A. KEY LESSONS FROM THE EXPERIENCE OF ADVANCED MARKETS

The region's developed economies provide a wealth of experience and lessons for promoting private sector participation in the development of local currency and regional bond markets in the Asia-Pacific. In these economies, markets developed alongside standards and norms governing regulation and market practices over lengthy periods of time. This process has been characterized in many cases by continued progress and occasional setbacks that included major corporate and systemic failures, with the latter providing impetus for reforms to address weaknesses and problem areas.

The development of the United States' bond market was stimulated by the growth of private investment in infrastructure, particularly railroads, without the benefit of regulation in the latter part of the nineteenth century. As large amounts of investments were lost during these early years through fraud and mismanagement, private sector firms in the form of credit rating agencies and the financial press emerged to provide information to help investors make better investment decisions. Eventually, the Securities and Exchange Commission (SEC) was established to address problems that had led to financial collapse and the Great Depression of the early 1930s and provide better investor protection.

The U.S. bond market has grown since then to become the largest bond market in the world. However, even with its highly developed and robust financial markets, efforts continue to strengthen these markets and institutions and better protect investors' interests, especially in the wake of recent major failures that have affected investor confidence. Many of these recent reforms to improve the quality of market infrastructure and strengthen legal and regulatory frameworks have focused on creating a market environment in which investors are able to price risk, through improved transparency and disclosure.

Among the notable reforms undertaken by the public sector in partnership with market participants are the Fixed Income Pricing System, which centralized quotations and trade reporting for high-yield and other debt securities, and its replacement, the Trade Reporting and Compliance Engine, which facilitates the mandatory reporting of over the counter secondary market transactions in fixed income securities.