The initiative will, as a start, place focus on four broad areas, namely: (a) legal, regulatory and supervisory framework, (b) risk management, (c) liquidity enhancement, and (d) market infrastructure for trading, clearing and settlement. The Asian Bond Market Initiative also encourages technical cooperation amongst ASEAN and the plus 3 countries of China, Japan and Korea. Profiling Asia Secondly, profiling Asia. More than 6 years have passed since the Asian financial crisis. Most Asian economies have fully recovered. Confidence has returned and growth momentum restored. Asian countries can continue to engage international investors at an individual country level. There are, however, merits to working together to profile Asia in a more concerted manner. A collective effort will have greater pulling power and generate far greater interest from investors. The region has taken large strides in stepping up the pace of reforms since the Asian crisis. It is perhaps timely for regional governments to join hands and raise the profile of the region. As a start, the ASEAN countries have agreed at the recent ASEAN Finance Ministers’ Meeting to organise efforts to profile ASEAN better. International investors can then have the opportunity to appreciate more fully the progress and reforms ASEAN economies have made since the Asian crisis. 2  BIS Review 22/2004  Exchange alliances Thirdly, extending regional collaboration to the exchanges. The region can derive greater benefits by working together. The successful launch of Asian Bond Fund I and the impending launch of Asian Bond Fund II clearly demonstrate this.

Exchanges in the region have already taken steps to adapt to the evolving competitive landscape. Many have restructured, demutualised, and expanded their product offerings. One area where more can be done is to explore deeper strategic collaboration amongst exchanges in the region. Liquidity is vital to the development of a stock market. Markets with higher levels of liquidity tend to have higher stock valuations. Asian stock markets are, however, generally smaller in size and less liquid than the stock markets of the more developed countries. Asian exchanges’ share of trading typically account for less than 20% of global trading volumes. Asian savings are thus still largely intermediated through the more developed markets. It is sensible to work towards greater integration of Asian stock markets to attract both international investors’ interest as well as the growing pool of Asian savings. The regional exchanges should consider closer collaboration in order to create a larger network. Strategic alliances amongst exchanges, whether in the areas of trading, or clearing and settlement initiatives, may therefore be a way for Asian exchanges to create value in the increasingly competitive marketplace. An exchange alliance, which can take various forms, is not only a means to provide a more efficient mode to service cross-border trading but is also a step towards building a pan-Asian market place. Market linkages will help broaden product offerings for investors and generate greater international interest in Asian securities. A more centralised counterparty arrangement will allow better management of collateral and counterparty risks.