swiss market practice, was used.
3. The Company Law which came into effect in May 2006
(1) Position of the Justice Ministry
The Company Law which came into effect from May 2006 provides a definition of
corporate bonds (Article 2, No.23). As defined by this clause, only bonds that areallocated and redeemed according to the stipulations of the Company Law are regarded
as corporate bonds.
Theoretically, therefore, it should be possible to issue bonds with Japanese law as
the governing law that do not conform to this definition, and which would therefore be
regarded as non-corporate bonds. Given this, it was at first hoped that Japanese issuersof foreign bonds would be able to issue foreign bonds as non-corporate bonds, with44

Japanese law as the governing law. However, it was later indicated that foreign bonds
issued by Japanese companies would be regarded as corporate bonds if issued with theJapanese Company Law as the governing law, since otherwise many amendments areneeded in other laws as to the definition of “bonds”.
This means that Japanese corporate issuers cannot issue foreign bonds with theJapanese Company Law as the governing law for all practical purposes.
(2) Practical responses
For an issuing company, a bond is simply a vehicle for borrowing a large amount ofmoney from a large number of investors.
On the other hand, if issuers choose not to appoint commissioned banks in placing
foreign bonds to avoid the high fees involved, those foreign bonds, with a few
exceptions, will fall outside the definition of corporate bonds under the Company Law
and as such will not be regarded as corporate bonds under the Company Law.
Thus, foreign bonds are likely to be issued as “foreign non-corporate bonds thatrank pari passu with corporate bonds.”
If they are not defined as corporate bonds, issuance of foreign bonds will not requirea resolution by a board of directors. However, this was the interpretation of the Justice
Ministry and did not represent a judicial decision.
For the sake of legal safety, therefore, issuing companies are in practice opt for theauthorisation of issuance of foreign bonds based on a resolution of the board of
directors as in the case of domestic bonds (no harm would be done in implementing aprocedure that is not required as a precautionary measure, and there should be nopractical problem in doing so because the system enabling lump-sum authorisation byrepresentative directors already exists).
Because the bonds need to be subject to the negative pledge clause and the “paripassu” clause of existing foreign bonds, and because international consistency will benecessary, they may probably still be termed foreign corporate bonds outside Japan.
(3)Necessity of clarification of the rules for exemption from the requirement for theassignment of commissioned banks for corporate bonds under the Company Law
The new concept of “non-corporate bonds” was not popular among Japanese market
practitioners. Under current market practice, Japanese issuer’s foreign bonds aregoverned by British Law, and issuers avoid the requirement of assigning acommissioned bank.
But this practice has been criticized, and it has been suggested that even in the caseof foreign corporate bonds based on British Law, allocation and redemption of thebonds will be considered to be subject to the stipulations of the Company Law.
To avoid confusion and uncertainty in the market, the CMAA is proposing therevision of the Company Law Enforcement Regulations to the effect that in the specificcase of foreign bonds, regardless of the governing laws, the requirement for theassignment of a commissioned bank could be waived if offerings are made exclusively
to professional investors in and outside Japan.

45

CMAA Proposal
The requirement for the assignment of commissioned banks for corporate bonds
under the Company Law should not represent a constraint in the development of “Madein Japan” Asian Inter-Regional Bonds (foreign bonds), because the requirement canbe waived and a fiscal agent (FA) appointed
1) in the event that the value of each bond is one hundred million yen or higher (basedon a conditional clause of Article 702 of the existing Company Law), and2) in the case that a figure of less than 50 is obtained when the total value of the bondissue is divided by the lowest value of the individual bonds (Article 169 of theCompany Law Enforcement Regulations). In addition,3) in the specific case of foreign bonds, the requirement for the assignment of acommissioned bank could be waived if offerings are made exclusively to
professional investors, which are not bound by the securities and foreign exchange
regulations of their home countries. (i.e., the Company Law Enforcement
Regulations should be revised)
4. Withholding tax
Nonresident holders of foreign bonds issued by Japanese private-sector issuers are
exempt from the 20% withholding income tax. The special taxation measures law that
stipulates this exemption provides for “exemption of the withholding tax for private
foreign bonds issued on and before March 31, 2008.” The National Tax Agency
confirms that foreign bonds as described in 3. (2) above issued by private-sector foreignissuers include not only corporate bonds but also non-corporate bonds.
5. Asian international bonds issued by Japanese issuers under the Company Law
Asian international bonds to be issued by Japanese issuers are expected to include
straight bonds and bonds with share subscription rights.
Straight bonds are likely to be issued as foreign bonds using fiscal agents or underthe exemption from the mandatory appointment of commissioned banks for corporate
bonds with denominations of ¥100 million or more (Article 702 of the Company Law).
In the case of bonds with share subscription rights, as denominations of ¥100
million or more are not practicable, these bonds are likely to be placed as foreign bonds
with the same seniority as corporate bonds. Then CMAA proposes the alteration of theCompany Law Enforcement Regulations as above 3.-(3).
With regard to governing law, given the interpretation of the Justice Ministry thatbonds issued without commissioned banks may not be regarded as corporate bonds
regardless of whether they are domestic bonds or foreign bonds, Asian internationalbonds to be issued by Japanese issuers are likely to be governed by Japanese law to savecosts.
（Keiji Matsumoto）

46

Ⅲ. Framework for a “Dual Core Asian Inter-Regional CSD”
<To Be Model> and <Can Be Model>
1. Concept
Japan and South Korea mutually cooperate in building a highly feasible frameworkof central securities depositories by maximizing the use of existing functions. The
framework will provide safe, efficient and cost-competitive clearing and settlement
services to the Asian Inter-Regional Bond (Primary) Market.
2. Basic scheme<To Be Model: “Dual Core Asian Inter-Regional CSD”>(1) Both Japan and South Korea improve their own issuance and settlement systems andalso mutually cooperate in building the central securities depository framework, aiming
to make this common Asian Inter-Regional Bond Market infrastructure available at an
early date.
<An example of Asian Inter-Regional Bond issuance by a Japanese company>(Agency contract, etc.)

Issuing company

FA・Registration organisation

Dual Core(Underwriting contract)

Japan Securities Depository Center（NCSD）
Account

Flows oftransaction
recording

Account

Underwriting leadmanagerJapanese investors

Korea KSD (NCSD)
Account

Account

Custody(Underwriters)

Japanese investors(Korean investors)

Purchases

NCSD: National Central Securities Depository

i. An issuer conducts issuing procedures in the country in which the bonds will be
issued using laws of the issuer’s home country as governing law.
ii. An issuer uses the national central securities depository (NCSD) of the country inwhich the bonds are issued as the local securities depository.
9 A Japanese issuer issues an Asian Inter-Regional Bond using the Korea Securities
Settlement Corporation (KSD) as the local securities depository.
iii. A mechanism is established by means of linkage of the NCSD of the country inwhich the bonds are issued and the NCSD of the issuer’s home country enabling
investors in the issuer’s home country to settle the Asian Inter-Regional Bonds at thesame low cost as domestic bonds.
9 Investors in the issuer’s home country acquire the Asian Inter-Regional Bonds
through the NCSD of the home country· In Japan, it can be assumed that the Japan Securities Depository Center (thehome-country NCSD) links directly with overseas securities depositories(NCSDs, etc.) as in the foreign stock transfer system.
9 Investors in the country in which the bonds are issued can purchase the Asian47

Bonds through that country’s NCSD.
9 The NCSDs of both countries serve as the “Dual Core” to form a “Virtual AsianInter-Regional CSD.”
9 Japan and South Korea, given the comparative depth of both their issuing
companies and investors and their superior clearing and settlement infrastructures,mutually cooperate as a “Dual Core” in providing the concrete clearing andsettlement infrastructure for the Asian Inter-Regional Bond Market.
· It is a precondition that the infrastructure will be open to issuers from Asian
countries other than Japan and South Korea. (However, most investors willprobably be Japanese or South Korean due to the linkage between depositoryorganisations.)· The NCSDs of Japan and South Korea will be required to further strengthen theircooperation in the areas of information technology (IT), institutionalarrangements, business services, etc. and enhance the level of their services
through institutional and system reforms in order to become internationally
viable NCSDs (policy measures will be required).
9 The feasibility of the following points should be verified:· Is this approach advantageous from the medium-term perspective compared to thealternative approaches to be discussed below? Is advance investment in NCSDs
feasible?
· Do the NCSDs of Japan and South Korea have sufficient human resources forplanning and system development? (In particular, can the Japan Securities
Depository Center play an international role at present?)<Can Be Model> (The implementation of Plan A（A’） and Plan C is deemed
realistic and desirable)(2) If the approach described above is judged as difficult to realise in an appropriate
time frame, it may be possible to gradually develop the clearing and settlement
infrastructure for the Asian Inter-Regional Bond market using the alternative approaches
below (“Can Be Model”) in order to eventually realise the “To Be Model” (such as theapproach described above and “Asia Settle,” etc.).
i. Plan A: Market participants (including issuing companies) contribute capital to set up
a new “Asian Inter-Regional CSD” in order to establish the cross-border clearing andsettlement system.
9 Are there prospects for active transactions that can justify costs? It seems that it
would be difficult to get the new CSD off the ground. What are the chances of its
success? -- If we are able to simplify the functions and systems of the new CSD andthus minimize the initial investment and the running costs, this management model
appears to be feasible.
9 Market participants may find the new CSD impractical and costly if there is no
standard interface for different financial products (matching and settlement systems,etc.); a practical and reasonable standard interface (e.g., S.W.I.F.T.) would
definitely be necessary for all market participants who would use the new CSD. In
order to establish inter-operability it would also be necessary for the new CSD andrelated NCSDs to standardize the clearing and settlement system in the case of PlanA’, discussed below.
48

9 Plan A’: The “Asian Inter-Regional CSD” could be positioned as an “AsianInter-Regional Core CSD.” An “Asian Inter-Regional Core CSD” would havelinkages with Asian NCSDs and custodians, providing a convenient system forusers.
（Plan A） Asian Inter-Regional CSD

AIR CSDCountry M

Account
X（Plan A’） Asian Inter-Regional Core CSD
Country M

Account
Y

AIR Core CSD
Account P

Account Q

Settlement

Country P

Custodian X

NCSD PCountry P

CustodianInvestor A

Broker Y

Investor A

Transaction

NCSD Q

Broker B

Broker C
Country Q

Transaction

ii. Plan B: Asian Bonds are cleared and settled like Eurobonds (Existing international
CSDs are used)
9 Current ICSDs (such as Euroclear) for Eurobonds would also be used for Asian
Bonds. Because they would be treated as ordinary Eurobonds, the approach would
not require separate initial costs.
9 This would enable the same level of usability for Asian Bonds as for Eurobonds.
However, if we assume Asian Inter-Regional primary and secondary markets, thisapproach would not be efficient because the clearing and settlement infrastructure is
not located in the Asian region. In addition, it is not compatible with the concept of
the establishment of a self-contained, highly cost-effective Asian Inter-Regional
Professional Securities (bond) Market.
9 This approach is likely to present problems concerning a time lag in fundsettlements and the limited current acceptance by ICSDs of Asiancurrency-denominated bonds.
An example of an ordinary domestic bondAn example of an ordinary Eurobond

CSD

ICSD

Account
X

Custodian X

Settlement

Account
Y

EuropeAccount
X

Settlement

Account
Y

Matching
SystemJapan

Custodian X
Investor A

Broker Y
Investor A

Transaction

Broker Y
Transactioniii. Plan C: A major Asian custodian bank (an Asian trustee) provides clearing andsettlement services by linking up with a local securities depository (a local NCSD, etc.)(with the expectation that centralised depository services will be realised throughcompetition in the region).
9 Is it likely that a custodian service provider will emerge to undertake theabove-described services in the Asian region? It will probably depend on potential
custodian banks’ business strategies and the fees they can hope to earn from49

providing such services.
9 If mutual efforts of NCSDs in the region make the “Dual Core Asian Inter-Regional
CSD” approach a reality, they can play the role of a major custodian service
provider as they are.
9 Further, it is also possible that an NCSD acts as an Asian trustee and establishes
direct links with local securities depositories. If this scenario was applied to Japanand South Korea, it would equal the “To Be Model” described above.
An example of issuance

NCSD

An issuingcountry

Account X* If not a direct participant in an NCSD,
through a sub-custodian(via a local
subsidiary*)
Asian Trustee “X”

Investor A

Japan
Broker Y

Transaction* Asian trustee X needs to have as many brokers andinvestors as possible as its customers. When there are two
or more Asian trustees, the efficiency of operations may
decline as clearing and settlement operations will be
conducted at the level of NCSDs.

3. Other issues(1) Legal problems involved in securities settlements
i. With respect to governing law for securities clearance and settlements, in Japan, under
Article 13 of the Rules Concerning the Application of Laws, the applicable law is thegoverning law of the country in which the objects are located.
After the ratification of the Hague Convention, it becomes possible to apply thegoverning law of the country of the account management organisation an investor uses,
in line with an account contract (application of the current legal doctrine concerning thedepositing of securities by two or more depositors) .
9 Legal frameworks for the clearing and settlement of foreign securities in South
Korea and other countries need to be clarified.
ii. The harmonisation of laws concerning securities clearance and settlements in Asian
countries is desirable (trends at the International Institute for the Unification of Private
Law (UNIDORIT) should be followed).
(2) Other points to be consideredi. If it is possible for Asian Inter-Regional Bonds to use a domestic NCSD through the“Dual Core” approach or other methods, it is hoped that these bonds, like domestic
bonds, will be recognised by the Bank of Japan as eligible to function as collateralbonds and that it will be possible to use the collateral loan system.
ii. High-liquidity issues may be considered for handling by central counterparty (CCP)
clearing corporations in each country.
9 Debt assumption and netting by CCP can be expected to reduce counterparty risks50

and enable economizing on liquidity.
9 In Japan, the scope of bonds to be handled by the Japan Government Bond Clearing
Corporation (JGBCC), the independent CCP, may be expanded to include AsianInter-Regional Bonds. However, this would require that the Asian Inter-Regional
Bonds are eligible for handling by the Japan Securities Depository Center.
iii. Whichever approach is used, it will be desirable to help develop custodians (“Asiantrustees”) to expand and integrate depository services for domestic and foreign
securities.
9 In Japan, the use of custodian services is expanding as a result of theimplementation of the central depository system for non-government bonds.
9 Custodian banks should consider a framework that makes it easier to raise
settlement funds (such as a scheme to enable securities to be cleared enabling them
to be easily used as collateral and a scheme to economise on liquidity by offsetting).
9 The market will gain considerable depth if rating services and tripartite repurchaseagreements involving deposited securities are expanded.
(Satoshi Yoshida)51

５. Some Supplementary Remarks on a Common Currency Unit
With regard to the establishment of the Asian Inter-Regional Professional Securities
Market (Asian Bond market) we have proposed, we believe that every possible effort
should be made to avoid domestic law-based responses to the issues involved (options
will be limited if the traditional method of country-by-country response is adopted).
Envisioning the Asian Inter-Regional Professional Securities Market (Asian Bond
market) as an offshore market independent of any of the countries involved, an effort toseek the cooperation of the public sectors of East Asian countries, as was done in thecase of the EU regulations, is worth considering.
In this case, when the exchange rates of East Asian currencies become stable, thedevelopment of a supranational offshore market for AIR-PSM (international bonds),
dominated by the East Asia Currency Unit (EACU 10), which was proposed by NIRA in2005 and which the private sectors of East Asian countries will likely come to consider
making use of in the future, should come within sight (recall that interbank settlementsof eurocheques, proposed by European banks in the early 1980s, later came to be madein the European Currency Unit (ECU), supported by exchange rate stability under theEuropean Monetary System).
In any event, the emergence in the near future of a situation in which the use of acommon currency unit is dominant in the private sector should provide important
support for the development of a supranational AIR-PSM (Asian Bond market).
(Kazuaki Sono, Shigehito Inukai)
10

NIRA Market Governance Report 2005, Grand Design for Comprehensive and Cross-sectoral Market Legal
Framework Part II
Supplementary Chapter 2.4 Proposal on the Initiative to Establish an “East Asian Free
Securities (Bond) Market” (i.e., “the Asian Inter-Regional Professional Securities Market (Asian Bond market)”)l. The development of a regional financial and capital market is indispensable for the development of an East Asian
economic community. To achieve this, it will be essential to upgrade the capacity of regional market participants.
2. In the world of financial institutions and institutional investors, the inexperience of buy-side participants and theobsolete patterns of sell-side participants have stymied reforms of Japan’s financial and capital markets. The situation
should be corrected by fostering more financial professionals who can take an active part in the international arena.
3. In East Asia, centering on Japan, the situation is becoming ripe for proactive efforts to establish a Eurobond
market-type free market to ensure the competitiveness and further development of the region. A free securities market
would also enable professionals to be nurtured and trained. We therefore propose the creation of an East Asian free
securities (bond) market.
4. The obstacles to the creation of a free securities (bond) market as an offshore market that effectively integrates
both onshore and offshore markets are no longer insurmountably high. However, nobody seems to be taking action toremove the remaining obstacles. If nothing is done, there are genuine concerns that the Japanese financial and capital
markets and the Tokyo international financial market might remain merely enormous local markets.
5. It is possible to assume that the main participants among both issuers and investors in a free securities (bond)market in East Asia, which is beginning to display signs of the possibility of becoming an economic community, will
be from East Asian countries. Thus, it is highly desirable that financial instruments should be developed to cater totheir needs and convenience.
6. Seeking to mitigate the risk of unexpected fluctuations in exchange rates and pursuing the achievement of
exchange rate stability among Asian currencies, we propose the creation of a basket of major East Asian currencies,
including the Japanese yen, the Chinese yuan and the Korean won, with the timing of appropriate adjustments of theChinese yuan’s exchange rate as the trigger for implementation, and also propose the commencement of discussions
to pave the way for the issuance and trading of Asian Bonds using the basket of East Asian currencies as the common
unit of account. We tentatively call this the East Asia Currency Unit (EACU) as the unit of account for bonds. In thepresent world of unregulated foreign exchange trading, the creation of a common unit of account is deemed possible
even as a private agreement regarding foreign exchange transactions, based on consensus among market participants.
7. Active discussion of the problems to be overcome should be launched with a vision of the creation of an East Asian
free securities (bond) market as the target to be achieved.

