BCIM-EC: The prospects of a regional stock exchange

Dhaka,  Tue,  25 October 2016
Published : 18 Oct 2016, 20:23:58 | Updated : 18 Oct 2016, 20:24:27

BCIM-EC: The prospects of a regional stock exchange

Maruf Khan
After 15 years of intense dialogue and cooperation with two major economic powerhouses of the region as its members, the BCIM forum, comprising Bangladesh, China, India and Myanmar,  has now become an important sub-regional cooperation mechanism, aimed at greater integration of trade and investment among the four member countries.

Accelerating the much-needed cross-border infrastructure construction can help ease bottlenecks of regional infrastructure requirements which will effectively guarantee smooth, convenient and efficient cross-border logistics movement as well as improve human capital and prompt industrial development in the BCIM region.

Bangladesh-China-India-Myanmar (BCIM) Economic Corridor needs huge funds, both from private and public sectors to support infrastructural constructions such as harbour, railways, ports, energy and power, highways and other areas like industrial park / free trade zone and many other projects related to BCIM economic co-operation.

The constructions of such kind are featured by large-scale investment, long construction period, associated risks, multi-currency involvements, economic priorities of each countries, and strong social and public welfare characteristics. The propensity of investment of each country at private sector level as well as annual development funds available for most countries will be one big factor to contribute in such investment/funding requirement. Depending heavily on public funding and budgetary allocations makes the project implementation rather longer and unrealistic. There will be obvious maturity mismatches and liquidity risks if short-term financing is utilised to support these kinds of projects. The capital markets in BCIM countries provide limited assistance in infrastructure financing because most of them operate at different efficiency levels, making financing in infrastructure project rather difficult through regular capital market participants. A concerted effort should be made which would enable issuing multi-currency instruments as well as create long-term financing mechanism, cross- border listing and trading facilities, adhere to international listing, accounting and disclosure requirements, offer liquidity and exit routes for various investors appropriate for investing in infrastructure and participation by both institutions as well as public sectors in such financing mechanism. And there comes the purpose of creating a new stock exchange with multilateral participation.

THE IDEA OF FORMATION OF A REGIONAL STOCK EXCHANGE: China Kunming International Logistics and Finance Association (hereinafter referred to as ILFA), South Asia Federation of Exchanges (hereinafter referred to as SAFE) and Exchanges from BCIM member-countries as well as Exchanges from SAFE member-countries and financial institutions exchanged the idea of formation of a regional stock exchange with an aim of funding constructions related to BCIM Economic Cooperation. The proposed stock exchange will be set up in Kunming, China and will initially trade products to include Yuan-denominated securities, RMB bonds, RMB fund and RMB Index products. These products can be listed in other partner exchanges, which will then allow theregion to participate in cost and financial benefits of such economic corridor construction.

In order to co-ordinate, facilitate and consolidate the process of regional economic cooperation and create cross-border trade and investment opportunities both at public and private sector level, ILFA has now been set up in Kunming with the support of the Chinese government.

ILFA is working out connectivity and cooperation areas covering Southeast Asia, South Asia and Indian Ocean regions and will work towards creating financial infrastructure and providing financing for mega projects including roads, land, sea and deep sea ports, significant projects, construction of industrial parks, free trade zones, etc.

In other words, ILFA, among other objectives, is exploring the possibilities of creating platforms for international stock exchanges, researching on financial instruments, formation of international logistics organisations and regional financial organisations for ensuring financial interconnectivity of the region and has, therefore, proposed for formation of a new stock exchange to be named Kunming Silk Road Stock Exchange.

 It may be mentioned here that ILFA and South Asian Federation of Exchanges (SAFE), an industry association of all stock exchanges of the region, signed a Memorandum of Understanding for mutual cooperation in mid- November 2013 as well as in January 2014 and since then both the organisations have been in touch highlighting more closer areas of cooperation including a proposition in providing SAFE's regional experience on regional financial integration issues.

A Declaration of Charter was signed in last June 2014 in China among interested stock exchanges of BCIM as well as stock exchanges of other SAFE members, both participants and observers. Countries expressed their interest in formation of a new stock exchange (initially named as Pan Asian Stock Exchange) which is to serve as investment and trading platform, establish a cross-border opening of China-South Asian investment cooperation in both public and private sectors, determine appropriate method for financing and selection of currency denominations for kind of projects undertaken under BCIM and regional initiatives.

