The WFE 2020 Series: Philip Chen, Chairman, Taipei Exchange (TPEx)
1. As we kick off the year 2020, please can you look further into the future, and share your predictions on what the APAC market infrastructure industry might look and feel like by 2025?
Widespread Fintech application
By 2025, Fintech applications will be widely adopted across the entire value chain of capital market, spanning pre-trading, trade execution and post-trading process. The application of Fintech will be instrumental in boosting market efficiency and enhancing cyber security. Widespread implementation of Fintech applications may drive new business models for exchanges and clearing houses. APAC stock exchanges will highly integrate Fintech with their services, aiming to provide secure, convenient platforms for global market participants, while facilitating rapid information and capital flows.
Developed alternative listing channels
Public equity markets underpin economic expansion in APAC. Asian capital markets will serve as dominant fund-raising hubs attracting high growth enterprises globally, especially those closely connected with Asian supply chains and consumer markets. APAC stock exchanges will be far more proactive in both capital aggregation and fund raising by offering diverse listing channels to firms with financing needs. For example, exchanges may relax listing requirements, tailor industry-specific listing rules, launch alternative listing boards or establish cross-border connections.
Development of Sustainability
Sustainability in APAC capital markets should rival that in other developed markets. Almost all capital markets will have fully implemented sustainability policies. Guidelines and standards for ESG disclosures will gradually converge with global standards. These enhancements will be conducive to increased accountability and to ensured comparability of ESG disclosures that encourage investors to gravitate toward sustainability investments. Thus, a virtuous cycle will take shape: APAC markets will promote ESG-related financial products to develop sustainability; sustainable and responsible investing will go mainstream; issuers will emphasize the value of ESG and CSR.
2. And how is your firm getting ready for the changes you’ve outlined above?
Create an environment of openness and innovation
Taipei Exchange (TPEx) breeds innovation. TPEx has studied and promoted crowdfunding since 2012. The Incubation Board for Startup and Acceleration Firms (GISA) was launched in January 2014 to help micro and small-sized innovative companies grow, leveraging integrated counseling strategies. Recently, TPEx finalized the regulatory framework for Security Token Offerings (STOs) to enhance the governmental supervision of related activities. TPEx has also explored applications of Fintech to its existing business, such as big data tools for market supervision and surveillance or blockchain technology for bond settlement and clearing. This sense of openness and innovation is laying foundations for future capital market activities.
Facilitate fund-raising for emerging growth companies
2019 was a mixed year for Asian IPOs. Nonetheless, TPEx continued to offer promising companies a flexible and responsive fund-raising channel. For many years, TPEx has applied “technology-based enterprises listing criteria” to early-stage businesses with proven technologies or products with market potential. Under these criteria, profitability and years of incorporation are waived. Nearly 100 high-tech and bio-tech companies have listed this way, driving substantial growth in capital market and industrial development. In 2018, TPEx launched alternative listing criteria for high-growth, pre-profit companies. Moreover, TPEx collaborates closely with government authorities and intermediaries to strengthen the IPO ecosystem, to enhance pre-IPO advisory functions, to encourage foreign corporate listings, and to relax listing burdens on companies.
Develop new products and indices
TPEx is a multi-functional market, providing a wide variety of products ranging from stocks, ETFs, warrants, bonds, gold to derivatives and continuously developing new products and indices. Over the past three years, TPEx achieved several milestones in new product development. TPEx listed green bonds were first debuted in April 2017. By the end of 2019, the TPEx green bond market accommodated 36 green bonds, totalling US$3.4 billion in outstanding amount.
Bond ETF market is another splendid example. Since Q1 2018, benefiting from the market demands and product varieties, bond ETFs have grown rapidly both in scale and in trading volume; TPEx has become the largest bond ETF market in Asia in 2018. Over 2019, total AUM increased by around US$ 33 billion. With several bond ETFs in the pipeline, the number of listings should reach 100 in early 2020.
TPEx also launched the TPEx 200 Index in March 2019. This is the pre-eminent benchmark for SME stocks in Taiwan with several index-based products and derivatives contracts linked to it. TPEx is now working on new thematic indexes to drive further index product development.
Commit to sustainability
Stock exchanges are critical to promoting sustainability. To assist green energy companies raising funds, TPEx established the green bond market, using a world-class accreditation mechanism. In 2018, TPEx received the CBI Green Bond Pioneer Award and joined the CBI’s Climate Bonds Partners Program.
Furthermore, TPEx encourages corporate social responsibility by championing improved ESG performance and related disclosures; TPEx itself published its first CSR report in 2019; TPEx-listed companies preparing independently-verified CSR reports are becoming increasingly numerous.
Lastly, TPEx will imminently release a new ESG index to provide the market a useful benchmark for companies embracing ESG and to promote sustainable investing via related products.
3. Entering a new decade is not just about looking ahead; it’s also a good time for reflecting on the past. What’s the top lesson you personally learned from the past ten years?
Globalization and digital technology brought great change to stock exchanges in the past decade; exchanges must response to such rapid change. However, each market faces distinct challenges and opportunities from global trends. In my view, strengthening the core business is the priority. Ensuring the quality of a market is key to sound operation and is fundamental to economic development. That is why TPEx emphasizes information transparency, capital raising functionality, efficient and fair-trading mechanisms, and financial literacy. Additionally, TPEx values human capital, supporting employees’ professional growth. These efforts have enabled TPEx to become a vibrant, world-class exchange. I believe that a responsible stock exchange, pursuing high quality and sustainable growth, is a better proposition for investors and issuers.