Doubts raised on Singapore-Taiwan exchange link

By:
Rob Hartley
Published on:

The Singapore Exchange (SGX) and the Taiwan Stock Exchange (TWSE) are hoping to forge closer ties with the announcement of plans for a direct link between the two bourses, but equity market bankers reckon it will do little to boost demand.

Magnus Bocker-R-envelope
Magnus Böcker, CEO of SGX, says there is 'potential for cooperation in infrastructure' with TWSE

The two venues are looking into a way for members to "trade, clear, settle and custodize stocks listed on the other exchange" in a bid to build a closer relationship, according to SGX.

"We are delighted to cooperate with TWSE on the study of a cost-efficient direct link between Taiwan and Singapore markets," says Magnus Böcker, CEO of SGX in a statement.

"International investors keen on Greater China opportunities are coming to Singapore and Taiwan because we are leading offshore renminbi centres. There is therefore potential for cooperation in infrastructure and other areas so as to better serve these investors."

Letter of intent

According to TWSE, work began on the new link after the signing of a letter of intent on Wednesday and the new system is expected to be set up within six months. Cooperation is also being pursued in the areas of market promotion and dual-listing to expand the scale of each market, TWSE states.

However, despite the positive move from the two exchanges, some bankers are struggling to see the value of the planned new link.

"There is no natural need for a Taiwan-Singapore link," says a senior Hong Kong-based ECM banker. "If people want to buy Taiwanese or Singaporean stock, they can do it. It’s about the structure. What does it do for demand? Maybe it helps, but I can’t see it making a major difference."

The move comes as the buzz around a different stock link, the Hong Kong-Shanghai Stock Connect, builds in Asian markets. The Hong Kong-Shanghai link will allow trade in both directions through mutual market access, an innovation that is exciting the Asian investment community due to the increased access to mainland Chinese stocks.

The Hong Kong-Shanghai Stock Connect was announced on April 10 and is expected to launch sometime around mid-October. While all Hong Kong and overseas investors will be allowed to trade northbound through the Stock Connect, only mainland institutional investors and individual investors who hold an aggregate balance of not less than RMB500,000 ($64,500) in their securities and cash accounts will be accepted to trade southbound, according to Hong Kong Exchanges and Clearing.

It’s only the domestic guys that have restrictions.
The international guys can invest where they want

Hong Kong banker

"The thing about the Hong Kong-Shanghai Stock Connect is there is a definite interest in investing in Shanghai from international investors," continues the banker. "I’m not sure it matters too much with this one [Singapore-Taiwan]."

A second ECM banker in Hong Kong explains that the new link would make sense if it was between Singapore and Australia, but he sees less need for it between Singapore and Taiwan. "Maybe Taiwan wants to invest in Singapore or vice-versa," he says. "It just seems an attempt to copy the Hong Kong-Shanghai Stock Connect."

However, some believe there are positives that could come from the Singapore-Taiwan link, specifically around the potential deepening of liquidity it could offer. 

"Any chance of the liquidity pool increasing is interesting as it has an impact on the size of deals we can do," says a third Hong Kong banker.

Yet this banker also points out the move is one that should primarily benefit domestic investors rather than international investors in terms of market access.

"It’s only the domestic guys that have restrictions," he adds. "The international guys can invest where they want. The emerging-markets fund manager can pop his money into Taiwan, but he can’t do that into Shanghai."

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special focus

According to TWSE, the exchanges will each create a special purpose vehicle (SPV) in their domestic markets for the purpose of connecting and routing orders, and transferring payment and settlement instructions to clearing and settlement institutions.

"The centralized depositary and custodian companies in each market will also provide local post-trading support to simplify the shareholder registration process and other post-trading arrangements," explains TWSE in a statement.

"The purpose of setting up the SPVs is to assist brokers and investors with trading foreign stocks. Each SPV is designed to route orders directly to foreign exchanges and manage post-trading settlement, clearing and custodian activities and more, all of which will reduce operational costs and enhance participation in international business."

TWSE lists 814 stocks, ETFs, warrants and Taiwan depositary receipts, while SGX has offered MSCI Taiwan futures for 18 years and lists China A50 and AsiaClear iron ore futures, plus 770 stocks including RMB shares, according to SGX. The proposed link will be subject to regulatory approvals.

"TWSE and SGX have built a broad consensus around expanding international cooperation," adds Sush-der Lee, chairman of TWSE. "The signing of the letter of intent is a practical mechanism for facilitating cross-border trade and will enable TWSE and SGX to provide more diversified services to their respective market investors."