52

６. NIRA-ADB Joint Forum:“The Prospects for an Asian Bond Market”(March 27, 2006)
Questionnaire Results
Following the conclusion of the Forum, in which approximately 90 people
participated, a questionnaire was distributed. It is noteworthy that approximately
three-quarters of respondents to the questionnaire expressed favorable opinions withregard to the tentative proposals that were presented.
Strongly
agree

Agree tosome
extentDo notagree

Regarding the establishment of aEurobond market-type Asian Bond
market

12
14
4

1
13
4

0
0
0

0
1
31

0
1
19

1
0
1

60.8%

37.3%

1.9%

Strongly
agree

Do notagree

Agree tosome
extent

8
12
2
22

2
16
11
29

0
0
0
0

43.1%

56.9%

0.0%

Strongly
agree

Do notagree

Agree tosome
extent
5
7

1
5

0
0

7
7
26
51.0%

9
9
24
47.0%

1
0
1
2.0%

Very
clear

Not clear

Clear tosome
extent
17

31

3

33.3%

60.8%

5.9%

Must be established
Should be established
The domestic capital market and Eurobond
Market are sufficient
Is unnecessary
No opinion
Total

Number of
respondents

13
27
8

25.5%
53.0%
15.7%

1
2
51

1.9%
3.9%
100.0%

Regarding the establishment of
AIPMA(Asian International PrimaryMarket Association)（Name of organisation later changed to
CMAA）
Must be established
Should be establishedNo opinion
Total

Number of
respondents

Regarding the establishment of a dual
core settlement system

Number of
respondents

Must be established
Alternative proposals should be
implemented firstShould be establishedNo opinion
Total

Points to be aware of in terms ofpractical legal issues
Total

53

％

10
28
13
51

％

19.6%
54.9%
25.5%
100.0%

％

6
12

11.8%
23.5%

16
17
51

31.4%
33.3%
100.0%

Number of
respondents
51％

100.0%

Percentage
of positive
opinions
78.5%

Percentage
of positive
opinions

74.5%

Percentage
of positive
opinions
66.7%

7. Asian Bond Markets and Cross-Border Securities Settlement- Toward Cooperation between Japan and Korea 1. Introduction
The 1997 financial crisis in Asia convinced Asian countries of the need for regional
financial and monetary cooperation in addition to cooperation in the trade of goods.
Since the crisis, there have been numerous initiatives to promote economic cooperationin the region; for example, free trade agreements (FTA) and economic partnershipagreements (EPA) have facilitated trade in goods and services and investment. The
Chiang Mai Initiative (CMI) attempts to prevent the recurrence of a currency crisis by
ensuring liquidity through bilateral swap agreements (BSA). From the supply side, theAsian Bond Market Initiative (ABMI) promotes regional bond markets in order tochannel the enormous amount of accumulated savings in Asia into regional investment
opportunities and to enhance the market infrastructure for the issuance and trading ofbonds. From the demand side, the Executives' Meeting of East Asia Pacific Central
Banks (EMEAP), a forum of central banks and monetary authorities in the East Asia
and Pacific region formed to strengthen financial cooperation among its members, haslaunched the Asian Bond Fund (ABF1, ABF2) to purchase bonds issued in the region, inorder to promote the development of regional bond markets and to circulate
accumulated funds. However, Kawai (2007) points out that the Asian region displays
less activity in terms of capital transactions than the US and the EU, despite the scale ofits trade in goods and its high level of GDP growth (see Figure 1).
ASEAN+3 countries are currently endeavoring to develop and foster Asian Bond
markets which can facilitate greater access to long-term local currency financing.
Nevertheless, Asian regional bond markets are still fragmented and illiquid because of alack of mutual recognition and involvement of the private sector and the absence of aregional base of investors and dealers. Asian countries also face other problems:Financial markets in the region are at different stages of development, and there isconsiderable heterogeneity in terms of legal and institutional systems 11. Harmonisingdifferent rules and regulations and building market infrastructure will therefore be an
extremely important aspect of the process of developing and fostering an Asian Bond
market because it will promote cooperation between regional financial markets anddevelop linkages between them. This study focuses in particular on cross-bordersecurities settlement in the region because it will be impossible to obtain trust frominternational investors and develop Asian Bond markets without a safe and efficient
settlement system in the region 12.
The purpose of this paper is to briefly outline the necessity for Asian Bond markets
and then to comparatively identify some regulatory impediments to fostering the market
in the legal and regulatory frameworks of Japan and Korea. Lastly, the feasibility of a“Dual Core Approach” and an alternative method of cross-border securities settlement
using existing systems will be reviewed.
11

METI’s report of Asia PPP study points out that the direct financing markets in Asia still have not been developed
enough to solve the double mismatch problem and foreign corporations still feel that it is difficult to issue corporate
bonds in the local market.
12
Oh(2004) and Huh (2005) point out the major reasons for establishing a new ICSD in the region as 1)low
coverage of Asia by the existing ICSD and 2) “the third time zone problem”, the fact that business is conducted in
Asia outside the business hours of the Europe and the U.S.

54

Figure 1) Comparison of Size and Composition of Global Bond Markets
30000

25000

20000

15000

10000

5000

0

US

EuropeCorporate

Financial Institution

Japan
Government

Other Asia

International Bonds

Source) BIS (December 2006, US billion dollar)

2. Rationales for the Development of a Well-functioning Asian Bond Market
Economies which are highly dependent on bank financing bear heavy economic
burdens in an economic or financial crisis owing to the absence or under-developmentof bond markets. As demonstrated by the Asian financial crisis in 1997-98,
bank-dependent economies suffer from a so-called “double mismatch” in currency andmaturity, i.e. they borrow short-term money in foreign currencies and invest funds
domestically for the long-term. Out of the absence of bond markets, there is also a lackof information regarding the interest rates determined in the bond markets, whichconsequently impedes the development of derivative products such as interest rate
swaps and bond derivative transaction (bond forward and options).
The diversification of the financial market through the development of regional bondmarkets would make both savers and firms better off. For example, savers would havemore portfolio options for investment in bond markets. As a result, more savings would
be mobilised in the medium- and long-term to fund the investments, and small andmedium-sized enterprises (SMEs) that rely on only bank loans would be able to easily
access to regional bond markets by issuing Asian Bonds in the region using the vehicleof securitization 13. In addition developing Asian regional bond markets would provide
more business opportunities to Asian financial intermediaries in the regional financial
markets.
Excessive dependence on the US dollar can cause exposure to sudden reversal offoreign capital flows and the risk of currency crisis. It also generates the possibility of
substantial loss from the weakening of the dollar because most Asian countries holdtheir foreign exchange reserves in the form of US dollars.
We therefore need to develop Asian local currency bond markets and regional market
infrastructures to enable circulation of the funds accumulated in Asia in order to provide
13

Please refer to Korean SMEs’ CBO issuance in 2004 (Page 66).

55

more opportunities to earn higher returns on the rapid economic growth in the region.
Given the above, there are sufficient needs to develop well-functioning regional bondmarkets that are complementary to bank-centered markets to utilise effectively theaccumulated funds in the region and to enhance the necessary infrastructures tominimize market risk.
2.1 Foreign Exchange Holdings in Asia after the Financial Crisis
As of 2006, Japan held 581.5 billion US dollars in foreign exchange reserves, the US
held 272.1 billion dollars, the Euro Area (including the European Central Bank) held
122.3 billion dollars and other Asian countries held 1.5 trillion dollars. The share offoreign exchange holdings by Asian countries has been increasing since the crisis in1997 and reached a level of approximately 45% of the world’s total foreign exchange
reserves in 2006.
These rapidly accumulated foreign exchange holdings are utilised in part for bilateralswap agreements between Asian countries under the CMI and the purchase of Asianbonds under the ABF 1 and ABF2. However, the current situation is that the US current
account deficit is being supplemented by Asia’s portfolio investments in US
government bonds and by the foreign exchange holdings of Asian countries. As of
October 2006, major Asian countries held 56.7% of total US treasury securities
holdings. The funds accumulated in Asia flow into the US and European countries and alarge proportion of these funds return to Asia in the form of portfolio investments orhedge funds. Additionally, these funds are largely intermediated and settled by financial
institutions and settlement systems outside Asia.
Figure 2) Foreign Exchange Reserve Holdings
million dollar
3500000.

3000000.

2500000.

2000000.

1500000.

1000000.

500000.

0.

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

US

EU

Japan

China

Others Asia

ROW

2001

2002

2003

2004

2005

2006

Source) IMF, International Financial Statistics (IFS) Online

2.2 Hedge Funds in Asia
Based on Eurekahedge Asia and Japan Hedge Fund Directory (2007), the total size of
the Asian hedge fund is estimated at U.S. $ 132 billion as of end-2006, up 30% from ourend-2005 estimate of U.S. $ 101 billion. The number of funds managed in Asia has also
56

increased to over 1000 as of end-2006. And the Asian hedge fund is expected tocontinue to be on an exponential growth curve on both the number of funds and the sizeof assets.
Figure 3) Growth in Single Manager Asian Strategy Hedge Funds

Source) Key Trends in Asian Hedge Funds, Eurekahedge (2007)

One of the factors behind this growth is the fact that hedge funds are seeking highreturns based on the high economic growth in India, China. Figure 4 shows that returnon hedge fund investments in Asia is better than those in North America and Europe 14.
As end of 2006, Asian countries held approximately 45% of the world total foreign
currency reserves and Asian funds are used to purchase US treasury bills and then someof those funds return to Asia in the form of hedge funds.
Figure 4) Returns of Asia/Euro/Latin American/North American Hedge Funds

Source) AsiaHedge, HedgeFund Intelligence
14

The return on Latin American Hedge Funds is the highest but because of unstable political andeconomic conditions; Asia Hedge Funds are expected to grow stably at the current pace.
57

2.3 Portfolio Investment Flows in Korea and Japan
It is very important to understand the inter-country mechanism of portfolio
investment flows in Asia. Korea and Japan, which represent a large share of thefinancial market in the region, invest in bonds issued mainly in the UK and the US(JPN: 36.1%, KOR: 59.9%) and Asia itself in a small portion (JPN:0.7%, KOR:8.9%).
In the case of equity, Korea invests 22.8% in Asian stocks and 17.7% in US/UK stocks
while Japan invests 6.4% in Asian stocks and 54.1% in US/UK stocks. The interesting
point is that the UK and the US prefer Asian equity to debt securities and they mainly
invest in Asian stocks (UK: 21.6%, US: 22.5%) while Asian countries prefer UK/US
bonds to equity. These CPIS statistics show that Asian capital is re-directed into Asia by
US and European countries and these portfolio investments are intermediated byfinancial institutions outside the region.
Table 1) Portfolio Investment Flows: Long-Term Debt Securities (million US dollar, 2006)
from
into
China

HK
2,484

Hong Kong

Indonesia
Japan
Korea
Malaysia
Philippines
Singapore
TaiwanThailand
VietnamUK
US
Asia (%)

IND

JPN

3

414

152

26

701

171

731

1,052

1,305

33.4

20.8

11,325

2,444

29

198

2,653

6,022

1,660

33.7

42.8

17,966

435

77

108

2,341

1,243

2,582

29.3

35.8

10,698

....

793

37

5,752

--

132

3,621

7

1,038

204

720

1,493

21

14

3,136

300

29

742

10

33

475

111

94

3,692

89

226

US

Global
Total

SG

8

UK

US/UK
(%)

PH

8,864

TH

Asia
(%)

MAL

2,247

KOR

1,658

3

54,97835,4992.1

40.5

223,253

5,611

127

6,776

9,507

39.6

31.5

51,705

2,790

59

4,876

4,605

35.6

43.7

21,694

2,978

4,939

14.6

41.8

18,922

449

4,052

8,518

28.3

43.4

28,954

363

3,194

220

19.1

56.8

6,007

25

933

807

1,702

31.9

48.9

5,130

238

27.6

36.3

245,365

10.0

1,201,395

18.1

3,625,226

8

516
502

37

5

19,41430

90,660

2,759

833

489

5,071

66
322

202

45,84991

563,401

25,075579

1,535

19,951

168

458,441
5.5

5.5

1,559,315

1,275,516

12.3

14.6

0.7

8.9

10.4

15.7

21.5

20.8

US/UK (%)

34.5

13.3

36.1

59.9

42.2

43.3

30.5

15.9

GlobalTotal

189,303909

1,811,986

46,491

3,346

4,670

82,159

3,073

1,212

16,295,314

Source) Author’s Calculation from Coordinated Portfolio Investment Survey (CPIS) Data, IMF

Table 2) Portfolio Investment Flows: Equity Securities (million US dollar, 2006)
HK

IND

JPN

KOR

MAL

PH

SG

TH

UK

US

Asia
(%)

US/UK
(%)

Global
Total

China
Hong
Kong
Indonesia

100,009

--

9,853

1,681

13

(c)

6,913

10

14,97673,912

44.5

33.4

266,123

....

....

11,014

4,156

441

--

18,7197

29,31585,833

16.0

53.7

214,490

(c)

....

456

3

39

(c)

1,336

1

3,184

11,4907.0

55.9

26,237

Japan

6,918

....

....

1,809

217

....

4,534

7

173,596543,506

1.2

65.7

1,091,617

from
into

Korea

2,254

....

3,358

--

113

(c)

4,530

--

28,197

114,155

4.8

67.0

212,337

Malaysia

751

1

493

48

....

(c)

7,771

111

4,201

10,78127.5

44.9

33,383

Philippines

192

....

109

1

12

....

423

1

976

6,050

6.7

63.8

11,014Singapore

2,858

7

3,772

490

1,558

2

....

80

12,27743,911

9.4

60.3

93,207

Taiwan

3,414

....

2,646

61

89

....

2,337

3

21,232

74,2286.2

68.9

138,499

Thailand

872

12

1,049

9

53

1

3,248

--

5,455

11,05416.3

51.3

32,203

Vietnam

(c)

....

--

120

....

....

109

14

238

....

42.6

41.8

48,147--

52,107

1,354

190

....

3,851

90

--

673,978

7.0

UK

58

570
1,516,407

US

15,537

3

224,136

5,180

236

95

15,801

113

340,777....

Asia (%)

33.4

5.6

6.4

22.8

67.5

2.6

53.1

13.8

21.6

22.5

18.2

0.8

54.1

17.7

11.4

81.2

20.9

12.0

350,846359

510,418

36,8193,753

117

93,973

1,694

1,362,010

4,328,962

US/UK
(%)
GlobalTotal

12.5

2,096,152

13,779,537

Source) Author’s Calculation from Coordinated Portfolio Investment Survey (CPIS) Data, IMF

Table 3) Savings utilization in the region

Amount(U.S. $ )Foreign Reserve(Dec 2006)

CMI(May 2006)

ABF1(Jun 2003)

ABF2(Dec 2004)

US Treasury
Securities* (Oct 2006)

1.52
trillion

75 billion

1 billion

2 billion

1.22 trillion* It includes Japan, China, Korea, Taiwan, Hong Kong, Singapore, Thailand, and India.

