SINGAPORE: Malaysia and Singapore will set up a stock market trading link between Bursa Malaysia (BM) and Singapore Exchange (SGX) by the end of this year, regulators from both countries announced on Tuesday (Feb 6).
The trading link will allow investors to trade and settle shares listed on each other's stock market more conveniently and at lower costs.
It will also cover post-trade arrangements like the clearing and settlement of the stocks traded.
The Monetary Authority of Singapore (MAS) and the Securities Commission Malaysia will set up cross-border supervisory and enforcement arrangements, and work together with the two exchanges to operationalise the link.
MAS assistant managing director Lee Boon Ngiap said the trading link will help boost cross-border investments in Singapore and Malaysia stocks.
"This will improve the liquidity of both our stock markets,” he said. “I hope this initiative will in time expand to include the rest of the stock exchanges in ASEAN.”
Echoing similar sentiment, Securities Commission Malaysia chairman Ranjit Ajit Singh said the trading link is a key step to encouraging ASEAN investors to invest in the region.
"The ease of accessibility for investors will contribute towards greater vibrancy in our markets. Once operationalised, this pilot initiative can form the basis for future connectivity among ASEAN markets,” he said.
The stock market trading link comes months after the closing of an earlier attempt to connect the markets, which started in 2012. Then, Singapore and Malaysia first linked their exchanges before joining hands with Thailand in what was called the ASEAN Trading Link. This was, however, shut in October last year.
Nevertheless, IG market strategist Pan Jingyi said the announcement on Tuesday is expected to facilitate market flows between Singapore and Malaysia, and could be a step forward to further financial connectivity between capital markets across the ASEAN region.
Local market watchers welcome the move, noting that the link-up could be a boost for trading activities in the local market. But some also expressed concerns about its implementation.
“We are positive on this upcoming trading link,” RHB analyst Leng Seng Choon wrote in a note. “The network – which would enable cross-border clearing and settlement of traded stocks – should help to improve trading activities on SGX.”
Mr David Gerald, president and chief executive of the Securities Investors Association Singapore (SIAS) said that investors will have more options to invest in, but raised that several concerns will need to be addressed.
“Singapore investors ... need to know that the companies are well governed, that we're able to put our money in those companies, and we will get the returns promised and the dividends, and that the regulator will be able to enforce the listing rules and the Companies Act strictly with no gaps."
Mr Jimmy Ho, president of the Society of Remisiers, pointed out that more details like custodian fees, the settlement of shares, as well as how the trading link will be operationalised are not laid out yet, but hopes that it will be an improvement from previous practices.
“The nightmare arising from CLOB is still in the mind of many Singapore investors. They are still very careful about the Malaysian market so if we were to build a bridge between the two sides, the restoration of confidence is very important.
"How do we do it such with the certainty that the practices will not be compromised or undermined? How do we do it in such a way that when any regime changes in Malaysia, that things will not change overnight?”
CLOB was a Singaporean over-the-counter market, which traded shares of Malaysian-based companies. However, it was banned in 1998 by Malaysia, which alleged that CLOB was an illegal exchange. This caused over 172,000 Singaporean investors to lose their money.
Meanwhile, players like Deutsche Bank, which has operations in both Singapore and Malaysia, have expressed interest in participating as a financial intermediary for the trading link.
Mr Anand Rengarajan, head of securities services (Asia Pacific) at Deutsche Bank, said: "For those investors who had reasons to invest in Singapore assets and vice versa for Malaysia ... those are the people that this will largely benefit because this gives you an advantage of an exposure to assets outside of your country but treating it like a local investment."
Additional reporting by Brandon Tanoto.