Malaysia, Singapore launch new trade link to boost liquidity

• Link to lower trading costs, encourage cross-border investments
• Investors can trade, settle shares efficiently - regulators
• Markets have combined $ 1.2 trln, 1,600 companies - PM Najib

 Kuala Lumpur/Singapore (Reuters): Singapore and Malaysia announced plans on Tuesday for a new trading link between their stock markets by the end of the year that will help lower trading costs and encourage cross-border investments.

It comes just months after an earlier initiative to connect the bourses of Singapore, Malaysia and Thailand was scrapped, five years after its ambitious launch in 2012.

The new trade link between Bursa Malaysia and the Singapore Exchange would allow investors to trade and settle shares listed on each other’s stock market in a more convenient and cost efficient manner, benefiting retail investors, regulators of both countries said in a joint statement.

Malaysian Prime Minister Najib Razak announced the move first to investors gathered at the World Capital Markets Symposium in Kuala Lumpur on Tuesday.

“A regulatory arrangement will be worked on by the countries’ relevant regulatory authorities, to pave the way for the establishment of this trading link,” Najib said in his speech.

He said the link would enable seamless access between the markets, which have a combined market capitalisation of more than $ 1.2 trillion and about 1,600 public listed companies.

This link covers post-trade arrangements such as clearing and settlement of the stocks traded.

The Monetary Authority of Singapore (MAS) and the Securities Commission Malaysia (SC) will set up cross-border supervisory and enforcement arrangements.

“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,” said Lee Boon Ngiap, Assistant Managing Director at MAS.

“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,” he added.

Jingyi Pan, a Singapore-based market strategist at trading and investments provider IG, said the move was expected to facilitate more cross border flows between the two countries and could be the first step to seeing more of such links in the ASEAN region.

Countries in Southeast Asia have been trying to improve their financial connectivity by linking capital markets for years, but progress has been slow. Singapore and Malaysia first linked their exchanges back in 2012, and Thailand joined later, in what was called the ASEAN Trading Link, though this link was shut in October last year.

Malaysia’s Securities Commission Chairman Ranjit Ajit Singh said there were weaknesses in the 2012 system like its convoluted structure, costs, and some trade settlement issues, that would be addressed in the new link.

Formerly one country, Singapore separated from Malaysia in 1965. Tense ties between the countries have thawed over the last few years with a series of bilateral deals signed.

Connecting markets has become more pressing for ASEAN - a grouping of 10 regional economies - as competition from financial market connections elsewhere in Asia grows. In 2016, China approved stock trading between Hong Kong and Shenzhen.

“I am looking at the bigger story, and I hope Thailand will come in, I hope Vietnam will come in and the market continues to grow,” Nicholas Teo, trading strategist, at KGI Securities in Singapore said about the Malaysia-Singapore trade link.