SGX must earn buy-in from foreign markets if it wants their liquidity

The Singapore Exchange's (SGX) recent troubles in India and Malaysia show that a strategy of leveraging another market's liquidity to boost one's own is not an easy one to pull off.

Since its formation in 1999, the modern SGX has always set its sights beyond Singapore's shores. That regional focus is partly born out of necessity - with its relatively small domestic economy, SGX needs to serve more than just Singaporeans and Singapore entities if it means to build a meaningful and relevant market.

Tapping the regional market's vibrancy can happen in a few ways. One is to try to attract companies from the region to list their securities in Singapore. Another is to get investors from the region to trade Singapore-listed securities. Both of those strategies hinge on SGX generating enough liquidity to draw both the buy and sell sides of the market.…