As Southeast Asia (SEA) continues on its path to becoming the fifth-largest economy in the world by 2020, the region’s capital investment infrastructure is playing an increasingly critical role as a channel through which foreign direct investment (FDI) flows into local equity markets, supporting the economic growth of the region as a whole. Although Singapore has traditionally led the way in the intra-regional capital investment landscape, Vietnam has also emerged as a serious contender.
In the first half of 2018, capital raised via Vietnam’s IPOs totaled US$3.1 billion — a mere US$0.3 billion short of Singapore’s record of US$3.4 billion. With Vietnam, Malaysia, Thailand, and Indonesia eating into Singapore’s shrinking public fundraising market share, the race to become the top fundraising country in Southeast Asia may be decided by which country is able to effectively leverage digital technologies such as blockchain to take the development of its capital investment industry to the next level.
Blockchain use cases could be found in the operations of capital investment infrastructure, encompassing the pre-trade, trade, and post-trade processes and their underlying mechanisms. With regard to the pre-trade process, the immutability of distributed ledgers would facilitate the establishment of a transparent verification process. In the trading process, blockchain would enable transactions to be matched in real-time, securely, and with the added benefit of ensuring finality through the irrevocable settlement of trade transactions.
As for the post-trade stage, the decentralized nature of blockchain coupled with the use of automated smart contracts dispenses with the need for a central clearinghouse, allowing post-trade processing to be carried out in a more efficient and cost-effective manner.
Regulators across Southeast Asia are increasingly turning to blockchain technology for more efficient clearing and settlement systems. In May this year, Singapore-based blockchain startup iSTOX, backed by the Singapore Exchange (SGX), was admitted into the Monetary Authority of Singapore’s (MAS) regulatory sandbox and is slated to commence operations as a fully regulated capital markets platform by next year.
Across the Straits of Johor, Malaysia’s national stock exchange, Bursa Malaysia (KLSE), is following in the path of its city-state neighbor, also announcing in May this year that it is embarking on a pilot project to develop a Proof of Concept (PoC) for a blockchain-based securities, borrowing, and lending (SBL) platform with several major local industry players.
Nonetheless, Thailand is the SEA country to watch when it comes to the use of blockchain for capital markets trading. Thai regulators and lawmakers have issued a slew of measures to develop its capital investment industry, already recognized as the most liquid in the region. In May last year, the Stock Exchange of Thailand (SET) launched a blockchain-based crowdfunding platform, whereby the LiVE service facilitates peer-to-peer (P2P) funding between investors and startups. Twelve months later, the Thailand Bond Market Association (ThaiBMA) announced that it will be using blockchain for bond registration on its platform through the tokenization of bonds processed by the platform to speed up its clearing and settlement process.
In Myanmar, blockchain was embraced back in 2016 when the Yangon Stock Exchange (YSX) collaborated with Tokyo-based investment banking company Daiwa Securities Group to establish a blockchain-based capital markets platform. The collaboration proved to be a saving grace for the YSX. In times of power outages, which occur frequently in Yangon, a decentralized platform allows for uninterrupted operation.
Other than Southeast Asia, regulators in other parts of Asia are also exploring the use of blockchain for the development of their respective capital investment markets. In September last year, the National Stock Exchange of India (NSE) tested its blockchain platform developed in collaboration with local blockchain start-up Elemential Labs. The platform enables electronic voting (e-voting) for public companies listed on the country’s National Stock Exchange.
A month later, the Hong Kong Stock Exchange (HKEX) collaborated with U.S-based financial technology (fintech) company Digital Asset to develop a blockchain platform which facilitates post-trade allocation and trade processing.
As Southeast Asia forges ahead in its quest to join the ranks of other developed regions in the world, the use of blockchain to enhance the attractiveness of the capital markets of SEA countries to foreign investors, boosting FDI to the region as a whole, may prove to be the missing equation in SEA’s winning formula.
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