The aim was to create an institution within the participating countries which would focus on creating a trading venue and trading platform through formation of a regional stock exchange which is participated and/or supported by most countries of BCIM and SAARC. It will also aim to act as an official platform for research and development centre for investment-related matters across BCIM and SAARC member-states and address other issues of common interest of BCIM in relation to facilitation of investment, both in public and private sectors. This will work towards common standards for listing, trading, clearing, settlement and investors' protection as well as harmonising International Accounting Standards or Generally Accepted Accounting Principles and best business practices for these regional securities markets and will act as advisor to the governments on investment dialogues.

PREPARATORY PROCESS: The Financial Affairs Office of Yunnan People's Government approved the preparatory process for establishment of Kunming Silk Road Stock Exchange. The Exchange aims at trading relevant stocks, which will be listed in other stock exchanges of South Asian countries in addition to finding a financing mechanism for infrastructure construction among Silk Road countries and Oceania. For this purpose, the director of the Financial Affairs Office of Yunnan People's Government (YFAO) led a delegations to visit Pakistan, Sri Lanka and Bangladesh during April and May last year.

It is planned that the proposed stock exchange and its partners will create the RMB Offshore Trading Centres and RMB Clearing and Settlement Centres for facilitating trading of stocks listed in the KSRSE. It is also considering to provide services to the respective governmental agencies in areas of cross-border financial surveillance projects and the clearing and settlement of RMB and related currencies.

The initiative will help improve governance standards of capital market constituents, promote investors' education and awareness in the region through independent publications, seminars and conferences in collaboration with ILFA, SAFE members and other entities, work and provide facilities for educational/skills development, human resources training and spread of capital market knowledge in the region.

All these are possible with the creation of Regional Regulatory Committee (applicable when a cross-border listing and investments is initiated).  Domestic investors can invest in other countries and foreign investors can invest in domestic securities knowing that they will encounter broadly similar regulations, information, trading systems, settlement systems, accounting standards, and governance standards throughout the region. For issuers, it implies that domestic issuers can raise capital in foreign markets and foreign issuers can raise capital in domestic markets, again knowing that they will encounter broadly similar regulations, information, trading systems, settlement systems, accounting standards and governance standards across the region. Safeguards will be created so that only 'qualified cross-border transactions' are within the scope of the Regional Regulatory Council. Qualified cross-border transactions can be defined at a later date.

Support and acknowledgement from all governments, its regulators and all stock exchanges are required. ILFA's efforts will focus on areas, which usually fail to attract huge required capitalisation and promote mostly long-term infrastructural investment, which is largely ignored by short- term commercial interests.

Kunming Pan-Asian Financial Service Centre is planned for creating a multi- functional centre of financial institutions for financial innovations, offering unique financial service, channelising savings and capital. This leads to ultimately providing services to Chinese institutions and individuals towards opening up to Southeast and South Asia, globalising RMB and pioneering the development of the province of Yunnan. Bangladesh and other countries can tap significant amount of Chinese savings and investments into their much-needed infrastructure financing, investment gaps and make significant advancement towards defined development growth plan.

The just-concluded visit of the Chinese President Xi Jinping to Bangladesh declaring its total support to BCIM economic developments will consolidate and accelerate this process even further. Reiteration of support to both initiatives by Prime Minister Sheikh Hasina is an important political endorsement from Bangladesh side towards the development.

Meanwhile, during President Xi's visit, apart from US$ 24.45 billion in bilateral assistance from China for 34 projects, private sectors of Bangladesh and China also signed joint venture agreements worth US$ 13.6 billion during this visit.

Bangladesh is well positioned in terms of proximity, exposure to Chinese businesses and investments, bilateral trade and diplomatic relations to reap most of the benefits of Kunming Silk Road Stock Exchange initiative. Let Bangladesh not miss the opportunity.

The writer is Vice Chairman, Kunming International Logistics & Finance Association based in China and Principal Adviser, South Asian Federation of Exchanges. He was the Past President of Chittagong Stock Exchange Ltd and Past Chairman South Asian Federation of Exchanges. The views expressed are his own.

Maruf Khan marufkhan113@gmail.com
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