2.4 Hollowing-out of Financial Intermediation Functions in Asia
Issuance of international bonds by Asian companies in Euro bond markets isgenerally handled by foreign financial institutions and settlement systems outside theregion. American and European investment banks have a monopolistic position ininternational bond markets. (Table 4) Few Asian companies and Japanese financial
institutions deal with Samurai bonds in the international bond market. This situation
could lead to hollowing-out of financial intermediation functions in Asia.
Table 4) Performance of Lead Managers in International Bond Markets(As of Aug 2005)
Company

Share
(%)
7.50
7.00
5.60
5.60
5.20
4.60
4.20
4.10
4.00
4.00
3.90
3.40
3.30
3.20
2.60
2.60
1.90
1.80
1.70
1.60

Rank

Deutsche Bank AG
1
Citigroup2
Barclays Capital
3
JP Morgan
4
HSBC
5
UBS
6
Morgan Stanley
7
BNP Paribas Group8
Goldman Sachs & Co
9
Lehman Brothers
10
Credit Suisse First Boston
11
ABN AMRO Bank NV
12
Dresdner Kleinwort Wasserstein
13
Merrill Lynch & Co
14
Royal Bank of Scotland
15
Societe Generale
16
Hypovereinsbank
17
Nomura Holdings Inc
18
Bank of America
19
Landesbank Barden-Wuerttemberg
20
Source) Bloomberg, Jeon YongSuk (2005)

Amount(million $)131,937
123,301
97,407
97,366
91,10280,23773,15971,99569,891
69,71968,49959,42157,05555,33945,28845,13533,78930,74730,03527,295

Fee
(%)
0.29
0.26
0.24
0.33
0.24
0.47
0.30
0.23
0.21
0.22
0.49
0.29
0.23
0.24
0.39
0.17
0.28
0.22
0.37
0.27

Issue
Number
622
495
426
435
463
400
233
303
174
237
276
289
316
243
224
139
233
146
205
240

Even in Korea-related international bond business, only three Korean companies
appear among the top 20 companies: the Korea Development Bank, Daewoo Securities,
59and Woori Securities & Investment. The top five European and American companies
hold more than 50% of the market share. This low market share of Korean financial
institutions is due to the lower level of development of domestic financial markets, thelow credibility of domestic securities companies, and their lack of risk management
ability and networks overseas.
Since the Asian financial crisis, Asian countries have restructured their financial
markets into market-based systems, and demand from firms for direct financing has
been increasing, but the structure of domestic financial markets in most of the countries
is extremely weak, and their financial services markets have also been eroded by foreign
capital.
Table 5) Performance of Lead Managers in Korea-related International Bond Markets(As of Aug, 2005)
Company

Share
(%)
14.00
12.30
8.60
8.40
7.20
6.60
5.50
5.10
3.90
3.80
3.70
3.70
3.20
3.20
1.90
1.90
1.70
1.10
1.10
1.00

Rank

JP Morgan
1
Citigroup2
Barclays Capital
3
ABN AMRO Bank NV
4
UBS
5
BNP Paribas Group
6
Credit Suisse First Boston
7
Deutsche Bank AG
8
HSBC
9Korea Development Bank
10
Daiwa Securities SMBC Co Ltd
11
Merrill Lynch & Co
12
Bank of America
13Standard Chartered PLC
14
Mizuho15
Nomura Holdings Inc
16
Lehman Brothers
17
Goldman Sachs & Co
18
Daewoo Securities Co Ltd
19
Woori Investment & Securities Co Ltd
20
Source) Bloomberg, Jeon YongSuk (2005)

Amount(million $)
1,238
1,088
762
743
642
580
483
451
348
340
326
325
282
280
168
168
150
100
100
92

Fee
(%)
0.50
0.46
0.29
0.16
0.99
0.60
0.15
0.61
0.28
0.30
0.30
1.38
n/a
n/a
0.35
0.00
n/a
n/a
0.30
0.30

Issue
Number
6
9
7
6
5
11
3
3
6
4
5
4
6
16
1
5
1
1
2
1

3. Legal and Regulatory Impediments to Building an Asian Bond Market
Asian bond markets are very fragmented compared to EU bond markets because eachcountry has heterogeneous legal and regulatory frameworks which impede thedevelopment of cross-border bond markets. In this section we therefore review legal andregulatory impediments, in particular in Japan and Korea, in order to study thefeasibility of the “Dual Core Approach” to cross-border settlement and consider therequirements for common rules, the so-called “Asian Bond Standards,” in the region to
enable a cross-border Asian Bond market.
3.1 Withholding Tax
A Korean resident is defined as an individual who has a domicile or has been residingin the country for at least 12 months. Neither residents nor non-residents pay capitalgains tax on securities transactions, however securities transaction tax is levied on stock60

transactions (not bonds transactions). Tax rates are often reduced or completely waived
under the applicable double taxation treaties, or agreements between Korea and theinvestors’ countries.
Tax on Returns from Foreign Investors’ Holding of Local Bonds
Withholding tax on interest income

Capital gains tax

No withholding tax for JGBs
No Tax
if a number of requirements are
satisfied
14% withholding tax.
10% of gross proceeds or 25% of(Combined taxes result in an capital gains, whichever is lower.
effective rate of 15.4%.)

Japan
Korea
Source)AsianBondsOnline, Asian Development Bank; updated by the authors

Foreign ownership of bonds increased to 22% in 1997. Following the crisis it
decreased sharply, reaching 9% in 2005. Since then, foreign investors have favoredstocks over bonds. The share of foreign investment in stocks increased to 22.9% of total
stock investments in 2005.
The participation of foreign investors in the Korean bond market is extremely limited
compared with that of other countries, in particular EU countries. One of the reasons forthis low participation is withholding tax on the interest income from bonds andcumbersome tax reclaim procedures. In Korea, withholding tax is levied on the interest
income earned by non-residents. The Korean bond market is therefore not particularly
attractive to foreign investors.
Figure 5) Composition of Ownership of Bonds (Korea)
100%

80%

60%

40%

20%

0%

1990

1991

1992

1993

Financial Sector

1994

1995

1996

Government Sector

1997

1998

Business Sector

1999

2000

Individual Sector

2001

2002

2003

2004

2005

Rest of the World

Source) Bank of Korea, Flow of Funds* Bonds consist of government & public bonds, financial debentures, corporate bonds and external bonds.

61

Another factor of low foreign participation is that the underdeveloped Korean repo
market makes foreign investors feel difficult to effectively hedge volatility and risks andto make arbitrage trading. Also the history of the Korean repo market is also short andthe scope of participants is extensive, and the majority of institutional investors
therefore prefer the call market to the repo market.
Therefore withholding tax should be reduced or exempted in order to attract more
foreign investments and activate domestic bond markets as well as to develop Asian
regional bond market. In addition, higher transaction costs and exchange rate risk hinder
the purchase of Korean bonds by foreign investors. Building an efficient andstandardised repo market could provide an instrument to hedge against risk and to
facilitate cross-border transactions in the regional bond market.
Figure 6) Composition of Ownership of Stocks (Korea)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

1990

1991

1992

1993

Financial Sector

1994

1995

1996

Government Sector

1997

1998

Business Sector

1999

2000

Individual Sector

2001

2002

2003

2004

2005

Rest of the World

Source) Bank of Korea, Flow of Funds

3.2 Regulations on Securities IssuanceWon-denominated bonds issued in Korea by non-residents are called “Arirangbonds.” The Korean regulatory authority has been promoting this market by reducing
the burden of documentation in the Korean language. However, securities issued by
non-residents in Korea are required to be graded by local credit rating agencies15.
Recently non-residents have issued dollar-denominated bonds, so called “Kimchi
bonds,” in the domestic market. This is expected to contribute to the development of thedomestic financial market and the effective utilisation of the foreign currency reserves
accumulated since the crisis.

15 There are four local credit rating agencies, Korea Investor Service (KIS), Korea Ratings, National Information andCredit Evaluation (NICE) and Seoul Credit Rating & Information (SCRI).

62

Issuance of Local Bonds by Non-residents
Japan
Korea
Bond issuance byallowedAllowed (prior to MOFE or
non-residents
permission from MOFE if
necessary)
Local rating/ Local
Not required/Not
Required/ Not required
listingrequired
Governing Law
Japanese law
Korean law
Documentation
Japanese
KoreanTime required to obtain
1-2 weeksn.a.
approval
Typical duration of
2-3 months
2 weeks
issuance process
Source) Takeuchi (2005)

3.3 Capital Control
Non-resident investors in Korea are required to obtain an “Investment Registration
Certificate” (IRC) from the Financial Supervisory Service (FSS). Additionally,
non-resident investors are not allowed to trade directly on the over-the-counter (OTC)
market.
Credit and loans of more than 1,000 million won denominated by a borrower in local
currency and granted by institutional investors require Bank of Korea approval.
Furthermore, won purchases by foreign investors must be associated with securities
transactions.

Japan
Korea

Source)Capital Controls
Local Currency
Outward
InwardNo restrictions
No restrictions

Foreign Currency
Outward
InwardNo restrictions
Not toReportingexceed amountRequiredimported anddeclared

AsianBondsOnline, Asian Development Bank

3.4 Risks in Cross-border Linkages
Cross-border linkages of clearing and settlement determine the form of depository,
credit, securities lending, and custodian services. The choice of settlement services andfunctions determines the design of the linkages. This is because the form of the central
securities depository (CSD) and the applicable legal framework differ in each country.
Cross-border linkages can also reduce costs to participants of meeting various collateralrequirements, and reduce the number of intermediaries engaged in cross-border
settlements. However, because they operate under differing governing laws, CSDs mustdesign linkages carefully to ensure that risks can be reduced. This means that they must
address legal and operational problems which are more complex and challenging thanthose confronted in their domestic operations.
63

Clearing and Settlement of Bonds
International Linkage
RTGS/DVP
Settlement Cycle
Settlement
Organisation for
Government Bonds
Settlement
Organisation for Unlisted
Corporate Bonds

Japan
Euroclear (ICSD) 16
Yes
T+3
Bank of Japan-NET JGB Services
owned by the Bank of JapanCounterparties settle transactions at
registrar banks using Japan Bond
Settlement Network (JB Net). A bookentry system will be set up in January
2006.
Bank of Japan-NET JGB Services forlisted JGBs; Delivery of physicalcertificates for listed corporate bonds.

Korea
Euroclear, Clearstream 17
CMU (Hong Kong)
JSSC (Japan) 18
Yes
T+0
Korea Securities Depository(KSD) operated by the Korea
Stock Exchange (KRX)
KSD operated by KRX.

Settlement
KSD operated by KRX.
Organisation for Bonds
Traded on a Stock
Exchange (Government
and Corporate)
Source) AsianBondsOnline (http://asianbondsonline.adb.org); updated by the authors

4. On the Feasibility of a “Dual Core Approach”
More attention has recently been paid to regional settlement intermediary in Asia inorder to enhance regional market infrastructure as a public infrastructure 19. Hong Kongand Korea have each proposed a regional settlement system owing to the inconvenienceand limitation and the low coverage of ICSD, Euroclear and Clearstream. The Hong
Kong Monetary Authority (HKMA) has proposed the establishment of “AsiaClear” as aregional settlement infrastructure for clearing and settling Asian Bonds. This would
bilaterally connect the existing clearing and settlement systems (NCSD) in the Asian
region using IT. Korea has proposed “AsiaSettle” as a new regional ICSD, pointing out
the limits of bilateral linkages. Japan has proposed a dual core approach to cross-bordersecurities settlement using the existing systems JASDEC and KSD.
This chapter will explore the feasibility of a dual core approach from the perspective of
Korean law and systems.
Table 6)
AsiaClear
AsiaSettle
Dual Core
Approach
Regional Settlement
Intermediary (RSI)

Comparison of Proposed Regional Settlement Systems
Country
Hong Kong
Korea

Linkage
Bilateral Linkage
Multilateral Linkage

Virtual CSD
New ICSD

Japan

Bilateral Linkage

JASDEC-KSD

ADBMultilateral Linkage

Asian ICSDWith regard to the issuing of securities using the law of the issuer’s country as
16
17

Euroclear expands the coverage of Asian securities settlement with Japanese government bonds.
KSD opens accounts to deposit international bonds owned by Korean investors (one-way linkage)
18
When Korean firms are listed on the stock exchange in both Korea and Japan, JSSC opens the consolidated
accounts at KSD to deposit the listed stocks (one-way linkage especially for depositing stocks)
19 Please refer to http://asianbondsonline.adb.org/documents/14_ADB_Rhee_Taylor.pdf for recent discussion

64

governing law and the sale of the securities overseas (i.e. the issuance of securities byJapanese firms based on Japanese law and their sale to Japanese and Korean investors,
or the issuance of securities by Korean firms based on Korean law and their sale to
Korean and Japanese investors), there would be no problem regarding the purchase ordepositing of securities by foreign investors other than certain matters relating tolinkages between the NCSD of the two countries.
First, there is no impediment to the issuing of securities under Japanese law andtheir sale to Korean investors. Under the current system, foreign currency-denominatedsecurities held by Korean investors are deposited at Euroclear or other international
CSDs appointed by the KSD. Japanese securities held by Korean investors could
therefore be deposited at JASDEC.
However, there are some problems in the regulations when securities issued by
Korean firms are sold to Japanese investors. Foreign investors who purchase Korean
securities must observe Articles 7-5 and 7-19 of the “Securities Business Supervision
Regulation” (Chapter Two). Japanese investors must register at the Korea FSS
themselves or through a proxy appointed by them. Foreign investors must open
accounts at authorised foreign exchange banks. However, to enable monitoring,omnibus accounts are not permitted 20. The revision or abolition of the above regulations
is required for a dual core approach to operate smoothly (JASDEC should register under
its own name or be excluded from the above regulations)
Based on Article 7-28 of the “Foreign Exchange Transaction Regulation”, sellers of
securities overseas can deposit at international settlement organisations or foreign CSD.
Securities issued by Korean firms can therefore be deposited at JASDEC. However,issuance must be reported to the MOFE and additionally Korean securities cannot becleared using Korean currency (won) overseas because the Korean won is not aninternationalised currency.
Regulations and institutional frameworks must be revised or abolished in order toenable the smooth settlement of international Asian Bonds like Eurobonds rather thanSamurai bonds or Arirang bonds by an international Asian CSD using a dual coreapproach. The question of whether international Asian Bonds can be regarded asinternational bonds like Eurobonds is also linked to the problem of circulation overseas.
To issue and circulate bonds overseas, it will be necessary to link each NCSD anddeposit the securities undertaken. This requires each NCSD to deposit and circulate theissued securities.
For example, if a Japanese firm tries to issue international Asian Bonds in Hong
Kong (or Singapore) and sell to Asian investors, each Asian NCSD will have to open an
omnibus account in its own name, and then each investor can deposit securities at
CCASS (or DCSS) 21. In this case, trading among domestic investors in each country
will not affect the omnibus account at CCASS (or DCSS) in the name of the relevant
foreign CSD because they are traded among domestic investors.

20
According to Foreign Exchange Liberalization Plan announced in May 2006, foreign investors will be permitted tohave omnibus accounts at ICSD in order to facilitate investments in Korea’s local bond and monetary stabilization
bonds. This Plan aims to make Korea Won an international currency for a medium-long term task.
21
The CCASS, or Central Clearing and Settlement System, is wholly owned by Hong Kong Exchanges (HKEx);
DCSS is the Debt Securities Clearing and Settlement System operated by the Stock Exchange of Singapore (SGX).

65

Figure 7) Scenario for Asian Bond issuance by a Japanese company
Issuing company(Agency contract, etc.)

FA・Registration
organization

Dual Core(Underwriting contract)

Japan Securities Depository Center（NCSD）
Account

Flows oftransaction
recording

Account

Underwriting leadmanagerJapanese investors

Korea KSD (NCSD)
Account

Account

Custody(Underwriters)

Japanese investors(Korean investors)

Purchases

NCSD: National Central Securities Depository

Source) Yoshida (P.47), “Framework for a Dual Core Asian Inter-Regional CSD”

For this mechanism to operate, the first requirement is cooperation and linkages
among Asian NCSDs. Second, each NCSD will have to denominate Asian Bonds as
depositable securities. Third, the law of the country of issuance will have to allow
investors to open consolidated accounts in the name of a foreign CSD.
If the abovementioned conditions are satisfied and trading in the over-the-counter(OTC) market can be permitted, then the bonds can be regarded as international Asian
Bonds (Asian Inter-Regional Bond). However, there are some practical problems 22
relating to linkages between NCSDs for international Asian Bonds: the linkages arecomplicated and web-like and there is strict regulation (for example, in Korea investors
have to register their names with the FSS and no securities transactions are allowed in
off-shore markets).
To look into the feasibility of “Dual Core” approach, let’s review cross-border CBO
issuance in 2004 under the agreement between governments of Japan and Korea topromote the development of structured bond markets following ABMI. First, Korean
SMEs issued Yen denominated bonds (totaling 7.7 billion yen) and these issued bonds
were structured and divided into junior and senior portion. And then Industrial Bank of
Korea, one of Korea government financial institutions, provided guarantee to senior
bonds (Small Business Corporation took junior bonds) and JBIC also provided thesecondary guarantee to those senior bonds and primary CBOs were issued and listed in
Singapore Securities Exchange and those were sold to investors in Japan and Asia.
Transactions at secondary market are settled through ICSDs such as Euroclear andClearstream, however it could be settled by using existing Asian NCSDs such as KSD
and JASDEC following the way of Dual Core Approach. If Dual Core settlement could
be implemented, Asian bond could be settled in the same time zone instead of using
Euroclear or Clearstream outside the region.

