It was announced recently, by Prime Minister Najib, that Bursa Malaysia and Singapore Exchange will embark in a collaboration which will see both bourses be linked.
Details of the trading link remain sketchy except for the following:
- The trading link will enable investors, from a respective country, to purchase financial instruments listed in the counterpart’s bourse. For example, Malaysian investors would be able to purchase shares of a Singaporean listed company though Bursa Malaysia and vice versa.
- The trading link will be set up by end of 2018.
- The clearing and settlement of foreign financial instruments can be done through a local bourse, in local currency.
- Cross-border supervisory and regulation will be set up jointly by Securities Commission and Monetary Authority of Singapore.
Investors are said to be the biggest winner as:
- Investors would be able to access 1,600 public listed companies worth more than USD1.2 trillion, in market value.
- The trading link would create more liquidity and activity, in both bourses.
- Trading costs and inconvenience would be lowered and minimised respectively.
- It is expected that there would be more cross-border research especially with regard to the small and medium cap companies.
Such a trading link is not unheard of. In 2014, Shenzhen and Hong Kong embarked in a similar scheme, namely Shenzhen – Hong Kong Connect. The said scheme was successful in achieving additional liquidity and lowering costs, with the least changes to each other’s existing regulatory system, market structure and market practices. The said connect also improved the standard of financial standards of companies listed in the Shenzhen exchange.
I would imagine that Malaysian investors would be spoilt for choice, from the many shares, derivatives and exchange-traded funds traded on SGX, once the trading link is established. Further, the trading link will encourage local companies to exercise better corporate governance and financial reporting if they intend to attract more investors from the Singaporean side. This would also be to the benefit of local investors.
Are you optimistic about the trading link? Do leave a comment.