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Equities

Singapore, Malaysia stock trading link aims to revive bourses' fortunes

Pact expected to deepen financial market connectivity in Southeast Asia

SINGAPORE (Nikkei Markets) -- Malaysia and Singapore plan to set up a stock trading link by the end of this year, a move that could boost trading on both bourses and spur greater connectivity between exchanges in Southeast Asia.

Singapore Exchange said it was still working on the details of the proposed link with Bursa Malaysia, which will allow cross-border clearing and settlement of traded stocks as well as joint regulatory supervision and enforcement by the Monetary Authority of Singapore and the Securities Commission Malaysia.

While the latest proposal is not the first attempt at connecting exchanges in the 10 countries that make up the Association of Southeast Asian Nations, it is the most comprehensive so far and stands a better chance of success, observers said.

Singapore, Malaysia and Thailand previously experimented with a cross-border facility that had more complicated clearing and settlement procedures. The link failed to take off and was shut last year.

Meanwhile, Southeast Asian bourses continue to struggle to stay on the radar of international investors, who have flocked to the region's much larger stock markets, especially those in North Asia.

The landmark Stock Connect initiative linking Hong Kong to exchanges in Shanghai and Shenzhen, first established in 2014, could also have heightened the competition and increased the urgency for something similar, said observers.

Malaysian Prime Minister Najib Razak, who announced the SGX-Bursa initiative at a capital markets conference in Kuala Lumpur, said the link "will provide investors on both sides of the Causeway with easier and seamless access to each other's markets with a combined market capitalization of more than $1.2 trillion and 1,600 public-listed companies.

The two countries, which are separated by a narrow strip of water, have the two largest stock markets in ASEAN. Singapore has a market capitalization of around $700 billion; Malaysia, around $500 billion.

The neighbors once shared a single bourse operator - the Stock Exchange of Malaysia and Singapore. But this entity was broken up in 1973 when the governments decided to go their separate ways.

Malaysian shares were later traded in Singapore through an over-the-counter facility called CLOB International, which shut down in 1998 after Malaysia imposed capital controls during the Asian Financial Crisis. CLOB's abrupt demise affected over 100,000 investors in the city-state as they held billions of dollars in securities that could not be traded.

Announcing the details in a joint statement Tuesday, MAS and SC Malaysia said the planned stock trading link between the two countries follow efforts by ASEAN to improve financial connectivity across the region's capital markets.

"The establishment of this trading link is an important step towards encouraging ASEAN investors to invest in ASEAN. The ease of accessibility for investors will contribute towards greater vibrancy in our markets," Ranjit Ajit Singh, SC Malaysia's chairman who is also chair of the ASEAN Capital Markets Forum, said.

Once operational, "this pilot initiative can form the basis for future connectivity among ASEAN markets," he said.

"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," added MAS assistant managing director Lee Boon Ngiap.

Mano Sabnani, CEO of Rafflesia Holdings, a corporate advisory firm, said that while details are still scarce, the proposed stock market link should help boost trading volumes at SGX and Bursa, benefitting both bourse operators.

"Presumably, one can trade in Malaysian shares online through a Singapore broker's website and vice versa," he said.

Phua Lee Kerk, chief strategist at Phillip Mutual in Kuala Lumpur, said the planned trading link would need to incorporate more features than the failed connection between Malaysia, Singapore and Thailand in order to appeal to retail investors in the two countries.

Along with the SGX-Bursa link, Malaysia also announced a raft of incentives for investors, including a three-year waiver on stamp-duty on small and mid-cap shares, a six-month waiver on trading and clearing fees for new investors, as well as pledges to liberalize margin financing rules and allowing all investors to short sell shares.

"These are just some of the steps we are taking to ensure that we do indeed participate in a renaissance of capitalism and that our growth is shared by all," Najib said.

--Kevin Lim and Jason Ng

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