22

A bilateral linkage would require numerous accounts and it could only handle securities registered in both NCSDs.
There is also the problem of the different stages of development of bond markets in different Asian countries, and thedifferent historical backgrounds, cultures and legal systems of the countries.

66

Figure 8) Pan-Asia CBO Issuance by Korean SMEs

JBIC

Source) Japan Bank for International Cooperation (JBIC)

Another possibility for regional settlement system would be to establish a separate
Asian CSD to enable settlement, clearance and depositing in the region, as in the“AsiaSettle” model proposed by Korea (Oh et al, 2004)
Figure 9) Bilateral Linkages between NCSDs( 2)( 1) Eurolinks Real- Time Network

European Financial Superhighway( Canneloni Model)( Spaghetti Model)

Minor
CSD

CSD

Minor
CSD

CSD
m ajor
CSD
CSD

CSD

Minor
CSD

CSD

Minor
CSD

CSD

CSD

m ajorCSD

m ajor
CSD

Minor
CSD

Minor
CSD

m ajor
CSD

CSD
Minor
CSD

Minor
CSD

Source) Huh, Hang Jin (2005)

5. Summary and Conclusion
Fostering Asian Bond markets could offer an alternative which will provide
opportunities for long-term financing and enable the circulation of savings and67highly-accumulated foreign exchange reserves in the region. However Asian Bond
markets are very fragmented because of different and heterogeneous regulatory andlegal framework of each country and the size of Asian Bond markets is very small
compare with those of bond markets in US and EU. Therefore it is very important tolink these fragmented Asian Bond markets or create regional common bond markets for
the Asian bond markets with depth and volume. Cross-border securities settlement in
the region, achieved through the linkage and cooperation of regional financial markets,is one of the essential elements in ensuring that an Asian Bond market functions
effectively and regionally. Furthermore, legal and institutional impediments need to becleared away or each country’s laws and regulations should be harmonized or adjusted
to correspond to international standards or “Asian Bond Standards” in order to further
develop an Asian Bond market, with cooperation of the government of each country.
Under the current legal framework in Korea, when stock is issued overseas, Korean
law should be the governing law, but the governing law of depository receipts ofoverseas securities is the governing law of the country in which the securities aredeposited. The fact that the overseas issuance of bonds depends on the laws of thecountry of issuance represents a problem. Korean securities-related laws require
systematic reorganisation in the near future in order to avoid excessive dependence on
English law and New York state law and to enable issuance of “Asian Inter-Regional
Bonds” in a common regional off-shore market (Asian Inter-Regional Professional
Securities Market).
(Hyun Suk†)†This paper was written when the author worked at National Institute for Research Advancement(NIRA) and it doesn’t represent the official view of ABMI Task Force of Japan Bank forInternational Cooperation (JBIC) where the author currently belongs to.

References
Asian Development Bank (2005), Asian Economic Cooperation and Integration
Asian Development Bank (2005), “Asian Bond Standards”(http://asianbondsonline.adb.org/documents/Asian_Bonds_Standard_2005_May.pdf)
Asian Development Bank (2005), Bond Market Settlement and Emerging Linkages in Selected
ASEAN+3 Countries
Bank for International Settlements (2001), “Recommendations for Securities Settlement Systems,”
CPSS Publications No. 46.
Huh, Hang-Jin (2005), “Establishing and Operating a Regional ICSD (“AsiaSettle”) for Asian Bond
Markets” Presented at NIRA seminar
Inukai, Shigehito (2005), “Issues Involved in the Building of East Asia’s Common Financial andCapital Markets” (Lecture at the Great Hall of the People in Beijing, China) [China Economic
Summit 2005],
Jeon, YongSuk (2005), “Perspectives and Main Businesses of Lead Managers in Global Bond
Issuance”, Korea Development Bank (in Korean)Oh, Gyutaeg, et al (2004), “Building a Settlement Infrastructure for the Asian Bond Markets:
AsiaSettle”, KIF Financial Economics Series, No. 2004-02
Takeuchi, Atsushi (2005), “Study of Impediments to Cross-border Bond Investment and Issuance in
Asian Countries”, Asian Bonds Online Website
Yoshida, Satoshi (2006), “Framework for Dual Core Asian International CSD” Presented at
NIRA-ADB Joint Seminar, 27 March 2006.

68

８. Issues related to Bond Market Legal Systems in Asia
The Current Situation
Few Asian countries have well-developed bond markets. Apart from government
bond markets, and also aside from a handful of countries like the United States andBritain, there are actually few countries in the world that have well-developed markets
for corporate bonds.
Having said this, however, many countries in recent years have been graduallydeveloping bond markets. In seeking to develop viable bond markets, Japan, South
Korea and other Asian countries are facing difficult problems with regard to legal
systems and market infrastructures as well as constraints arising from conventional
market practices.
For example, electric power companies in Japan regularly issue corporate bonds, butthere is some question as to whether these electric power bonds can be described asordinary corporate bonds. Electric power bonds are placed as general mortgage bonds,
bonds secured by blanket mortgages on the company’s property. General mortgages
provide bondholders with prior lien, enabling them to receive repayments from
corporate assets of issuers ahead of other creditors. In this sense, electric power bonds
are positioned as something different from ordinary corporate bonds.
In Japan, however, ordinary listed companies are not issuing corporate bonds
frequently. Although they are quite active issuers of equity-linked bonds, they do notissue many ordinary straight corporate bonds. Yet, Japan is now seeing an increasing
amount of corporate bonds.
There are quite a number of problems to deal with in an effort to develop bondmarkets in other Asian countries that are at different stages of development in terms of
their respective financial and capital markets.
The Future of Legal Systems for Corporate Bonds
In discussing the modality of bond markets in Asia, including Japan, it is necessary
to consider, among all market infrastructures, the development of settlement
infrastructure, including securities settlement (delivery and receipt of funds andsecurities). When we focus on legal aspects, there is the problem of “the future of legal
systems for corporate bonds.” For example, we have to deal with (1) securities issuanceprocedures, including whether program issuance is possible; (2) problems related to the
Securities and Exchange Law and the Financial Instruments and Exchange Law,
including information disclosure systems; and (3) problems with legal frameworks forbonds (many of which are related to legal systems for companies), as the basic point of
discussion necessary for market infrastructure development.
< Application of Law with an International Scope >The first issue that needs to be addressed is the modality of application of law withan international scope. While Japanese companies issue many cross-border
equity-linked and other foreign bonds, it is not necessarily clear which national laws areapplicable. If we assume that corporate bonds are governed purely by “the relationshipof private law,” it can then be said that it is determined by rules of international private
69

law under the principle of party autonomy. However, this is not necessarily the case.
For example, under the Company Law of Japan, resolutions adopted at meetings ofbondholders need to be approved by courts, and there is a strong argument that this isalso applicable to corporate bonds Japanese companies issue overseas as “forcible
provisions.” Still, this interpretation has yet to become an established theory.
< Commissioned Companies and Meetings of Bondholders >Secondly, there are problems concerning commissioned companies for corporate
bonds and meetings of bondholders. In light of actual defaults experienced in Japan inrecent years, there are ongoing discussions on the modality of commissioned companies
and on the problem of whether meetings of bondholders can actually be convened.
In particular, there are the following problems concerning the unique Japanesesystem of commissioned companies for corporate bonds. When the revised Commercial
Code of 1993 made the designation of commissioned companies mandatory as ameasure in exchange for the abolition of the regulatory ceiling on the amount ofcorporate bond issuance, a Justice Ministry official presented the interpretation that“when contracting parties to foreign bond issuance designate the Commercial Code as
governing law for corporate bond indentures in foreign bond issuance, all relevant
Commercial Code provisions regarding corporate bond indentures are applicable, in
principle, including forcible provisions such as provisions regarding the mandatory
designation of commissioned companies.” Since then, it has become the establishedpractice that British law serves as governing law for Eurobonds issued by Japanesecompanies under the FA (fiscal agent) formula without designating commissioned
companies.
Subsequently, the new Company Law put into force in 2006 provided the definitionof corporate bonds 23. A Justice Ministry responsible for the new law referred to the
mandatory designation of commissioned companies in his explanation of the definition,
generating renewed debate as to whether Eurobonds, Asian Bonds and other so-called
foreign bonds issued by Japanese companies, regardless of governing law for theirissuance, can be exempt from the mandatory designation of commissioned companies
under the Company Law, a factor which would push up the cost of foreign bondissuance, and whether foreign bonds can be issued at all as bonds that are not corporate
bonds as defined by the Company Law not pursuant to the mandatory designation ofcommissioned companies.
Recently, Justice Ministry officials confirmed that with the enforcement of the new
Company Law, it now is theoretically possible for Japanese companies to issue bondsthat are not defined as corporate bonds under the Corporate Law. Thus, Japanesecompanies are now in the process of looking for ways to issue bonds under that formula,on the basis of primary and secondary market practices for ordinary Eurobonds. One
point of concern here was that there are no written tax-related provisions for such bonds.
But the National Tax Agency’s relevant division has confirmed that the definition offoreign bonds issued by private-sector issuers subject to exemptions from thewithholding income tax on interest income under the special taxation measures law also
covers “bonds with the same seniority as corporate bonds” including Euroyen bonds
23

Under the new definition of corporate bonds (Article 2, item 23 of the Company Law), only
bonds that are allotted and redeemed in accordance with provisions of the Company Law are deemed
corporate bonds, and companies were allowed to issue bonds that are not defined as corporate bonds.
70issued overseas by residents.
However, aside from foreign bonds, it would not be so easy to actually issue bonds
domestically that are not defined as corporate bonds under the Company Law, given thatprimary and secondary market practices have yet to be established for such bonds andlegal frameworks for them have yet to be developed.
Under the circumstances, as a short-term solution for the sake of smooth issuance of
foreign bonds, it is deemed desirable to issue foreign bonds as previously, as corporate
bonds as defined under the Company Law while seeking to clarify exemptions fromforcible provisions of the law, including the mandatory designation of commissioned
companies. It is safe to say that Justice Ministry officials responsible for lawmaking arealso moving in that direction.
More specifically, it concerns the following two cases in which the requirement forthe designation of commissioned companies is waived: (1) when the value of eachcorporate bond is ¥100 million or more under the so-called FA formula that does notdesignate commissioned companies (the proviso of Article 702 of the current Company
Law; and (2) when the number obtained from dividing the total amount of corporate
bonds by the minimum value of the amount of each bond is less than 50 (Article 169 ofenforcement regulations of the Company Law).
Going forward, however, in order to secure more stable issuance of foreign bonds, it
seems desirable to permit exemptions from the mandatory designation of commissioned
companies in cases, even if limited to foreign bonds, other than cases (1) and (2) above.
< Application of Laws to Bonds Other Than Corporate Bonds >The third issue has to do with bonds issued by entities other than businesscorporations. A variety of organisations, including local public entities andpublic-private (third-sector) entities, have recently begun issuing bonds, and the market
has even seen the emergence of school bonds (bonds issued by educational
corporations) and hospital bonds (bonds issued by medical institutions). In Japan,
however, these bonds have not been regarded as securities under private law, withneither the Commercial Code nor the Securities and Exchange Law being applicable tothem. This certainly raises questions as to whether the current situation is acceptable.
However, it should be noted that the Financial Instruments and Exchange Law, which
replaced the Securities and Exchange Law in 2007, applies to such bonds (with the
exception of hospital bonds).
< Dealing with Samurai Bonds in Case of Default >Lastly, there is the problem of how to handle sovereign bonds issued by foreign
governments and other issuers in Japan in case of default. Since samurai bonds, issued
as yen-denominated bonds in Japan, are issued by foreign governments, there have beenno previous experiences of default. In recent years, however, samurai bonds issued by
Argentina and Uruguay have gone into default. While meetings of holders of thesebonds were held in Japan, neither the Commercial Code nor the Company Law was
directly applied to these cases of default.
Compared with loans, the handling of defaults on bonds is less clear. Most of the
problems involved are related to contracting clauses.
The first issue is whether the principal can be cut on a majority vote of bondholders
when default is about to occur. This concerns the corrective action clause (CAC). In the71absence of a system in which the principal reduction on a majority vote of creditors isapproved by court, like the system under the Company Law, the question is whether the
principal cut can be implemented immediately when creditors hold a meeting anddecide to cut the principal on a majority vote despite objections from the minority.
The second issue has to do with commissioned companies. The question is whether
it is possible, in case of default, to choose commissioned companies for samurai bonds,
like those for Japanese corporate bonds, or their equivalents (in some cases, such
entities have been designated in advance), and have them enact judicial proceedings onbehalf of creditors.
Third, there is the issue related to the pari passu clause. The meaning of pari passu is
not clearly understood if Uruguay and Argentina state that they will not pay even if wesue them. This raises the question as to how to ensure an orderly recovery of claims andhow to negotiate repayments when sovereign debtors indicate that they cannot pay backfunds.
It is necessary to reconsider legal frameworks for international bond markets,
including the points discussed above, bringing to bear the experience of market
professionals to develop basic market tools and apply broader perspectives.
(Hideki Kanda - English translation by NIRA secretariat)

72

９.Experience of a Japanese Law Firm in Legal Practice related to
Cross-Border Securities – Considerations concerning Euro & Samurai
Bonds, Foreign Exchange Control and Governing Law ∗Introduction
The legal practice of cross-border securities has a long history centering on theEuromarket, and its development has largely been the result of the work of Europeanand U.S. lawyers. It is, however, both unexpected and surprising how little is known
about this area of legal practice in Japan. Minutes from the Corporate Law(Modernisation) Subcommittee (the “Corporate Law Subcommittee” below) of theLegislative Council of the Ministry of Justice, which addressed the new Corporate Law
to be enforced in May this year, indicate Japan’s current stance in this matter:
substantive discussion on legal practices related to cross-border securities was
suspended and postponed without precise understanding of practices already in use.
Thus, legal revisions that should have been made under the new Corporate Law havenot been made. Japan remains an insular nation.
Major recent currency market developments are the shift to the floating exchange
rate system following the Nixon Shock of 1971 (the suspension of gold-dollar
convertibility) and then the move to the managed floating rate system under the 1985
Plaza Agreement, the sharp fall of the British pound in the 1990s brought about by
currency futures trading and hedge fund activity, and the Latin American and Asiancurrency crises (both these latter representing situations in which forces of the global
market economy overwhelmed foreign exchange controls by national governments). It
is noteworthy that as the scheme of East Asian economic integration at the state levelhas come to a near-stalemate, the Asian Bond Markets Initiative (ABMI)1, proposedfrom the private-sector perspective (avoiding the delicate political issue of Asianmonetary integration), has been making headway in practical terms.
The author has been involved in legal practice relating to cross-border securities
since the launch of the Tokyo capital market in 1973 but has not to date provided his
fellow legal practitioners with sufficient relevant information in this area. This article
therefore attempts to offer a brief outline of legal practices related to cross-bordersecurities.
1. Offering of Securities by Domestic Issuers for Subscription Overseas
A viable primary issue market for securities requires the existence of a secondary
market for the securities issued.
Thus, the depositary receipt (DR) method was initially employed for public
subscriptions of Japanese equity shares in foreign countries. Depositary receipts were
issued to investors in the United States and Europe in exchange for original stock
certificates deposited with U.S. and European financial institutions, and those
depositary receipts were listed for trading on the New York and London exchanges. The
method started with American depositary receipts (ADRs) in the U.S. market and thenspread to the Euromarket as Euro depositary receipts (EDRs). But the DR method is nolonger in use and has been replaced by the original stock method. This duplication of∗This paper is an English translation of an extract from the book “Cross Border Securities Transactions andCorporate Finance,” Kinzai Institute for Financial Affairs, Inc., 2006, published by the author

