East Asia has enormous scope to upgrade and integrate its financial markets, covering the spectrum of equity, bond, foreign-exchange, and derivatives markets. Financial markets and institutions in East Asia tend to be narrow and undeveloped, although there are important exceptions. Japan dominates the top tier of the region's markets by virtue of its size, but its markets are not advanced, and many of its private institutions are weak. Although the markets in Australia, Hong Kong SAR, and Singapore are smaller than those of Japan, they are more innovative, market-oriented, and technologically advanced. Markets in Malaysia, South Korea, Taiwan, and Thailand have made substantial progress to varying degrees; but China, Indonesia, and the Philippines have a considerable way to go in developing the information and governance infrastructure that financial markets need to function well. For all these countries, there is a clear role for regional cooperation among policymakers in building capacity in, and links between, financial markets in East Asia, as well as in encouraging stable speculation and the participation of nonresident and institutional investors in domestic financial markets. ASEAN+3 is an important and welcome advance in regional cooperation, but its membership does not span the depth of experience in financial markets and institutions that exists in East Asia.

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