“The trading link will help lower trading costs for investors and encourage greater cross-border investments in the stocks listed on each other’s exchanges. This will improve the liquidity of both our stock markets,” Lee Boon Ngiap, assistant managing director at the Monetary Authority of Singapore (MAS), said in a joint statement with the Securities Commission Malaysia.
The cross-border link between Malaysia and Singapore will have a combined market capitalisation of around $1.2trn, representing 1,600 listed companies.
The programme will extend beyond trading to cover post-trade arrangements like the clearing and settlement of the stocks traded, according to the statement. It is also expected to see increasing liquidity of the markets and more cost-efficient cross-trading trading and settlement.
Financial regulators in Malaysia and Singapore will also set up cross-border supervisory and enforcement arrangements.
The announcement of the market connection was made after discussion between Malaysia’s Prime Minister Najib Razak and Singapore Prime Minister Lee Hsien Loong in January.
Najib announced the initiative in his speech at the World Capital Markets Symposium in Kuala Lumpur yesterday, saying he expects it to launch by year-end.
Broken links
Prior to the new stock market agreement, a similar cross-border trading programme between Singapore, Malaysia and Thailand was introduced back in 2012. The Asean Trading Link offered a single entry-point access for investors to three of the largest stock markets in Southeast Asia and allowed direct trading of the shares listed on participating exchanges.
At the time of launch in 2012, the three markets listed nearly 3,000 companies with a total market capitalisation of $1.4 trn. There were plans to study an inclusion of the bourses in Indonesia, the Philippines and Vietnam.
The ambitious project lasted around 5 years until Singapore’s exchange in 2017 quietly announced in a consultation paper proposed changes to the bourse’s rules, which included the brief comment that “the Asean trading linkage is no longer in operation effective 6 October”.
Singapore’s exchange also had separate cross-border agreements with Australia and Taiwan. Singapore’s link with the Australian Securities Exchange opened in 2001, but the exchanges terminated the scheme in September 2006 due to poor demand for the service, Singapore-based Business Times reported. FSA contacted the stock exchange in Singapore for further details, but they did not respond to inquiries.
The Taiwan-Singapore link was discontinued shortly after introduction in January 2016, a spokeswoman at the Taiwan Stock Exchange confirmed, but she declined to give further details.
Despite the failures of Singapore’s exchange to build cross-border links, MAS and the China Securities Regulatory Commission said in November that they would explore a Mutual Recognition of Funds scheme, a mechanism facilitating cross-border sales of mutual funds between Hong Kong and China, France and Switzerland.
Singapore’s rival Hong Kong has, by comparison, created successful stock, bond and fund trading linkages with mainland China. Since the Stock Connect was launched in 2014, the total value of trade through the scheme has surpassed $1trn, according to the Hong Kong Stock Exchange.
Regulators in Hong Kong and China are also in talks to expand the programme further to include the trading of ETFs, which is expected to be launched by the end of the year.
