Singapore-Malaysia stock link breaks new ground for Asean markets

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Investor in Singapore and Malaysia will have seamless trading access to the two neighbours' 1,600 public-listed companies, worth more than US$1.2 trillion, by the end of the year.
FEBRUARY 07, 2018 - 8:00 AM

Singapore 

INVESTORS in Singapore and Malaysia will have seamless trading access to the two neighbours' 1,600 public-listed companies, worth more than US$1.2 trillion, by the end of the year.

Singapore and Malaysian regulators said on Tuesday that they would work together to set up a stock market trading link between Singapore Exchange (SGX) and Bursa Malaysia (BM). Such a link would enable investors on both sides of the Causeway to trade and settle shares listed on each other's stock market more conveniently and cost-efficiently.

The joint statement came shortly after Malaysia's Prime Minister Najib Razak announced the move to investors gathered at the World Capital Markets Symposium in Kuala Lumpur. He said: "A regulatory arrangement will be worked on by the countries' relevant regulatory authorities to pave the way for the establishment of this trading link."

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The initiative will be expanded later to include other stock markets in the region, a move which industry observers said would make Asean's stock markets more vibrant.

There used to be an Asean Trading Link, but this regional system connecting stock markets in Malaysia, Singapore and Thailand was quietly decommissioned last year, five years after its debut.

The bilateral link between SGX and BM will, however, extend beyond trading to also cover post-trade arrangements such as the clearing and settlement of the stocks traded.

To get the trading link off the ground, the Monetary Authority of Singapore (MAS) and Securities Commission Malaysia (SC) will set up cross-border supervisory and enforcement arrangements, and work with the two exchanges.

Lee Boon Ngiap, assistant managing director in MAS, said: "The trading link will help lower trading costs for investors and encourage greater cross-border investments in the stocks listed on the Singapore and Malaysian exchanges. This will improve the liquidity of both our stock markets."

Ranjit Ajit Singh, who chairs SC Malaysia and the Asean Capital Markets Forum (ACMF), said: "The establishment of this trading link is an important step towards encouraging Asean investors to invest in Asean."

Market players cheered the news of the trading link. Nicholas Hadow, chairman of Investment Management Association of Singapore, said he "totally supports" the move.

"This initiative is about cutting back the red tape and rolling out the red carpet," he said.

Alvin Goh, managing director and head of securities services for Asean at Citi, added: "The initiative will not only open new investment opportunities for investors, it will also mean setting up a new template for other exchanges in the Asean region to connect... This is another step towards the integration of the capital markets in the region."

Chan Boon Hiong, director and head of market advocacy for the Asia-Pacific and Middle East & North Africa (MENA) at Deutsche Bank in Singapore, said: "A key benefit is that it would allow Singapore and Malaysia to maintain an unfragmented pool of liquidity for domestic shares - which is important for efficient price discovery - while providing more cost-effective cross-border access for retail investors in the two countries."

Currently, investors in Singapore have to trade through a broker who has an account opened with a Malaysian broker. Depending on the broker used, fees and charges may be higher as the investor may have to pay two sets of charges - not to mention exchange related-costs.

Carol Fong, chief executive officer of CIMB Securities in Singapore - soon to be rebranded CGS-CIMB Securities (Singapore) - said the initiative would be more comprehensive than the Asean Trading Link and provide a more seamless experience for clients, from account opening to settlement of trades.

But the devil is in the details, which are still being worked out.

Experts noted that the SGX had trading links with Australia and Taiwan, both of which have since been shut down. The trading link between SGX and the Australian Securities Exchange (ASX), introduced in 2001, was discontinued in September 2006 due to poor demand for the service. SGX's strategic link with the Taiwan Stock Exchange opened in 2016, but has also since shut down.

Ms Fong, who also chairs SGX's Securities Advisory Committee, said of the Singapore-Malaysia trading link: "In my view, this will be quite different. Those links were just to facilitate access. I believe SGX and Bursa are looking at a more comprehensive setup, involving cost-efficient trading and settlement."

Addressing concerns stemming from the 1998 saga linked to Singapore's Central Limit Order Book (Clob) - when the Malaysian government seized the shares of 172,000 Singaporeans who had invested in 120 companies in Malaysia - a spokesman for SC Malaysia told The Business Times that Clob was an unsanctioned secondary market in Singapore which traded Malaysian stocks.

"The newly-announced trading link will be jointly led by SC Malaysia and the MAS, working together with Bursa Malaysia and SGX. This strategic initiative will result in two-way market, mutually benefiting both markets."

The spokesman stressed that this trading link would connect both exchanges where orders would be routed, with a corresponding post-trade arrangement between the two clearing houses to facilitate seamless settlement in local currency for investors.

David Gerald, the lawyer who represented small investors in Singapore to resolve the Clob crisis and who is now better known as the founder, president and chief executive of the Securities Investors Association (Singapore), said that, at the end of the day, Singapore investors must be assured of the standard of corporate governance in Malaysian companies and the enforcement of the rules and regulations, and that investor rights will be strictly enforced.

READ MORE: SGX-Bursa link: Start of a pan-Asean bourse?