73

work and costs represents sheer waste given that Japan’s securities exchanges now
require timely disclosure by issuers and stocks are priced with the participation of
investors from around the world. However, the DR method remains in place for Chineseand Indian stock because the secondary markets for original stocks have yet to be fully
developed in these jurisdictions.
The existence of the secondary market is also important for the primary issue market
in the bond industry, but it is not as important as it is for the stock market because there
is an alternative means of recovering the funds invested, namely holding bonds tomaturity. In the case of convertible bonds (CBs), the market for the stocks into which
the bonds are converted, or the market where convertible options can be separated andtraded, are the most important.
Issuance of so-called external bonds in the post-war period began with the U.S.
market, which was regulated by the 1933 U.S. securities Act, and then shifted to theunregulated Eurodollar market, the German mark market, the Swiss franc market andthe Euroyen market. At present, the primary issue markets for convertible bonds ofJapanese issuers are the Euroyen market and the Alpine (yen-denominated) Euro Swiss
franc market.
It is now presumably well known that the Euromarket is neither the Euro market, inwhich the EU’s common currency circulates, nor Europe at large. However, there areprobably few people who could give a ready answer when asked what the Euromarket isin legal terms. Legally speaking, the Euromarket is a market that is exempt from thelegal regulations that exist for the protection of the investing public in industrialised
nations, including the euro zone. Roughly speaking, under securities law in Japan,
securities can be privately placed with qualified institutional investors by simply filingreports with the Financial Services Agency (but only in respect of investment fundsecurities). Foreign securities companies can, from outside Japan, freely solicit
subscriptions from designated financial institutions among these qualified institutional
investors. In the fairly liberalised markets of other industrialised nations, the definitionof professional investors is broader than the category of qualified institutional investors
in Japan, and professional investors are exempt from regulations under their respective
national laws. The global federated markets in which these investors operate may be
defined as the Euromarket from the legal perspective. Investment funds are professional
investors, and individual investors can participate in trading on the Euromarket throughinvestment funds.
In the Euromarket, there are a variety of practices that make trading moreconvenient for participants. The International Primary Market Association (IPMA）has
been established as a self-regulating organisation to help disseminate knowledge about
these trade practices and to maintain order in the Euromarket given the expansion of theEuromarket itself as well as the increase in the number of market participants. The
IPMA HANDBOOK consists of guidelines, often referred to as recommendations, andstandard contract forms. (The Euromarket now appears to be moving from being a freemarket towards becoming a regulated market. With the introduction of the Prospectus
Directive and the Transparency Directive, the self-regulated markets in EU member
states are coming under EU-wide official regulations. The adoption of international
accounting standards (IAS) is being imposed. These developments deserve close
attention.)74

2. Offering of Securities by Foreign Issuers for Domestic Subscription
The public offering by General Telephone and Electronics, Inc. (GTE) in 1972, thefirst case of a domestic public offering of foreign stocks, adopted the original stock
method instead of the depositary receipt format because the U.S. stock market was
already an efficient market. As the Tokyo Stock Exchange (TSE) did not have fully
developed listing criteria at the time, GTE stocks were not listed on the TSE and weretraded under a system that is, in effect, the same as the present system for foreign stock
trading (Japanese securities firms acquire stock certificates to be held by U.S.
custodians and hand custody receipts to Japanese investors)2. Indeed, this can be
described as a judgment with great foresight, given the present status of foreign stock
trading on the TSE, where trading flows are very limited and prices are formed
essentially in home markets and most foreign issuers have de-listed their stocks fromthe exchange.
The first case of a domestic public offering of foreign bonds was the 1973 issuanceof Australian government bonds, placed within the samurai bonds framework in linewith recommendations issued on February 5, 1973, by the Securities and Exchange
Council. Asian Development Bank bonds and World Bank bonds had been offered prior
to this, but they were accorded special treatment as international financial institutions
exempt from disclosure requirements under the Securities Act. Thus, given the present
framework for samurai bonds, it would be appropriate to regard the Australian
government bond as the first samurai issue in accordance with the aforementioned
Securities and Exchange Council recommendations.
Subsequently, the issuance of samurai bonds reached a record high in 1977, but inthat particular year, ironically, the European Investment Bank (EIB) was permitted toissue the first Euroyen bond as a nonresident. After issuer qualifications for nonresident
Euroyen bonds were substantially eased (at the same time, the ban on the issuance ofEuroyen bonds by residents was lifted) following the Japan-U.S. Yen-Dollar Committee
in 1984, issuers increasingly shunned the rigid, high-cost samurai bond market in favorof the Euroyen bond market, a trend that has essentially been sustained until the present.
3. Governing Law for Eurobonds
The author is often asked the question: “Why are Eurobonds governed by the lawsof the issuer’s country, when international loan contracts are governed by the laws of thelender’s country?” It is true that German mark bonds, which disappeared with the birthof the euro, and Swiss franc bonds (including yen-denominated Alpine bonds), aregoverned by German law and Swiss law, respectively. However, this can primarily be
traced to the fact that bond underwriters are registered in Germany or Switzerland andthe places of subscription are Germany or Switzerland. In a manner of speaking, they
are samurai bonds issued in Germany or Switzerland.
In the case of more recent Swiss bonds, subscriptions are also solicited from outside
Switzerland (the Euromarket). But the lead managers for these bonds still have to bebanks located in Switzerland, and under the unique Swiss system, from the viewpoint ofbond issuers, bondholders are the Swiss banks that underwrite the bonds. Swiss bondissuance contracts provide that “an issuer is exempt from obligations of payments toinvestors if the issuer pays principal and interest to the Swiss bank concerned,” whileissuance contracts for Swiss CBs provide that “when an issuer complies with the request
for conversion made by the Swiss bank concerned, it is deemed that the issuer complies75with the request for conversion by holders of CBs.” This is a special Swiss circumstancein which Swiss banks are required to treat information on customers as classified
information.
As for German mark bonds, the issuance of Euromark bonds, for which
subscriptions could be solicited outside Germany, was quite active from the early stages.
In the case of Euromark bonds, it may have been theoretically possible to adopt thedomestic laws of the issuer’s country outside Germany as governing laws, since they
did not involve special circumstances such as those for Swiss bonds. However, it wasunderstood that the German laws were the governing laws because Euromark bonds,
like German mark bonds, were prepared in the German language, including issue
contracts, and the secondary markets after public offerings were securities exchanges inGermany. These working practices are understood to be the same as those applicable toSamurai bonds, which are denominated in yen, prepared in the Japanese language andare governed by Japanese laws, and for which the secondary market after public
offerings is the TSE.
However, for Eurobonds (historically, Eurodollar bonds), including Euroyen bonds,
public offerings are made on a global scale (in countries where local securities
regulations are applicable, public offerings are made with exemption from such local
securities regulations) with English as the language used, and their secondary market
after issuance is the global inter-bank market. In this sense, it is reasonable to adopt thedomestic laws of the issuer’s country as the laws governing these bonds. From thestandpoint of investors around the world, it would be unfair to adopt the domestic lawsof any particular country. For issuers, adopting the domestic laws of their own countries
makes it easier for them to respond to investor claims. That said, less industrialised
countries have historically tended to use English when issuing in the Euromarket, andgiven this, adopting British laws as the governing law may well be described as fair.
In the case of CBs, it is more desirable to adopt the domestic laws of the issuer’s
country as the governing laws in order to avoid misinterpretation, because CBs areproducts closely linked to stocks, which are governed by the domestic laws of thecountries in which the issuing companies were founded. At one time, for warrant bonds
governed by British laws, there were provisions for a meeting of those with subscription
warrant rights which is not found in Japanese law. As a legacy of this practice, in thecase of CBs at present, matters for decision at bondholder meetings include “analteration in the contents of subscription rights, which is not possible under Japaneselaw.” It seems somewhat strange that nobody dares to challenge this simply because of
precedent.
In the world of bonds, governing laws should follow the country-of-origin principle.
Under current circumstances, corporate bonds that should be labeled as “Made inJapan” are instead marked as “Made in the U.K.”3
4. Foreign Bonds, Foreign Exchange Control and Liberalisation of the Yen
While the currency of denomination for bonds is the currency of a sovereign state,bonds are used not as a means of payment but as a means of high-risk, high-return
savings. Bonds require disclosure of information on the creditworthiness of issuers.
Unlike currencies, however, for bonds there is no institution to control supply, such as acentral bank in the case of currencies. However, the markets control the supply of bonds
through interest rates. Money laundering regulations and the Patriot Act are not76

applicable to bonds.
Bonds are created under contracts and, as such, terms and governing laws can bevaried for bonds under the principle of freedom of contract. Unlike currencies, which
only sovereign states have the right to issue, bonds represent credit that can be createdby the private sector. However, because the value of bonds is expressed bydenomination in existing currencies and because they are paid for in existing currencies(aside from the ECU basket account, which was transformed into the euro, but even inthis case the currency basket backs up the currency account), issuance of bonds isfundamentally affected by policies that restrict foreign exchange transactions in the
countries of the currencies concerned and policies for the liberalisation of thosecurrencies (for example, the Chinese yuan cannot be taken out of the country atpresent).
These relationships may be summarised together with the governing laws as follows,with Japan’s foreign exchange policy and yen liberalisation policy as the core:
Yen-denominatedbonds
Foreigncurrency-denominatedbonds
Domestic market(Securities Exchange
Law)

U.S. market（1933 Act）
Swiss market－Including Euro
Swiss bond（Swiss law）

Domestic issuers

Foreign issuers

Domestic bonds

Samurai bonds
Japanese law(May beShogun bonds
possible theoretically,
but not practical)
××
U.S. law$ denominatedforeign bond

N.A.
○

Alpine bondSwiss lawSFr denominatedforeign bond

N.A.

Euroyen bondEuromarket（Euromarket tradepractices）○
N.A.

＄,Euro-denominatedforeign bond×
ItalicN.A.
○（ ）Governing law forbonds

Domestic laws for
issuers fromindustrialised nations(British law for issuers
from Japan andless-industrialised
nations)

Nonexistent
Made possible by the easing of foreign exchange controls and liberalisation of the yen
Not applicable to Japan
Made possible by the Japanese government relinquishing licensing rights for Euroyenbond issuance by nonresidents： Governing law for underwriting (trading)
：
：
：
：

77

The history of the relationships in the above table may be explained as follows:1970 ： The Tokyo capital market inaugurated = internationalisation of the yen：
Asian Development Bank bond1971 ： Nixon Shock：Dollar-gold convertibility suspended－shift of the yen to the floating
rate system in 1973
1972 ： GTE stock public offering in Japan (first foreign stock)
1973 ： Australian government bond (first samurai bond issue)
1974 : 1st German mark public offering of a corporate bond (Mitsubishi Heavy Industries)
1975 : 1st Swiss franc public offering of a corporate bond (Mitsubishi Chemical)
1977 ： ①Expansion of foreign exchange reserves, yen interest rates drop due to a decline inprivate-sector fund demand：a record issuance of samurai bonds②Lifting of the ban on the issue of Euroyen bonds by nonresidents：1st issue by theEuropean Investment Bank (EIB)1984： Japan-U.S. Yen-Dollar Committee (Japan-U.S. financial market frictions prompting
further internationalisation of the yen)
①Substantial easing of issuer qualifications for nonresident Euroyen bonds②Lifting of the ban on the issue of Euroyen bonds by residents：Euroyen bonds, 1stissue=Mitsubishi Heavy Industries’ Euroyen CB worth ¥30 billion (180-day
restriction on the recycling of Euroyen bonds to Japan – ban on bringing them in)1985： Plaza Agreement (major industrialised nations’ coordinated response to dollar
interest rate rises due to the U.S. trade and fiscal deficits)：the managed floatingexchange rate system
1990： Weakening of the yen following the collapse of the bubble economy in Japan
1994：Abolition of recycling restrictions on sovereign Euroyen bonds
1st Alpine bond issue
1996：Foreign exchange control abolished under the Tokyo Big Bang by the Hashimoto
Cabinet – Abolition of recycling restrictions on Euroyen bonds issued by residents
1997： The Asian currency crisis, and failures of Sanyo Securities, Hokkaido Shokutaku
Bank, Yamaichi Securities
1999： Appreciation of the yen in the wake of the bursting of the U.S. IT bubble

5. Currency Market and Bond Market
The relationship between the currency market and the bond market may be broadly
described as follows.
The place of the key currency in international financial transactions is increasingly
being taken by the US dollar and the Euro. Despite Japan’s economic strength, which isgreater than that of the EU, and the yen’s high degree of liberalisation, the yen has yet toestablish itself as a key currency in the international financial market.
The financial market was formerly supplementary to the trade market. Today,
however, the international financial market, consisting of the currency market and thecapital market, is independent of the trade market.
Unlike the currency market, the capital market, which comprises bonds, stocks, andtheir futures and derivatives, is a private-sector market beyond the reach of sovereignauthority, a free market in terms of both issuance and secondary trading (as long as
governmental regulations, such as foreign exchange control laws, are not imposed at the
local level ). Funds flow freely to markets where risks and returns are fair.
At the macro level, division of the market into the Euro zone market, the US market
and the Asian market is no longer viable at a time when the advancement of information78

technology has made it possible to transfer funds and financial products instantly.
Needless to say, from the micro perspective, regulations on dealers in financial products
and restrictions on financial products for the protection of consumers exist at local
levels. However, with particular reference to the latter restrictions, the Euromarket iswell-known as a market for professionals (market participants for whom regulations at
local levels can be exempted), and is increasingly making its presence felt as a global
federated market.
Unlike the currency market, not only bonds denominated in key currencies but also
bonds denominated in yen and various other currencies are issued and traded on theEuromarket.
On the other hand, as long as countries remain sovereign states, their own currency
markets will continue to exist within their boundaries, and this will require the existenceof local capital markets trading in bonds denominated in the currency of their country.
6. From U.K. Law Only to Split Law to Japanese Law Only to U.K. Law Only
Split law is the term used to refer to the operations of the London office of theformer Hamada & Matsumoto (presently, Mori Hamada & Matsumoto) Law Firm,
which was closed down in 1994. The term was coined by John Edwards, an influential
partner with the former Linklaters & Paines. Issuance of Euro equity-linked bonds by
Japanese companies became very popular prior to 1980, as firms sought to avoid thehigh cost of issue resulting from domestic regulations and practices and also favored
flexible pricing in accordance with their corporate strength and creditworthiness. Thesebonds and their underwriting were governed by British law. Regular members at due
diligence and documentation meetings for Japanese equity-linked bonds were theformer firms Linklaters & Paines and Slaughter & May of Britain, who were leadunderwriting managers, and such former law firms as Blakemore & Tsunematsu,
Hamada & Matsumoto, Aoki & Christiansen, Tomotsune & Kimura and Mitsui &Yasuda, on the Japanese issuers’ side.
Around 1980, there were only a little over 10 Japanese lawyers who were capable ofdealing with Eurobonds, despite the fact that they were being issued in overwhelming
numbers. Engagement in practice relating to Eurobonds was limited to those lawyers
who were well versed in English and British and U.S. securities-related legal practices,having studied overseas (a limited number at that time), and who were interested insecurities-related business. Moreover, too much time and energy was being wasted as
the role of Japanese lawyers at due diligence documentation meetings was initially to
act as interpreters. While Japanese lawyers were able to make preparations before thosemeetings by reading disclosure documents and internal documents written in Japanese,
British law firms could not do the same and required one to two weeks of due diligencemeetings.
Pre-war external bonds were governed by Japanese laws but payment and otherprocedures in foreign countries were conducted in accordance with systems in place inthe countries of payment, as represented by fiscal agents. Underwriting operations
followed the laws of the countries of the lead underwriting managers.
In order to cope with the sharp rise in Eurobond issuance in the early 1980s, theformer Hamada & Matsumoto law firm came up with the idea of a reversal of the split
in the pre-war split law method. Under this method, bonds were governed by British
laws, as before, but underwriting contracts were governed by Japanese laws. This79

coincided with a shift by Japanese issuers from U.S. and European securities firms to
London-based subsidiaries of Japanese securities companies as lead managers forEurobonds. Bonds were left governed by British laws as bank guarantees and financial
covenants were commonly required at the time. This made the designation of trustees
necessary or desirable but the Japanese Trust Law could not be used due to its
ambiguous applicability.
An underwriting contract is a contract designed to warrant that the accuracy of aprospectus (it is often called an offering circular, a prospectus or an information
memorandum, but is not covered by the Securities and Exchange Law of Japan and assuch is not a prospectus as provided for by the Securities and Exchange Law) preparedby an issuing company for the issuance of a Eurobond are correct, that it states allmaterial facts, and that it does not contain any misleading expressions. An underwriter
pledges to underwrite and solicit subscriptions for the corporate bond in accordancewith terms and conditions provided for by the contract.
Because the preparation of a prospectus is central to Eurobond issuance procedures,the global standard for cross-border securities calls for the preparatory work to be led by
British or U.S. lawyers when an underwriting contract is governed by British or U.S.
state laws and to be led by Japanese lawyers when an underwriting contract is governed
by Japanese laws.
This formula was used for nearly half of Eurobond issues in the 1980s because it
allowed Japanese-only discussions based on company documents written in Japaneseand shortened the duration of due diligence and documentation meetings to about threedays.
However, at that time, it was deemed important for representatives of issuing
companies to visit Europe as part of a “road show” and to attend signing ceremonies.
Bonds were governed by British law. Thus, it was convenient to ask British law firms
engaged in bond-related documentation work to be responsible for signing and closing
procedures. At this juncture, the former Linklaters & Paines (currently known as
Linklaters) adopted a flexible approach to this collaborative work, coining the term
“split law issue,” while Slaughter & May rejected a collaborative approach. Slaughter &May subsequently had to shut down its office in Japan.
Because the split law approach entailed the overlapping of some work and waswasteful in that sense, Japanese laws were subsequently adopted as the governing lawsof bonds by issuers of good standing that could resort to the fiscal agent method. The
former Hamada & Matsumoto law firm established a London office in 1987 partly
because all procedures from signing to closing had to be conducted in London and thehelp of British law firms could not be enlisted as the entire process was governed by
Japanese law (for details, see Section 7).
The London office was shut down in 1994 because of the collapse of Japanesefirms’ Euro equity-linked bonds with the collapse of the bubble economy. But the final
blow came when the Ministry of Justice announced the “mandatory designation of acommissioned company for a Euroyen bond” in the wake of the revision of theCommercial Code in 1993.
The Japanese office of Linklaters subsequently hired foreign lawyers and paralegals
who could speak Japanese, and is now well positioned to handle Euroyen bond issuancework with an efficiency matching that of Japanese law firms. In April 2005, when
foreign law firms were allowed to employ Japanese lawyers and form partnerships with80

