Though seen by many as rivals, exchanges in Greater China all stand to gain from closer integration, argues a senior executive from Singapore Exchange (SGX). Last week the bourse inked an agreement for a trading link with Taiwan and it is pushing its benefits as a China offshore centre.
“We want Stock Connect to succeed, as we are a direct beneficiary because of the greater internationalisation of and interest in China A-share products,” said Chew Sutat, SGX’s head of sales and clients. "We are the largest offshore venue for A-share index derivative risk management."
Likewise, the proposed trading link between Taiwan and Singapore would create synergies across the two markets, he argued. Last week the Taiwan Stock Exchange (TWSE) and SGX inked a letter of intent to introduce a link between the two bourses. TWSE expects it to be up and running within the next six months.
“It’s not a zero-sum game; if London and Taipei succeed, that doesn’t mean Singapore won’t,” said Chew. "It means the successful creation of infrastructure and products in these centres will create a bigger market."
However, he noted: “A Greater China market is a fantastic concept, but you need an offshore centre, and Hong Kong and Taiwan are not really offshore."
Meanwhile, with the Shanghai-Hong Kong Stock Connect, expected to go live next month, regulators on both sides have had to grapple with vastly different trading systems. In China, shares are settled on the trade date (T) and the cash for trades is settled the day after (T+1), while in Hong Kong both are settled on T+2, for example.
Singapore and Taiwan face similar issues. The former operates a continuous matching system, while the latter uses five-minute call auctions.
The two exchanges each intend to set up a special-purpose vehicle to connect and route orders between them and transfer payment and settlement instructions to clearing houses in each market (see graphic below).
In effect, an investor in Singapore trading Taiwanese securities would be subject to the rules and operational system in the latter market.
“Home rules apply, but we’ve taken out one layer of potential cost,” Chew said. An investor in Singapore would be able to channel an order directly through their local broker into the Taiwan market and vice versa without needing to transfer shares, he noted.
Though the infrastructure would allow trading of all the securities on both exchanges, Chew said the initial offering would be limited to names and products that attract the most interest. The agreement also covers dual listings and IPOs.
The trading link is part of SGX’s drive to expand in North Asia and comes as Taiwan is pushing to internationalise its capital markets, following a change in TWSE chairman and head of securities regulator during last year.
In July, the Singapore bourse opened a liquidity hub at the Hong Kong exchange's data centre that gives brokers direct electronic access to Singapore-based brokers that are SGX members.
And in April the exchange hired former Citic Securities chief operating officer Ringo Chiu to head its office in Hong Kong, which it opened in July and is manned by seven staffers, three of whom cover sales.
Earlier this month SGX incorporated a wholly owned foreign enterprise in China through its wholly-owned subsidiary Asian Gateway Investments.
“The Taiwanese used to think we stole a march on them by launching the first Taiex futures contract,” Chew said. “More recently, they have realised that we are their largest offshore sales agent by promoting Taiwan internationally and creating offshore access, which adds to onshore liquidity.”
Taipei has encouraged local brokerages to set up abroad. Eight are SGX members.
China Development Financial Holding, owner of Taiwan’s second largest broker KGI Securities, bought Singapore's AmFraser Securities in August. This followed its acquisition of Singaporean futures brokerage Ong First Tradition in April.
Moreover, last month Taiwan's Financial Supervisory Commission said it would relax rules governing brokerages' acquisitions in Asia. It also said it was considering allowing high-net-worth individuals in Taiwan to access Stock Connect through offshore arrangements.