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FACTORS THAT ASSIST THEDEVELOPMENT OF LIQUIDITY 2009

Asia Securities Industry and

Financial Markets Association

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Japanese Banks Assets Related to Public

Entities for WGBI Included Countries

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

Norway 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

Singapore 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

Norway 6,552 7,793

Singapore 736 727Malaysia 2,790 2,357NoteRed character and blue background after WGBI inclusionSource: International Consolidated Banking Statistics, BIS, Bank of Japan

Japanese banks assets related to public entities have skyrocketedsince the inclusion of Citigroup WGBI.

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Japanese Banks Assets Related to Polish Public

Entities

0

1,000

2,000

3,000

4,000

5,000

6,000

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

US$ million

May 2003 Inclusion of Poland in WGBI

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

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Japanese Banks Assets Related to Norwegian

Public Entities

0

2,000

4,000

6,000

8,000

10,000

12,000

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

US$ million

September 2003 Inclusion of Norway in WGBI

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

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Japanese Banks Assets Related to Singaporean

Public Entities

0

200

400

600

800

1,000

1,200

1,400

1,600

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

US$ million

January 2005 Inclusion of Singapore in WGBI

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

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Japanese Banks Assets Related to Malaysian

Public Entities

0

500

1,000

1,500

2,000

2,500

3,000

3,500

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

US$ million

July 2007 Inclusion of Malaysia in WGBI

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

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FACTORS THAT ASSIST THE DEVELOPMENT OF

LIQUIDITY

Issuance Program

Existing stock

Market makers Shorting and repos

Legal framework for shorting and repos

Derivative markets Sound infrastructure

Domestic investor base

Long term foreign investors

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ISSUANCE PROGRAM

Predictable

Announced

Disciplined no market timing

When issued market

One issuer

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EXISTING STOCK

Re-opening

Open market operation

Buy-backs

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MARKET MAKERS

Create liquidity

Evaluated on liquidity generation

Rewarded for liquidity generation

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SHORTING AND REPOS

Market makers must be able to go short

Trade the curve

Shorting and repos need each other

Repo markets add liquidity

Repos allow dealers to fund positions

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LEGAL FRAMEWORK FOR SHORTING AND REPOS

Shorting explicitly allowed

No punitive penalties for fails

Re-hypothecation not pledge repo

Certainty in bankruptcy Documentation

Taxation of repos

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DERIVATIVE MARKETS

Government bond futures contracts

Interest rate swap market

Interest rate options

Stripping

Not restricted to hedging

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SOUND INFRASTRUCTURE

Trading (OTC, brokers: not exchange)

Bonds, repos, derivatives

Clearing and settlement

Integrated or inter-operable

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BROAD DOMESTIC INVESTOR BASE

Pensions funds, insurance companies, mutual funds,banks

Minimal barriers to trading (e.g. transaction taxes) Reduce bias to hold to maturity resulting from

regulations, accounting or tax

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LONG TERM FOREIGN INVESTORS

Simplify access and trading: (Q)FII limits, registration(reporting is OK)

Remove withholding tax on income or capital gains Simplify access and trading

Simplify custody and financing (e.g. ICSDs)

Inclusion in leading fixed income indices (e.g. CitibanksWGBI, JP Morgan etc.)

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Global Quantitative Easing

Rs 800 Billion

Rs 420 Billion

Government securitiesRBIS (MSS) Bonds

Reserve Bank of India

No upper limitGovernment SecuritiesIsrael Central Bank

-FX

Corporate Bonds

SNB Switzerland

Up to GBP 50 Billion (within 175Billion)Remainder of 175 Billion

Corporate Bonds, CPGilts

Bank of England

JPY 5 TrillionJPY 1 TrillionJPY 1.8 Trillion per monthJPY 1 Trillion

CP/ABCPCorporate BondsGovernment SecuritiesBank Stock

Bank of Japan

EUR 60 BillionCovered BondsEuropean Union

USD 1.25 TrillionUSD $200 BillionUSD $300 Billion

Agency MBSAgency DebtUS Treasuries

Federal Reserve

Max amountPurchaseCentral Banks

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Government Debt Outstanding, State and Global

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

$Billions$Billions