Five Southeast Asian stock exchanges have signed an agreement to establish a single electronic trading link for regional or global investors to access their markets on a uniform basis, and thereby establish Asean markets as an asset class.
The mechanism among the five countries -- Indonesia, Malaysia, the Philippines, Singapore and Thailand -- will enable their clearing houses to act as central counterparties that can clear and settle cross-border trades among them.
Brokers with seats in any of the five exchanges would not need to consider other participating exchanges as foreign, thereby reducing risk. Investors may come to see Asean as a trading bloc, with economies of scale helping to bring down transaction costs and improve liquidity. Creating a single market would spur liberalisation in other areas.
That, at least, is the theory, as announced after business hours yesterday. Executives at these bourses have been talking about building an electronic link for years. These markets are small, which drives up the cost of cross-border trades.
At a time when major bourses around the globe are tying up, alternative electronic trading venues are penetrating the region, and events are being driven by pan-European directives such as Mifid, Southeast Asia's fragmented markets risk falling well behind. New technologies such as dark pools and direct-market access trading have marginalised them further, because of their illiquidity (see AsianInvestor magazine's March edition for an analysis of trading in Asian markets).
So exchange officials and politicians have long recognised the need to harmonise their systems in order to remain attractive to global investors, market Southeast Asia as an asset class, and enhance the pool of capital available locally.
But politics have gotten in the way: Singapore is the obvious hub for the region, a fact that Singaporean officials like to point out, which makes the other players jealous and unwilling to give up control over their little patches.
Nonetheless, there has been bilateral progress. SGX CEO Hsieh Fu-Hua first proposed such a multilateral link in 2006. The following year, SGX and Bursa Malaysia unveiled a cross-border electronic link for trading securities.
Now, along with this announcement of Asean-wide cooperation, SGX and the Stock Exchange of Thailand are also pledging to jointly promote market activities, as well as operational and regulatory information, and discuss the idea of cross-border trading of securities and derivatives.
SGX's Hsieh says the e-trading link will be operational sometime in 2010. By putting a date on the project, he and his counterparts at other exchanges are taking a concrete step towards harmonising their markets for the first time.