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Feb 14, 2018

Singapore and Malaysia unveil trading link plan

Agreement will connect markets with more than $1.1 tn in market capitalization

Singapore and Malaysia have revealed an innovative plan to create a joint trading link between the two countries, allowing each country’s investors to access the stock market of the other.

The benefits for regional IROs and investors are expected to be an increase in the depth of the respective capital markets, an increase in liquidity, and shares traded in a more cost-efficient way – which will be of particular benefit to small caps. The agreement will connect markets with more than $1.1 tn in market capitalization and involve around 1,600 listed companies.

The move comes after the success of Hong Kong’s links with exchanges in mainland China made it more urgent for exchanges elsewhere in Asia to establish their own regional alliances.

‘Regional competition has put pressure on the exchanges,’ says Song Seng Wun, an economist at CIMB Private Banking in Singapore, in a statement. ‘The two exchanges don’t want to be left behind, so now they are waving a flag and saying, We too will have a trading link.’

In addition to the cross-border buying and selling of shares, the new stock link will cover arrangements including clearing and settlement, a first for the two markets, according to a statement from Singapore Stock Exchange (SGX).

‘We are positive on this upcoming trading link,’ RHB Research Institute analyst Leng Seng Choon writes in a commentary note. ‘The network – which would enable cross-border clearing and settlement of traded stocks – should help to improve trading activities on SGX.’

‘Investors will essentially be able to trade equities from another stock market and settle in local currency as if trading in the local market,’ explains Securities Commission Malaysia chair Ranjit Singh in a statement.

The Singaporean and Malaysian regulators and national exchanges are currently hammering out the specifics of the arrangement and have issued statements saying that the link-up is expected to be established later this year.