Singapore and Malaysia said they would create a trading link to connect their national stock exchanges.
The two markets have reached sufficient sophistication and maturity to set up a market corridor, Malaysian Prime Minister Najib Razak said at a Securities Commission conference in Kuala Lumpur on Tuesday. The link will be established by the end of the year, he added.
Singapore and Malaysia’s regulators and national exchanges will work on the arrangements for the system that will connect markets with more than $1.2 trillion in value and about 1,600 listed companies.
The move comes just months after the closure of an earlier attempt to connect the markets, which started in 2012. While that effort failed, the success of Hong Kong’s links with exchanges in mainland China made it more pressing for bourses in Southeast Asia to establish their own regional alliance, said Song Seng Wun, an economist at CIMB Private Banking in Singapore.
“Regional competition has put pressure on the exchanges,” Song said. “The two exchanges don’t want to be left behind and have investors flock elsewhere so now they’re waving a flag and saying, ‘we, too, will have a trading link.’”
As well as the cross-border buying and selling of stocks, the link will cover arrangements, including clearing and settlement, a first for the two markets, according Singapore Exchange Ltd.
The agencies will create a supervisory and enforcement arrangements, and will work with Singapore Exchange and Bursa Malaysia to start the link’s operation.
“Once the link is there, it would encourage a lot of cross-border research reports and, in this case, the exchange of information would be easier,” Danny Wong, chief executive officer at Areca Capital Sdn. in Kuala Lumpur, said by phone. “We hope to cover more on the small- and mid-caps. With this kind of trading link we hope to expand into more undiscovered gems in the market.”
The two nations held talks as early as 2004 about allowing investors to trade securities on each other’s exchanges by the end of 2005. A system that connected stock markets in Malaysia, Singapore and Thailand shut last year, five years after its high-profile debut.
The Asean Trading Link had started with Bursa Malaysia and Singapore Exchange, with the Stock Exchange of Thailand also joining.
“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,” Lee Boon Ngiap, assistant managing director at the Monetary Authority of Singapore, said in a statement. “This will improve the liquidity of both our stock markets. I hope this initiative will in time expand to include the rest of the stock exchanges in Asean.”