Japanese law firms in the last step toward the full opening of Japan’s legal service
market, Linklaters formed a partnership with the Yasuda group of the former Mitsui &Yasuda law firm and now commands a near-monopoly on legal practice related to theunderwriting of Euro equity-linked bonds governed by British law issued by Japanesecompanies.
While magnanimous, Linklaters, backed with British history and tradition, is a law
firm able to expand its business by assimilating itself in local markets. Though it is aformidable competitor, this author pays the firm due respect.
As indicated above, however, it is unfortunate that the present stance of the Ministryof Justice is preventing Japanese law firms from engaging in fair and free competition
with Linklaters and other foreign firms in the Eurobond market.
The discussion above may be summarised in table form as follows:
Underwriting
governmentlaw

British law

Japanese law

Bond governing law

British law

Japanese law

Post-war － Present

Pre-war

The early 1980s－Collapse of the bubble(1991)(Almost half of issuance)
The latter half of the 1980s－ 1993 revision of theCommercial Code(A few cases)

The “manufacture” of “Made-in-Japan” Eurobonds by Japanese companies is being
conducted (on an OEM basis) with the assistance of British lawyers (i.e., is governed by
British law) rather than in Japan (governed by Japanese law). Japan is the only
industrialised nation in this type of situation. This is an important point that should havebeen settled in the official interpretation or the revision of the Corporate Law. (Seesubsequent Sections 8 and 9)
7. Japanese Law Firms have not “Inherited” Eurobond Underwriting DNA
The collapse of the bubble economy led to a sharp decline in the issuance of Euroequity-linked bonds by Japanese firms under the slump of the Japanese equity market.
Of the four major securities companies that were the main players in Euromarket
finance through their London subsidiaries, Yamaichi Securities Co. failed in 1997 andthe three other firms suffered from sokaiya (underground shareholders) payoffs andother scandals as well as the stock market slump. Only Nomura Securities Co. remains
independent; the underwriting divisions of Daiwa Securities Co. and Nikko Securities
Co. were merged with Sumitomo Mitsui Bank and Citibank, respectively.
Prior to the collapse of the bubble economy, three of the four securities firms that
almost monopolised the underwriting of Euro equity-linked bond issues by Japanesecompanies (other than Nomura) adopted Japanese laws as the governing laws forunderwriting contracts for which they acted as lead managers. As was mentioned above,
Japanese law firms acted as counsel for the underwriting side enabling due diligence81and documentation meetings to be efficiently conducted in Japanese. The split law
approach was employed for nearly half of all Euro equity-linked bonds that were issued.
The former firms Hamada & Matsumoto, Aoki & Christiansen, Tomotsune & Kimura
and Mitsui & Yasuda, mentioned earlier as Japanese law firms that served on behalf ofJapanese issuers prior to 1980, moved to the side of the underwriters and led due
diligence and documentation meetings as well as preparing offering circulars. In thecase of the split law approach (in which bonds are governed by British laws andunderwriting contracts are governed by Japanese laws), not only underwriting contracts
but also underwriting group contracts and selling group contracts were governed by
Japanese laws. Not limited to these, further documents were required, from invitation
telexes to signing memoranda and closing memoranda. Knowledge of Euromarket
practices was essential.
As the presence of purely Japanese securities companies declined, issuance ofEuroyen bonds governed by Japanese laws dwindled, as indicated above. Because thesplit law approach was inefficient due to the engagement of both British and Japanese
law firms, and since Linklaters and other foreign law firms hired Japanese staff toenhance their capacity to conduct due diligence and documentation meetings inJapanese (by forming partnerships with Japanese lawyers after the legal service market
was completely liberalised in April 2005), both underwriting contracts and bonds
reverted to being governed exclusively by British laws. Since the 1993 revision of theCommercial Code, no Japanese law firm has served as the sole legal counsel forunderwriters of Euro equity-linked bonds. During the last 15 years, Japanese law firms
have not inherited the “DNA” for Eurobonds and Euro equity-linked bonds.
8. Corporate Law Subcommittee Discussion on Bond Governing Laws
The issue was addressed at the 26th and 27th meetings of the Corporate Law
Subcommittee.
According to document No. 28, distributed at the 26th meeting of the Corporate Law
Subcommittee, a practical, to-the-point question appears to have been posed: “Should it
be understood that provisions concerning commissioned companies and meetings ofbondholders are not applicable when a domestic company issues corporate bonds
overseas?” However, subsequent discussions on the matter became confused, withstatements such as the following being made: ① “at present, commissioned companies
have, in practical terms, not been used for foreign bonds,” and ② “for global offerings,
in which a single bond is placed in two or more countries, it is impractical to makedistinctions on the basis of the engagement or non-engagement of commissioned
companies or bondholder meetings.” Based on these discussions, the conclusion was
drawn that “at the present time, it is difficult to provide legislation that covers all theseissues, and therefore it would seem most prudent not to set anything firmly in law.”
However, it seems to this author that the above discussions overlook the following facts.
First, concerning ①, as a result of the Ministry of Justice’s official interpretation thatthe 1993 revision of the Commercial Code calls for the mandatory engagement of acommissioned company for any foreign bond placement4, Eurobonds that were issued,albeit in only a small number of cases, with Japanese law as the governing law prior tothis legal interpretation5 ceased being issued entirely, and no commissioned companies
have been engaged since then because all Eurobonds are now governed by British laws.
Second, concerning ②, global offering is a method used in public offerings of stocks
82and is not used for bonds because of differences in practice. While bonds are issued in
the U.S. market in a registered form, they are issued in the Euromarket in a bearer form.
Further, document No. 25, distributed at the 25th meeting, contained a suggestionthat “provisions for commissioned companies and meetings of bondholders should bemade applicable to corporate bonds issued by foreign companies in the Japanesemarket.” But this suggestion appears to overlook the fact that a Japanese court has
already approved the application of those provisions to such bonds6.
As things stand now, even young lawyers who have studied abroad believe that “AllEurobonds are governed by British laws” and have little knowledge of the distinction
between governing laws for underwriting contracts and governing laws for bonds.
Indeed, we cannot accuse Ministry of Justice officials involved in the preparation andenactment of the Corporate Law of being not fully aware of the new law’s potential
impact on legal practices. It can be assumed that these officials were simply too busy or
too preoccupied with the comprehensive overhaul of the Corporate Law to be aware of
the issue. The minutes from the Legislative Council’s discussions show that panel
members simply ran out of time. The minutes also indicated no trace of discussion
concerning the potential impact on legal practices of the extraterritorial application of
the provisions for the mandatory engagement of commissioned companies.
9. Requests for Substantive Enactment
The system of engaging commissioned companies for bonds (the system is the sameas that under the 1993 revised law except for the change in name from “kanri kaisha” to“kanrinin” (administrator); “commissioned company” is used in English, as it is in thecase of samurai bonds) may be a well-designed scheme, even by international standards.
The use of commissioned companies enables an excellent balance between the interestsof issuers and the interests of investors.
However, in the case of Eurobonds, as is shown by the migration of samurai bondissues to the Euromarket from the samurai market (in which conventional market
practices require the engagement of commissioned companies) as mentioned in Section
2, issue cost considerations are important and bondholders’ meetings that only assume
only Japanese resident investors and the involvement of Japanese courts are notacceptable in foreign markets. However well designed, a system or institution ismeaningless if it cannot be put to practical use.
The fiscal agent approach and the lack of involvement of courts in bondholder
meetings are standard in the Euromarket. They are considered to be necessary andsufficient conditions for issuers, who are not required to put up collateral. Even withdomestic bond issues under the existing Commercial Code, it is market practice to use
fiscal agents for bonds with a par value of ¥100 million or more that are exempt fromthe requirement to engage commissioned companies.
However, as pointed out in Section 6, as long as the Ministry of Justice’s official
interpretation stands, which states that it is mandatory to engage commissioned
companies for all foreign bonds governed by Japanese law, all Eurobonds issued by
Japanese issuers will be governed by British laws, in line with the fundamental rule oflegal practice, that legal risks that need not be taken should not be taken. Clearly, if suchofficial interpretation is not changed, legislative solutions are called for7. This has been
explicitly indicated by public comments by the Japan Capital Markets Association andothers.
83Under the 1993 revision of the Commercial Code, in terms of legal practices, Japan
became the only industrialised nation whose companies cannot issue Eurobonds
governed by domestic laws. In other words, all Eurobonds issued by Japanese issuers
are governed by British laws and are handled exclusively by British law firms. The legal
costs they impose are based on a monopoly, and these costs are affecting Japaneseindustry. The decade since the revision of the 1993 Commercial Code has been a lost
decade for Japanese issuers and law firms.
10. The ABMI Roadmap and Asian Bond Standards
While the Asian Bond Markets scheme is rapidly shifting from the research stage toa practical phase, media coverage has been inadequate, and the private sector seems as
yet not to fully appreciate its importance.
The Asian Bond Markets Initiative (ABMI), the origin of which may be traced to the
Chiang Mai Initiative in the wake of the Asian currency crisis, was officially endorsedby the ASEAN+3 (China, South Korea and Japan) Finance Ministers’ Meeting held in
Manila on August 7, 2003. Since then, six formal working groups have been formed
with several member countries responsible for each area and the ABMI has recently
been making concrete progress at a rapid pace.
(1) ABMI Roadmap
At its meeting in Tokyo in November 2004 the Focal Group proposed the concept of
the ABMI Roadmap as the framework for the ABMI. Under the Roadmap, the Focal
Group will inherit the results achieved so far, will integrate information and will takethe lead in working towards practical implementation, by, for example, conducting an
in-depth study on the “Asian Bond Standards” discussed below, which will potentiallyhave an impact on other issues, and taking the Asian Bond Website(http://asianbondsonline.adb.org) established by Working Group #5 (Singapore andJapan), which is used for sharing information and exchanging views, under its directcontrol. The Focal Group meets twice a year.
(2) Asian Bond Standards
South Korea has proposed “Asian Bond Standards,” which were addressed in the
Istanbul agreement of May 4, 2005.
In these standards, bonds are classified into three categories:(i) Domestic bonds(ii) Bonds issued by a country in the region (“samurai bonds”)(iii) Bonds not registered in a country in the region (“Eurobonds”)
While recognizing the importance of all three categories of bonds, the ABMI only
names bonds in category (iii) “Asian Bonds.” (they are so called because “Eurobonds”
may be confused with euro-denominated bonds)
The market for Asian bonds is considered to be the market countries in the region
should cooperate in developing.
The purpose of developing a bond market in which East Asian countries can issue
bonds without relying on investors in Europe or the United States is to mobilise regionalsavings within East Asia.
The ABMI Roadmap calls for the initial stage of issuance on a contract basis, theestablishment of self-regulatory organisations like the International Primary Market
84Association (IPMA) and the International Securities Market Association (ISMA), as
well as the creation of central depository organisations for real-time clearance of Asian
Bonds, similar to Euroclear and Clearstream.
The ABMI has made it clear that its intention is not to create Asian bond markets
separate from the Eurobond market that are exclusively for Asian investors and issuers.
Despite this denial of the creation of exclusive markets, the ABMI is apparently
seeking to develop “Asian bond standards” for the following reasons:(i) The so-called Euromarket now appears to be in transition from a free market to aregulated market. With the introduction of the Prospectus Directive and theTransparency Directive by EU member countries, their self-regulated markets are now
coming under EU-wide official regulations. In addition, with regard to accounting rules,
the use of International Accounting Standards (IAS) is being imposed. Under thesecircumstances, East Asian countries that have been using the Eurobond market to date
now see practical merit in developing an Asian bond market as a new Euromarket.
(ii) U.S. dollars held in European countries helped launch the Euro bond market;
huge amounts of US dollars are currently held by East Asian countries.
(iii) The U.S. dollar and the euro are now the two key currencies. While it may bedifficult for the Japanese yen or any other Asian currency to take up the role of a key
currency anytime soon, the creation of a market for yen-denominated bonds, bonds
denominated in other Asian currencies, or bonds denominated in a basket of East Asiancurrencies is possible (the Japanese proposal addressed by the above-mentioned
Istanbul agreement provides an effective means of hedging exchange risks between
Asian currencies and the key currencies, the additional printing of which Asian
countries have absolutely no control over).
(iv) Even in an IT-driven era, physical distribution remains region-centered and thus
it is only natural to form a regional economic bloc and develop a regional capital market
with it.
What is interesting about the South Korean proposal is its realistic approach; while
Asian Bonds are at first to be governed by British laws, the eventual goal is to issue
Asian Bonds governed by the domestic laws of East Asian countries. This is anapproach Japan has already had experience of with its participation in the Euromarket.
11. NIRA’s Proposals Regarding the ABMIAs developments so far indicate, the ABMI cannot make much headway if it has to
wait for the outcome of intergovernmental talks among East Asian countries for eachstep it takes. Likewise, the initiative cannot move ahead if it waits until East Asian
countries develop their domestic institutions and infrastructure.
Therefore, the ABMI should initiate action beginning with bonds that are notregistered in any country of the region (Asian Bonds=Eurobonds), category (iii) of theSouth Korean-proposed Asian Bond Standards. This means the launch of a free market
for trading by private-sector professional investors exempt from local regulations in
Asian countries to varying degrees. Issuers should include the Asian Development Bankand other international institutions, governments in the region, governmental agencies
and multinational corporations that have an adequate level of disclosure and high credit
ratings.
Such a bond market for professional investors, unlike the CB market, should be able
to handle units of issuance (face value) in excess of ¥100 million. If so, under the85

existing Japanese Commercial Code (as well as under the new Corporate Law), the lesscostly fiscal agency (FA) method can be adopted with corporate bonds governed by
Japanese laws. The domestic placement of corporate bonds with a face value of ¥100
million by Mitsubishi Corp., which was devised to counter the mandatory engagementof commissioned companies under the 1993 revision of the Commercial Code but took
advantage of exemptions under the same 1993 revision, is now serving as the model tobe followed by all corporate bond issuers.
If Asian Bonds are settled through Euroclear or Clearstream and trading in themcommences on the interdealer market, such a market can be inaugurated almost
immediately under the current legal framework and at the initiative of the private sector
alone.
（Keiji Matsumoto ∗∗）-----------------1

Asian Bonds Online HP
http://asianbondsonline.adb.org/regional/regional.php
Masaaki Kanayama, “Problems Involved in Public Offerings of Foreign Stocks,” Shoji Homu (Business Law andPractice), No.611, 19723
Pre-war foreign bonds were governed by Japanese laws. Takeo Kurusu, “Studies on Foreign Bonds and the Foreign
Corporate Bond Law,” Yuhikaku, 1967
4This interpretation was made repeatedly in Tetsu Aizawa, “Q & A: New Corporate Law,” Shoji Homu (Business
Law and Practice), July 25, 2005
5
Keiji Matsumoto, “ Issuance on the Euromarket of Corporate Bonds Governed by Japanese Laws,” Kokusai Shoji
Homu (International Business Law and Practice), Vo.16 No.5, 1988
6
Keiji Matsumoto, “Legal practice of Commissioned Companies for Eurobonds (and Samurai Bonds) under theCommercial Code and the Asset Securitisation Law and the Collateralised Bond Trust Law” Kokusai Shoji Homu
(International Business Law and Practice), Vo.32 No.2, 2004
7
Shuya Nomura, “The Corporate Bond System under the New Corporate Law,” Jurist, No.1295, August 1-15, 2005
2∗∗

