Malaysia and Singapore to Establish Trading Link

The link will allow investors to trade and settle shares listed on both stock markets in a more coordinated and systematic manner. The Monetary Authority of Singapore (MAS) and the Securities Commission Malaysia (SC) will set up cross-border supervisory and enforcement arrangements and will work with the two exchanges to operationalize the link.

Further operational details of the trading link between the Malaysian and Singaporean stock exchanges will be worked out by both exchanges as well as both central banks—Bank Negara and MAS.

“We anticipate that it’ll be towards the end of the year before we are in any position to be able to have something in place,” said Ranjit Ajit Singh, chairman at the SC, speaking in a media briefing following the announcement.

The trading link is expected to lower trading costs for investors and encourage greater cross-border investments in each other’s exchanges, and will be particularly beneficial for retail investors.

Martin Young, CEO at Farringdon Asset Management, which has operations in both Malaysia and Singapore, says the link starting with SGX and Bursa Malaysia makes sense as they are the two primary financial hubs in the Association of Southeast Asian Nations (Asean) region.

“There is still value-add between Bursa Malaysia and SGX, but outside of those two countries, not so much. A lot of regulations still need to be developed in other Asean countries like Myanmar,” he says.

ATL-Lite?

This recent announcement comes off the back of an aborted earlier effort to connect the markets, known as the Asean Trading Link (ATL).

The ATL was launched in September 2012 and linked seven stock exchanges in the Asean region—Malaysia, Indonesia, Philippines, Thailand, Singapore and two exchanges from Vietnam. Before the plug was pulled last year, there were only three exchanges—Bursa Malaysia, SGX and the Stock Exchange of Thailand that remained members of the link.

One of the issues that dragged demand for the link was that stockbroking companies already had their own links to counterparties within the region.

However, unlike the ATL, which was an exchange-led initiative, the newly announced Malaysia-Singapore stock market trading link is a high-level government-to-government strategic initiative, which will approach this from a more “holistic perspective,” says an SC spokesperson.

The bilateral link will include post-trade processes like clearing and settlement of the stocks traded.

“The ATL was an intra-Asean trading network which went live with Bursa Malaysia, Singapore Exchange and Stock Exchange of Thailand (SET) in 2012 but was sunsetted in 2017 as it could not meet the needs of the market,” the spokesperson tells WatersTechnology. “While ATL only involved trade execution, the new trading link will cover [an] end-to-end value chain to enable frictionless trading, clearing and settlement. Investors will essentially be able to trade equities from another stock market, and settle in local currency as if trading in the local market.”

In the media briefing, the SC’s Singh said there were weaknesses associated with the ATL. “This is associated with the convoluted structure and the costs associated with that. There were important lessons from that as well as the need to be able to address the post-trade settlement issues,” he said.

The aim for further Asean connectivity is still there, and it is the intention of the two governments to link more exchanges within the region once the Singapore-Malaysia link is up and running smoothly.

These two markets will create a pioneering effort on a “more enhanced” ATL structure, Singh said. “This could then create the possibility to extend that to other markets within Asean. We have seen those weaknesses which is part of those operational details that we will be working out over the next few months,” he said.

Not Stock Connect

Participants, however, remain convinced that there is still a long list of issues to iron out. Danny Wong, chief executive of Malaysian fund manager Areca Capital, says there is a need to harmonize on many fronts, but one of the most important is how the different currencies will be handled and how fees will be charged. Other considerations to think about include treatment of corporate actions.

“In terms of the ATL, there was not really a strong demand for it. Too many members created natural blocks. I would like to see a common platform where all the shares are listed and [there are] standardized trading practices,” he says.

Wong says another concern is tracking the outflow of money. “The trading link would be another way that Malaysians can transfer money out of Malaysia. We have to think about how to monitor that. In terms of anti-money laundering and know-your-customer, Bank Negara would have some concerns about offshoring money,” he says.

The link also has echoes of another Asian project to link stock exchanges, in the form of the Hong Kong-Shanghai Stock Connect program, which launched in 2014. However, Wong says the trading link isn’t similar because Hong Kong and China are operating on the “one country, two systems” policy.

“They have the offshore CNH and onshore CNY as well as quota for buying and selling. It’s more complicated when you involve two currencies and two countries. There needs to be a common understanding of certain practices,” Wong says.