Asia Securities Industry and

Financial Markets Association

FACTORS THAT ASSIST THE

DEVELOPMENT OF LIQUIDITY 2009
 Japanese Banks’ Assets Related to Public
Entities for WGBI Included Countries
¾Japanese banks’ assets related to public entities have skyrocketed
since the inclusion of Citigroup WGBI.
Japanese Banks' Claimes to Public Entities
US$ million
02/12 03/3 03/6 03/9 03/12 04/3 04/6 04/9 04/12 05/3 05/6 05/9 05/12 06/3 06/6 06/9 06/12 07/3 07/6 07/9 07/12 08/3 08/6 08/9 08/12

Poland 103 56 293 409 521 758 882 1,032 1,399 1,831 2,000 2,300 2,418 2,506 2,509 2,507 2,991 3,302 3,564 3,319 4,383 5,131 5,176 4,580 3,615

Nor way 198 240 386 832 1,723 1,654 1,515 1,178 1,602 2,418 2,960 3,608 3,101 3,369 3,488 2,866 3,372 3,913 5,295 6,556 7,748 9,332 10,536 9,180 6,814

Singapor e 50 44 57 67 83 89 80 95 308 495 777 728 696 734 920 926 1,010 933 1,181 1,071 1,307 1,347 1,523 1,006 824

Malaysia 1,715 1,625 1,541 1,730 1,545 1,503 1,615 1,420 1,320 1,468 1,530 1,460 1,443 1,421 1,486 1,721 1,739 1,664 1,615 1,856 2,146 2,286 3,220 2,993 2,953

09/3 09/6

Poland 3,088 3,535

Nor way 6,552 7,793

Singapor e 736 727

Malaysia 2,790 2,357

Note；Red character and blue background after WGBI inclusion

Source: International Consolidated Banking Statistics, BIS, Bank of Japan

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Japanese Banks’ Assets Related to Polish Public
Entities
May 2003 Inclusion of Poland in WGBI
US$ million
6,000

5,000

4,000

3,000

2,000

1,000

0
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: International Consolidated Banking Statistics, BIS, Bank of Japan

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 Japanese Banks’ Assets Related to Norwegian
Public Entities
September 2003 Inclusion of Norway in WGBI
US$ million
12,000

10,000

8,000

6,000

4,000

2,000

0
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: International Consolidated Banking Statistics, BIS, Bank of Japan

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Japanese Banks’ Assets Related to Singaporean
Public Entities
January 2005 Inclusion of Singapore in WGBI
US$ million
1,600

1,400

1,200

1,000

800

600

400

200

0
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: International Consolidated Banking Statistics, BIS, Bank of Japan

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 Japanese Banks’ Assets Related to Malaysian
Public Entities
July 2007 Inclusion of Malaysia in WGBI
US$ million
3,500

3,000

2,500

2,000

1,500

1,000

500

0
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: International Consolidated Banking Statistics, BIS, Bank of Japan

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FACTORS THAT ASSIST THE DEVELOPMENT OF
LIQUIDITY

¾ Issuance Program
¾ Existing stock
¾ Market makers
¾ Shorting and repos
¾ Legal framework for shorting and repos
¾ Derivative markets
¾ Sound infrastructure
¾ Domestic investor base
¾ Long term foreign investors

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 ISSUANCE PROGRAM

¾ Predictable
¾ Announced
¾ Disciplined – no market timing
¾ “When issued” market
¾ One issuer

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 EXISTING STOCK

¾ Re-opening
¾ Open market operation
¾ Buy-backs

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 MARKET MAKERS

¾ Create liquidity
¾ Evaluated on liquidity generation
¾ Rewarded for liquidity generation

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 SHORTING AND REPOS

¾ Market makers must be able to go short

¾ Trade the curve
¾ Shorting and repos need each other
¾ Repo markets add liquidity
¾ Repos allow dealers to fund positions

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LEGAL FRAMEWORK FOR SHORTING AND REPOS

¾ Shorting explicitly allowed

¾ No punitive penalties for fails
¾ Re-hypothecation not pledge repo
¾ Certainty in bankruptcy – Documentation
¾ Taxation of repos

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 DERIVATIVE MARKETS

¾ Government bond futures contracts

¾ Interest rate swap market
¾ Interest rate options
¾ Stripping
¾ Not restricted to hedging

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 SOUND INFRASTRUCTURE

¾ Trading (OTC, brokers: not exchange)

¾ Bonds, repos, derivatives
¾ Clearing and settlement
¾ Integrated or inter-operable

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 BROAD DOMESTIC INVESTOR BASE

¾ Pensions funds, insurance companies, mutual funds,

banks
¾ Minimal barriers to trading (e.g. transaction taxes)
¾ Reduce bias to “hold to maturity” resulting from
regulations, accounting or tax

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 LONG TERM FOREIGN INVESTORS

¾ Simplify access and trading: (Q)FII limits, registration

(reporting is OK)
¾ Remove withholding tax on income or capital gains
¾ Simplify access and trading
¾ Simplify custody and financing (e.g. ICSDs)
¾ Inclusion in leading fixed income indices (e.g. Citibank’s
WGBI, JP Morgan etc.)

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 Global Quantitative Easing
Central Banks Purchase Max amount
Federal Reserve Agency MBS USD 1.25 Trillion
Agency Debt USD $200 Billion
US Treasuries USD $300 Billion
European Union Covered Bonds EUR 60 Billion

Bank of Japan CP/ABCP JPY 5 Trillion

Corporate Bonds JPY 1 Trillion
Government Securities JPY 1.8 Trillion per month
Bank Stock JPY 1 Trillion

Bank of England Corporate Bonds, CP Up to GBP 50 Billion (within 175

Gilts Billion)
Remainder of 175 Billion

SNB Switzerland FX -
Corporate Bonds
Israel Central Bank Government Securities No upper limit
Reserve Bank of India Government securities Rs 800 Billion
RBIS (MSS) Bonds Rs 420 Billion

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Government Debt Outstanding, State and Global
$Billions $Billions

*Preliminary SIFMA estimates for Canada Source: EUROSTAT, Statistics Canada, Federal Flow of Funds, Statistics Japan, SIFMA

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