Japanese attorney-at-law

8610. Development of a Securities Clearing System in Japan by the Japan
Securities Depository Center (JASDEC)
1. What is the Japan Securities Depository Center (JASDEC) ?
The Japan Securities Depository Center (“JASDEC” below; this term will also be
used for the current Japan Securities Depository Center, Inc.) was established as a
non-profit foundation on December 6, 1984 with the objective of streamlining thedelivery of stock certificates.
On May 27, 1985, JASDEC was designated as a depository under the Central
Securities Depository Law (1984 Law, No.30, “CSDL” below) by the Minister ofJustice and the Minister of Finance and commenced depository services on October 9,
1991.
In the process of reforming the securities clearing system, there was growing debate
on the corporatisation of JASDEC. Given the pressing need for the reform of the
securities clearing system in Japan, it became essential to build a securities clearing
system which is globally competitive and convenient for market users. Thus it became
necessary to develop as soon as possible a securities clearing organisation to implement
the securities clearing system, equipped with globally competitive capability.
There were also discussions along these lines at the Financial System Council of thethen Ministry of Finance. In its report submitted in June 2000 entitled “The New
Financial Framework for the 21st Century”, the Council indicated that “It is preferable
that a securities clearing organisation which handles various types of securities should
emerge”.
In addition, the Council proposed in the same report that it would be essential toestablish a securities clearing organisation structured to “be constantly self-motivated to
improve its own services in order to respond positively and flexibly to environmental
changes”, and “for this to be realised, it would be critical to improve governance toappropriately reflect user opinions and to ensure contestability.” The Financial System
Council also proposed that “the way JASDEC is managed should be reviewed from a
broad perspective, including governance functions and organisational structure.”
In accordance with this proposal, the Committee for Reform of the Securities
Clearing and Settlement System within the Japan Securities Dealers Association (JSDA)
established a working group “to review the structure and management of JASDEC”,
which discussed JASDEC’s governance and other operational functions, and the pros
and cons of its corporatisation.
As a result of these discussions, a report was submitted in September 2000, which
recognised the need for JASDEC’s corporatisation from the viewpoint of expandability
and increased operational efficiency.
Upon its corporatisation, it was decided that JASDEC should be structured in amanner that ensures that its governance function reflects user opinions.
In the process of coroporatising JASDEC, the aforementioned Advisory Board on
Securities Delivery and Clearing Reform formed a special committee to review specificmatters such as basic corporate philosophy and the amount of capital, and in November
2001, the committee submitted a report entitled “Specific Framework for
Corporatisation of JASDEC.”
Corporatising JASDEC was judged to be a preferable approach to realising the87reform of the securities clearing system. The relevant authorities commenced the tasks
required to change the CSD (Central Securities Depository) to enable JASDEC’s
corporatisation. The changes to the CSD were instituted in April 2002, officially making
JASDEC a company with shares.
The process of corporatising JASDEC was not the same as that used in the case of theTokyo Stock Exchange, the legal person (corporate) status of which remained the same
when the legal entity as a legal person with members was restructured as a company
with shares.
This is because the Japanese judicial system governing the legally incorporated
foundations like JASDEC, which were public-interest corporations, differs significantly
from the legal system governing business corporations, i.e., profit-making corporations.
And there is no system under existing legislation that allows public-interest
corporations to restructure themselves to become another kind of legal entity such as
profit-making corporations, while maintaining their legal person (corporate) status.
Thus, as a means of converting a public-interest corporation to a business corporation,
the authorities adopted the method of transferring the operation of the incorporated
foundation to the business corporation after its dissolution, in order to enable thepractical corporatisation of the public corporation.
In terms of specific procedures, a new company to which depository services weretransferred was established in January 2002, and through subsequent capital injection,
the framework of the business corporation was laid out.
In June 2002, JASDEC became a business corporation after the authorities concerned
approved the transfer of business.
In addition, the Law Concerning the Transfer of Short-term Bonds （CP: Commercial
Papers） was put into force, which governs the issuance of electronic commercial
papers. Because the depository organisation is required by law to be a businesscorporation, JASDEC had to become a business corporation in order to processelectronic CPs.
On January 10, 2003, JASDEC was designated under the Law Concerning
Book-Entry Transfer of Corporate Bonds, etc. (2001, No.75, termed Law on Bond
Book-Entry Transfer below) as a depository agency, to handle various kinds of
securities, and began to play a crucial role in the paperless issuance of bonds under thelaw.
The corporate policies of JASDEC, as a business corporation, are(1) to focus on users and pursue highly transparent management,(2) to provide functions equivalent to those of an overseas CSD, and(3) to provide extremely safe and less expensive services.
Given its public nature as a social infrastructure, many of JASDEC’s directors are
representatives of participating securities firms and banks, in order to ensure governanceby participants.
An Operations Committee was formed to take opinions from business experts andmake changes on their basis. Subcommittees were also formed for different projects, theproceedings of which are published on the JASDEC website.
2. JASDEC and the promotion of reform of the securities clearing system
In recent years, many countries have vigorously proceeded with reform of their88

securities clearing systems in order to enhance their competitiveness in capital markets.
Japan is also engaged actively in the reform process, employing IT technologies andlaunching the DVP (Delivery Versus Payment = a clearing system to avoid outstandingbalances) and STP (Straight Through Processing＝electronic processing of trading
through settlement).
(1) Establishment of short-term corporate bond (electronic CP) depository andclearing system
On January 10, 2003, JASDEC was designated a depository institution under the“Law Concerning Book-Entry Transfer of Corporate Bands, etc.” and commenced
operation on March 31.
Traditionally, commercial papers were in the form of paper notes and had to bedelivered to the assignee for settlement in Japan since 1987.
Under the new JASDEC system, CP processing became paperless, completing theprocess of CP issuance, redemption, and transfer through the electronic paper
book-entry system. Through this system, the settlement cycles can be shortened,
potential risks pertaining to the delivery of printed securities are eliminated, andcustodial costs are also abolished.
JASDEC’s short-term corporate bond depository and clearing system adopts the DVP
clearing system, which handles individual securities and related capital in a set (alsocalled gross=gross type, BIS 1 model). The DVP clearing system, which settles
individual accounts on a real time basis, ensures the security of transactions andmaterialises the settlement of accounts, which satisfies issuer’s need for quick
financing.
The limited type of the face value of CP notes was also harming distribution.
As stamp duty is imposed by individual paper note, the issuers tried to reduce theprinting cost by issuing CP in a larger face value.
Electronic commercial papers avoid such constraints, enabling the issuance andtransfer of CP in smaller values. And as a result electronic commercial papers creates
flexibility in capital management and financing.
(2) Implementation of the general DVP clearing system
The DVP clearing system is essential to avoiding the principal risk (due tonon-payment of price or non-receipt of securities notes).
In addition, coordinated operation between the DVP clearing system and the STP
system is required for efficient DVP settlement.
In particular, there was a significant need for such settlement with institutional
accounts.
The general DVP settlement system for stocks, etc. was commenced in May 2004 tolaunch the DVP clearing scheme for the settlement of shares for securities firms, trustbanks targeted at institutional investors, and standing proxy (custodian) banks.
The securities gross type (=capital net type) DVP clearing system was introduced tothis settlement system, linking the settlement order information for the clearing of
securities such as stocks, via the pre-settlement matching system (PSMS) , whichenabled efficient DVP settlement.
This DVP clearing system settles securities transactions by each settlement order, i.e.,by the gross of individual transactions.
89

The JASDEC DVP Clearing Corporation (JDCC), a wholly owned subsidiary of
JASDEC, undertakes clearing services as CCP (Central Counter-Party=clearingorganisation to accept debts and credits for those concerned and settle the account) by
taking collaterals from the DVP clearing parties and managing risks.
While the capital is settled in a net amount at the end of the day, as the DVP Clearing
Corporation (JDCC) manages risk, DVP clearing with no principal risk is realised. DVP
clearing parties are required to pledge a membership fund (cash) to DVP Clearing.
In terms of settlement of stocks, the Stock Exchange DVP Settlement System has
been operating for Exchange Trading (stock exchange trading/DVP settlement was
launched in the Tokyo Stock Exchange and the Osaka Securities Exchange in May
2001.
The Japan Securities Clearing Corporation has also implemented DVP as CCP since
January 2003), but the DVP settlement for institutional investors has not been realised
yet, nor is there an international standard.
The general DVP clearing system used as a model the DVP clearing system of the
US’s DTC, and it has raised the level of security and efficiency of Japanese stock
settlement to a global standard.
3. Expansion of Pre-Settlement Matching System (PSMS)
The Pre-Settlement Matching System (PSMS) enables institutional investors,
securities firms and trust banks to handle post transaction checking via electronic
processing (eliminating the person-hours required to send FAXes or make calls) .
JASDEC implemented the Pre-Settlement Matching System (PSMS) for domestic
trades by domestic institutional investors in September 2001.
In February 2002, PSMS was expanded to cover trades by non-resident investors,
public offering, placement, and trading of corporate bonds with share warrants(convertible bonds and corporate bonds with share warrants before the revision of theTrade Act on April 1, 2002).
In addition, in May 2003, PSMS was expanded to cover Japanese Government Bonds(JGB), futures/options and transmission of information on net asset value per share andinformation on price setting/termination from securities investment trust managementcompanies to trust banks.
When the general DVP clearing system was launched in May 2004, the operational
linkage with PSMS was materialised.
To further improve the level of services, PSMS commenced operation to handle JGB
repo trading and commenced providing pre-settlement matching services for the newly
established Japan Government Bond Clearing Corporation (JGBCC).
Since January 2006, PSMS has been connected to the depository and clearing system
for short-term corporate bonds (CP) as well as for general bonds.
4. Implementation of depository and clearing system for general bonds (corporate
bonds, investment-and-loan bonds, and local bonds)
Historically, in Japan the settlement of corporate bonds, investment-and-loan bonds,
and local bonds was processed through the renewal of registration at about 160
registration agencies throughout the country. While the “Japan Bond Settlement
90Network”, commonly called JB-Net, functioned to connect the registration agencies andmarket players, and the system to electronically process DVP settlements existed via alinkage with BOJ Net, there were still many physical invoice transactions issued inwriting. Thus the overall depository and clearing system for general bonds was still
inefficient and it remained difficult to increase its quality.
It was considered that a hierarchically structured depository and clearing system was
required to enable efficient settlement. Efforts have therefore been made to enact
related laws to enable reform of the securities clearing system in Japan.
In January 2003, the “Law Concerning Book-Entry Transfer of Corporate Bonds,etc.” went into effect to allow paperless settlement of general bonds.
In January 2006, JASDEC inaugurated its book-entry transfer system for Corporate
Bonds, becoming the only clearing agency which processes book-entry transfers inJapan. As this system presupposes the application of STP in the DVP settlement, it led
to a significant advance in the application of STP/DTP in securities settlement in Japan.
The transition period for existing bonds issued as cash bonds and registered bonds ends
in January 2008. The efficiency of corporate bond settlement should significantly
improve when the transition is completed, and the liquidity of the Japanese corporatebond market is also expected to increase significantly.
5. Toward the establishment of a depository and clearing system for investment
funds
The Law Concerning Book-Entry Transfer of Corporate Bonds, etc. is the legal
framework to advance a paperless depository and clearing system related to thebeneficiary rights of investment funds, as in the case of short-term corporate bonds andgeneral bonds, but it is different in that the places of short-term corporate bonds andgeneral bonds, the focus on origination and termination.
JASDEC set up a Trust Fund Subcommittee to provide the foundation for paperlessprocessing in origination/pricing, transfer, and termination/redemption of trust funds.
After intensive discussions, the subcommittee published an outline of the system in
September 2004. With the efforts made by concerned parties, the JASDEC trust funddepository and clearing system commenced operation in January 2007.
6. Paperless processing of stock certificates (computerised processing of stock
certificates)
Paperless processing of stock certificates is the final goal of computerising processingof securities instruments. The computerised processing of stock certificates was the lastprocedure to be initiated in the gradual transition to computerisation because intensive
study of its effects was required.
This is because stock trading emphasises investor rights (right to self-interest andright to common interest) such as dividends and voting rights, and these rights of stock
owners are registered on a stockholder list. In addition, there are many stockholders, themajority of whom are keeping their stock certificates on hand.
JASDEC has been providing depository services as a depository center for stock
certificates since 1991. At present, about 75% of issued shares of listed companies aredeposited with JASDEC. In terms of the settlement of the shares listed at stock
exchanges between securities firms, JASDEC facilitates deposit of securities without91

any physical delivery of securities. In a similar manner, transactions by institutional
investors and non-residents are processed by securities firms (brokers and dealers)and custodian banks in most cases through JASDEC’s depository and clearing system
without any physical delivery of securities.
In this sense, while computerisation of securities trading had in fact been broadly
implemented, there was a limit to the extent that administrative costs required fordepositing and transferring share certificates or the cost on issuers was reduced, since
there were a relatively large number of actual stock certificates.
The Legislative Council of the Ministry of Justice proposed in 2003 to introduce asystem which promoted computerisation, and in the following year the Financial
Services Agency and the Ministry of Justice submitted a proposal for the revision of the
Law Concerning Book-Entry, Transfer of Corporate Bonds, etc. and the Commercial
Law to the Diet, which passed the revisions.
Before the listed companies and market players actually adopt this system,
administrative procedures, market practices, and computer system design need to beconsidered.
Furthermore, it is essential to familiarise investors (stock holders) with the newpaper-less system and raise the ratio of the pre-depository of the paper based stock
certificates with JASDEC in order to ensure a smooth transition. The computerisationof stock certificate processing is scheduled to be realised in 2009.
7. Summary
The reform of the securities clearing and settlement system in Japan has madesignificant progress through the establishment of clearing agencies and the realisation ofcross-sectoral computerisation of securities processing, which have advanced
institutional reforms. As a result of efforts made by the business sector, including
JASDEC, the implementation phase may be in the final stage.
While at present there is some cost in terms of system investment in developing thesecurities clearing system, it is desirable that not only market players but also investors
and issuers enjoy the benefits of computerisation through the improvement of userconvenience and cost reductions via the realisation of STP, DVP, and paperlessprocessing.
In order to achieve this goal, both JASDEC and market players should set up a
specific goal to improve the efficiency of the securities clearing system and to raise
Japan’s global competitiveness.
JASDEC’s basic corporate philosophy (established in June 2006) is that it “recognises
its public role as the only securities depository center in Japan, and the continuouschanges in both the domestic and the international environment and investment
structures surrounding the capital market, while, from the viewpoint of both investors
and users, JASDEC contributes to the development of society and the functions of the
securities market, as a leader of the reform in the securities clearing and settlement
system aimed at building highly credible, convenient and efficient securities clearing
infrastructure.” It is essential for market players (=JASDEC sponsors) to share thisconcept and cooperate with each other to improve the level of capital market
infrastructures in Japan as well as in the Asian region, under a national strategy.
(NIRA Secretariat)
92

Appendix
June 19, 2007

The Charter of the Capital Markets Association for Asia (CMAA)(Revised on July 11, 2007 / September 06, 2007 / December 06, 2007 / February 28, 2008)

1. Background to the Establishment of the Capital Markets Association for Asia (CMAA)
Following on from the publication of a report by the Study Group on theInternationalization of Japan’s Financial and Capital Markets (Ministry of Finance) in March 2003, a
forum entitled “Keio-NIRA Asian Capital Markets Study Forum” was held on October 18 and 19,
2003 at Keio University in Tokyo under the joint auspices of the Center of Excellence (COE), Keio
University (headed by Professor Naoyuki Yoshino), and the National Institute for Research
Advancement (NIRA; Former Chairman: Mr. Yotaro Kobayashi, Chief Corporate Advisor of Fuji
Xerox Co., Ltd.), a think tank under the supervision of the Cabinet Office.
A total of 60 participants from six Asian countries joined the forum, including officials
from the finance departments of leading issuing companies in bond and capital markets, institutional
investors, working-level managers of Japanese and foreign banks and securities firms, andrepresentatives of regulatory authorities, securities depository organisations, rating agencies, lawfirms, research institutes and the press.
The presentation of research papers in English by a total of 20 researchers, ten from Japanand ten from other Asian countries, was followed by intensive discussions.
The establishment of the Asian Capital Markets Study Group was also announced at theforum. The Study Group, a voluntary association of regional private-sector companies and financial
institutions, was formed to enable the opinions of market participants to be reflected in the Asian
Bond Market Initiative being promoted by the Association of Southeast Asian Nations (ASEAN),
Japan, China and South Korea.
(Minutes) http://www.nira.go.jp/newsj/kanren/150/157/index.html
Following this, in accordance with the concept of the foundation of the Asian CapitalMarket Study Group, studies on the establishment of international bond markets in the Asian region
were conducted by NIRA and other relevant organisations.
On March 27, 2006, a joint NIRA-ADB forum was held in Tokyo, at which the results ofstudies conducted by NIRA were presented to participants as a NIRA policy proposal (interim
report).
The atmosphere of the forum, encompassing the presentation of the proposal, panel
discussions, and exchanges of opinions between participants, was positive and energetic.
At the conclusion of the forum, a questionnaire survey on the draft proposal prepared by
the NIRA study team was conducted, and the proposal was endorsed by approximately
three-quarters of participants.
(Minutes) http://www.nira.go.jp/newsj/kanren/170/178/index.html
On May 15, 2006, NIRA announced the “Proposal for the Establishment of an AsianInter-Regional Bond (Asian Bond) Market -- A Road Map to an Asian Inter-Regional Bond PrimaryMarket.” (In addition to Japanese and South Korean joint researchers, the study group that prepared
the proposal was participated in by numerous scholars, market practitioners, and observers).
(Proposal)
Japanese http://www.nira.go.jp/newsj/kanren/170/179/index.html
Englishhttp://www.nira.go.jp/newsj/kanren/170/179/proposal.pdf

The results of NIRA’s research have been published by LexisNexis as a book entitled Ajia
Ikinai Kokusai Sai Shijyo Sosetsu Koso – Ajiabondo Shijyo e no Rodo mappu (“Vision for the
Establishment of an Asian Inter-Regional Bond Market – A Road Map to an Asian Bond Market”)(written and edited by Shigehito Inukai, representative of the NIRA study team).
93http://www.nira.go.jp/pubj/shinkan/s200703/s200703_2.html
http://www.yushodo.co.jp/press/ln_asian_intl/index.html
The aim of NIRA’s May 2006 proposal, mentioned above, was as follows:(1) to foster financial market personnel in the Asian region;(2) to establish a forum for the generation of market innovations; and(3) to create and foster regional financial and capital markets, including an Asian inter-regional
capital market, a self-contained market enabling savings accumulated in the region to
circulate within the region.
At this time, NIRA also proposed the establishment of the Capital Markets Association for
Asia (CMAA) in order to facilitate financial and capital market transactions by market participants,
including Asian companies as the principal users of the market, by establishing and fostering
financial and capital markets in the Asian region.
To enable these goals to be achieved, the Capital Markets Association for Asia (CMAA)
was established as a voluntary association by NIRA study team members and others on June 19,
2007. Mr. Nobuyuki Idei, Founder & CEO of Quantum Leaps Corporation (former Chairman ofSony Corporation) is Chairman of the CMAA, and Mr. Keiji Matsumoto, one of the founders of thelegal office “Hamada and Matsumoto (Current Name: Mori, Hamada and Matsumoto),” is the
Association’s Vice Chairman.
2. The Purpose of the Capital Markets Association for Asia (CMAA)(1) Formulation of self-governing rules for issuing entities and other users of the regional financial
and capital markets(2) Coordination of opinions of issuing entities and other users of the capital markets as well as
institutional investors, intermediaries and other market participants regarding legal systems andrules related to the capital markets in the Asian region, including Japan(3) Engaging in efforts to reach out to all relevant quarters so that the accumulated results of
exchanges of opinion, discussions and research by CMAA participants will be put into practice,including the presentation of results in the form of proposals.
(4) Conducting research, formulating proposals, spreading information and conducting activities toincrease awareness concerning the establishment and creation of legal structures, rules, practices
and other market infrastructure for the Asian Inter-regional Professional Securities Market(AIR-PSM), an important constituent element of capital markets in the Asian region.
(5) Research concerning the fostering of financial personnel and financial education for Asianfinancial capital markets and the presentation of proposals.
(6) The ultimate purpose of the CMAA is, through the above activities, to increase the reliability
and convenience of all financial and capital markets in the Asian region and to establish
appealing markets for all users.
3. About the CMAA
(1) Name:
Capital Markets Association for Asia (CMAA)(2) Status of Study Group: A voluntary organisation bringing together participants who agree withthe purpose of establishment of the CMAA. Basically, members join in an individual capacity,
but corporate entities are not prevented from joining.
(3) Membership fee: No membership fees(4) Admission to the Association: Admission of new members is decided by the Chairman or Vice
Chairman based on the recommendation of several existing members.
(5) Framework for activities: At present, Mr. Shigehito Inukai (Director of Policy Study and Senior
Fellow, NIRA), Secretary-General of the CMAA, and Mr. Masaaki Uchiyama (President & CEO,
TradeWin Co., Ltd.), Secretary of the CMAA, are acting as liaison for the CMAA.
The CMAA holds a regular meeting once a month (normally on the first Thursday of the month,from 6:30 p.m.) at NIRA or at venues provided by members of the Association. Individual
Working Group meetings are held as necessary.
(6) Inauguration: The inauguration of the CMAA was officially announced at the “General94Meeting for the Establishment of the Capital Markets Association for Asia” held on June 19,
2007, from15:30-17:30, in TradeWin’s Conference Room.
4. CMAA’s Areas of Research (Working Group)
We establish the following working groups within the CMAA. Deliberations will commencefrom the areas of greatest interest and concern to participants.
Following their establishment, the working groups will commence discussions towards theformulation of proposals and recommendations in their respective areas.
We expect some of these working groups to present their first set of recommendations by the endof March 2008, to coincide with the publication of the Road Map.
(1) Working Group on Market Practices, Legal and Documentation (New Issue Practices,
Market-making Rules, Syndication Rules, Disclosure, Governing Law and Underwriting
Contracts)(2) Working Group on Market Systems Infrastructure, Clearing and Settlement
With respect to market rules, we will refer to the Recommendation of the IPMA (now theICMA) in considering details.
5. Structure of CMAA (as of February 28, 2008)(◎Founding members) (Officials: 13; Members: 22)
Nobuyuki Idei
CEO of Quantum Leaps Corporation◎ Chairman
Keiji Matsumoto
Lawyer, Matsumoto Law Office◎ Vice Chairman
Shigehito Inukai
Director of Policy Study and Senior Fellow, NIRA
◎ Secretary-General andExecutive President
Visiting Professor, Waseda University

Officials (in random order)
◎
◎
◎
◎
◎

Satoshi Yoshida
Hirohiko Suzuki
Masaaki Uchiyama
Mamoru Fujimoto
Ryoji Sato

◎ Masaharu Murakami◎ Toru Yoshimi◎ Nobusuke Tamaki◎ Kazuyuki Hirai◎ Kenichi Maeda

General Manager, IT Planning Department, Daiwa Securities SMBC Co., Ltd.
Director, Investment Banking Division, Barclays Capital Japan Limited
President & CEO, TradeWin Co., Ltd.
Managing Director, TradeWin Co., Ltd.
Senior Administrative Officer, General Manager of President’s Office, Legal
Department and Risk Control Department, Hitachi Capital Corp.
Senior Manager, Planning Section, Payment Solutions Sector, NTT DATA
Corporation
Vice President, Commercial Division, SWIFT Japan
Executive Director, Treasury Department, Deposit Insurance Corporation of Japan
Director, Quality Management Department, Chuo Mitsui Information Technology
Co., Ltd.
Senior Manager, Global Planning Dept., Global Markets Planning Division,
Mitsubishi UFJ Securities Co., Ltd.

Members (in random order, limited to official members of the Association)◎ Yasuhiro Harada◎ Keiichiro Hashimoto◎ Masahito Miyachi◎ Mineo Yato
◎ Katsunori Kudo
◎ Tsuyoshi Ando
◎
◎
◎
◎
◎

Ryu Mishima
Yusuke Masuda
Yasumasa Nakayama
Choi, Hosang
Naoko Morizane◎ Takayuki Nakamura◎ Hironao Fukushim

Chairman & CO-CEO, Rating and Investment Information Inc. (R&I)
CEO, Fitch Ratings Ltd.
Senior Advisor, Office of Regional Economic Integration, Asian Development Bank
(ADB)
Director, Investment Banking Division, Nikko Citigroup Limited
Senior Advisor for Capital Markets, Nomura Securities Co., Ltd.
Senior General Manager, Capital Markets Group, Global Investment Banking
Groups, Mizuho Securities Co., Ltd.
Director, Head of OriginationⅡ, Global Capital Markets, Deutsche Securities Inc.
Director, Japan Asia Holdings Limited
Syndication, Fixed Income, Morgan Stanley Japan Securities Co., Ltd.
Economist/Senior Vice President, FSB Research Center, Shinhan BankManager, Marketing New Financial Systems Business Planning Division, NEC
Corporation
General Manager, Financial Planning Office and Investor Relations Office,Management Planning Division, REICOF Co.,Ltd.
Deputy Head, Investment Banking Headquarters, ORIX Corporation95◎ Shupu Jiang◎ Katsunobu Katayama◎ Ittetsu Mori
◎ Takayuki Aoi◎ Takaki Nakano◎ Tomohiko Koga
Katsumasa Suzuki
Joanne O'Callaghan
Akihiro Era

Finance & Treasury Dept., Komatsu Ltd.
Group Vice President, Risk Management Group, Toyota Financial Services
Corporation
Manager, International Finance Section, Corporate Finance Division, Mitsubishi
Electric Corporation
Treasury Department, Finance Division, Fujitsu Limited
Finance & Accounting Office, Sumitomo Chemical Co., Ltd.
Manager, Commercial Property Investment Planning Department, Mitsubishi EstateCo., Ltd.
Lawyer, Mori, Hamada and Matsumoto
Head of Communications Asia Pacific, SWIFT Hong Kong
Senior Advisor, Brown Brothers Harriman Investment Service

Liaison Official in charge of Korean members concerned◎ Hyun Suk

Bond Market Specialist in Charge of ABMI Task Force, International Finance
Department I, Japan Bank for International Cooperation (former Visiting
Researcher, NIRA)

Toshiro Nishizawa

Deputy Director General, JBIC Institute, Japan Bank for International Cooperation(Senior Economist, International Finance Group)
Deputy Director, Division II, International Finance DepartmentⅠ, Task Leader,
ABMA Task Force, Japan Bank for International Cooperation
Chief Fund Manager, Pension Fund Association
Director, Securities Sector Committee, International Bankers Association (IBA)
Executive President, ICMA (International Capital Market Association)
Secretary of Corporate Finance and Treasury Association of Japan (CFTAJ) andJapan Capital Markets Association (JCMA)

Observer Members
Seigo Baba
Tsutomu Kawasaki
Hiroshi Tsunoda
Rene Karsenti
Masaki Deguchi

Advisors
Hideki Kanda
Kazuaki Sono
Tatsuo Uemura
Tony Grundy

Professor of Law, Graduate School of Law and Politics, University of Tokyo
Professor Emeritus, Hokkaido University and Tezukayama University
Dean of the Faculty of Law and the School of Law, Waseda University, andDirector, 21st Century Center of Excellence, Waseda Institute for Corporation Law
and Society
Joint Managing Partner, Tokyo, Gaikokuho Kyodo-Jigyo Horitsu Jimusho
Linklaters (Linklaters Tokyo)

Affiliate Member
ICMA (International Capital Market Association, formerly IPMA)
21st Century Center of Excellence, Waseda Institute for Corporation Law and Society

6. Contact Information for CMAA
Contact Address (1)Mr. Shigehito Inukai

shige.inukai@nira.or.jp
Tel: +81-3-5448-1710
shige.inukai@river.dti.ne.jp
Fax: +81-3-5448-1744
Director of Policy Study and Senior Fellow, National Institute for Research Advancement (NIRA)
Visiting Professor, Waseda University
Yebisu Garden Place Tower 34th Fl., 4-20-3, Ebisu Shibuya-ku, Tokyo 150-6034, Japan
Contact Address (2)Mr. Masaaki Uchiyama
uchiyama@tradewin.co.jp
Tel: +81-3-6821-0200
Fax: -81-3-3544-5650
President & CEO, TradeWin Co., Ltd.
1-12-6, Tsukiji, Chuo-ku, Tokyo 104-0045, Japan
Contact Address (3)SWIFTCommunity.net Person in charge
Ms Joanne O'Callaghan
joanne.ocallaghan@swift.com
Tel: + 852-2107-8734
Fax:+852-2107-8733
Head of Communications Asia Pacific, SWIFT Hong Kong
S.W.I.F.T. SCRL
31st Floor, One IFC, 1 Harbour View Street, Central, Hong Kong

CMAA’S Home Page can be accessed through www.swiftcommunity.net within members

96

Editor of this Report
Shigehito Inukai

Director of Policy Study and Senior Fellow, the National Institute for Research
Advancement (NIRA)
Visiting Professor, Waseda University
Secretary-General and Executive president, Capital Markets Association for Asia (CMAA)
Secretary-General, the Japan Capital Markets Association (JCMA)

Shigehito Inukai

Hirohiko Suzuki
Satoshi Yoshida

Director of Policy Study and Senior Fellow, NIRA
Visiting Professor, Waseda University
Secretary-General and Executive president, Capital Markets Association for Asia (CMAA)
Secretary-General, the Japan Capital Markets Association (JCMA)
Professor of Law, Graduate School of Law and Politics, University of Tokyo
Lawyer, Matsumoto Law Office
Professor Emeritus, Tezukayama University and Hokkaido University
Bond Market Specialist in charge of ABMI Task Force, the International Finance
Department I, Japan Bank for International Cooperation (JBIC)
Director, Investment banking Division Barclays Capital Japan Limited
General Manager, Information Technology Department, Daiwa Securities SMBC Co. Ltd.

Shigehito Inukai
Naoko Mori
Nao Akimoto

Director of Policy Study and Senior Fellow
Research Fellow, Policy Research Department
Research Assistance Division, Policy Research Department

List of Authors (in alphabetical order)

Hideki Kanda
Keiji Matsumoto
Kazuaki Sono
Hyun Suk

NIRA’s Project Staff

Profile of the Editor
Shigehito Inukai(Career):
2004-Present
Visiting Professor, Waseda University
2004-Present
Director of Policy Study and Senior Fellow, NIRA
2002
Dispatched to NIRA, following completion of Harvard Business School AMP
2000-Present
Senior Professional (General Manager), Mitsubishi Corporation
1987-1994
Executive Director, Mitsubishi Corporation Finance PLC, London
1975
Joined Mitsubishi Corporation(Education):
2002
Completed Advanced Management Program (AMP), Harvard Business School（HBS）
1975
B.A., Political Science, Keio University(Research Interests):
Policy related to financial and capital market systems, financial ADR, corporate finance, and cash management(Major Publications):
As co-author :S. Inukai, Grand Design for an Asian Inter-Regional Professional Securities Market (AIR-PSM), LexisNexis, 2008
(in English)
T. Uemura / H. Kanda / S. Inukai, Grand Design for Financial Services and Markets Legislation, Toyo Keizai,
2007 (in Japanese)
S. Inukai / K. Tanaka, Towards a Japanese Financial Ombudsman System, LexisNexis, 2007 (in Japanese)
S. Inukai, Initiative for the Establishment of an Asian Inter-Regional Bond Market, LexisNexis, 2007 (in Japanese)
N. Yoshino / N. Tamaki / S. Inukai, Enhancing Market Functions in Japan, Keio Press, 2006 (in English)
S. Inukai, et al, Electronic Commercial Paper, Toyo Keizai, 2004 (in Japanese)
S. Inukai, et al, Global Standards and Liquidity Management, Ric Telecom, 2000 (in Japanese)
As editor and author (NIRA publications):
Proposal for Strategic Local Government Bond Market Reforms, NIRA, 2006 (in Japanese)Grand Design for the Financial Services & Market Act in Japan (NIRA Market Governance Report 2005 1/2/3),
NIRA, 2005 (in Japanese)(NIRA Projects):
Research towards a Vision for Financial Market Reform(Other):2007-Present
Secretary-General and Executive President, Capital Markets Association for Asia (CMAA)
2007-Present
Member of the Japan Society of Monetary Economics
2002-Present
Secretary-General, Japan Capital Markets Association (JCMA)
2001-Present
Member of the Nippon Finance Association(31st March, 2008)

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Thank You

平成 20 年 3 月 31 日 第１版第１刷発行
編著者 犬飼 重仁 （いぬかい しげひと）【発行】レクシスネクシス･ジャパン株式会社【発売】株式会社 雄松堂出版
本体 4,500 円+税
ISBN: 978-4-8419-0493-2

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