The project to link the main exchanges in the Asean region still has several key hurdles to negotiate before it can make good on its ambitious aims, according to senior bankers in the region.
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| People tend to be very emotional about their exchanges, so I don’t see exchanges going away Michael Zink |
The Asean Exchanges project has promoted collaboration between bourses since its launch in April 2011, but, according to bankers, it needs more work in areas such as regulation, trading and settlement as well as market education.
“The Asean exchanges are still fragmented, so any barrier or any friction that makes it hard to buy and sell across those exchanges makes it that much less attractive to invest,” says Michael Zink, head of Asean, Citi country officer for Singapore.
“People tend to be very emotional about their exchanges, so I don’t see exchanges going away. Every country wants one.”
The project brings together seven exchanges in the region – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam (two exchanges) – to promote growth in the region’s capital markets.
“We are trying to create a virtual space and that’s the opportunity for the Asean economic community,” says Zink. “In that space, if you can buy and sell, and the terms are the same and the protection of the investor is the same, the mechanics of buying and selling and settling frankly are pretty straightforward.
“What we need is that regulatory framework that virtually turns those exchanges into a single pool of liquidity. We are well on the way. People are doing the hard and unglamorous work of the details of settlement, for example. We’ve got to get through all those things. It’s in the works. My sense is that everyone is committed to it, but it’s not done. It’s a work in progress. There’s more work to do.”
Universal enthusiasm
There is no doubt there is universal enthusiasm in Asean for the project and its goals, which stand to benefit all the exchanges and bourse users if achieved, but this is accompanied by a strong sense of realism about what still needs to be done to prepare the ground for success.
“We are excited by the initiative to link up the exchanges in Asean, as this will increase the size and depth of the stock markets on a collective basis and allow listed companies to access investors across multiple jurisdictions,” says Tan Jeh Wuan, head of capital markets Singapore at DBS Bank.
“There will be a need to harmonize the legal and regulatory framework governing the different exchanges to create a common platform for the listing and trading of the shares across exchanges.”
He adds: “Cross geographical trading and settlement procedures also need to be established to allow domestic investors to trade in shares listed overseas. It is also prudent that the task force set up to oversee this initiative is focusing on linking up a few exchanges first and use that as a working model for the link up of the other exchanges to follow.”
Asean Exchanges says the goal of the collaboration is to bring more Asean investment opportunities to more people as well as enhance liquidity amongst members of the collaboration. The CEOs involved in the project met in August to discuss the next steps in marketing and promoting Asean as one asset class.
| More work needs to be done to bring the regulations of the different exchanges closer to each other Alvin Lim |
Speaking on behalf of Asean Exchanges at the time, Magnus Böcker, CEO of the Singapore Exchange, said: “The collaborative action amongst the Asean Exchanges has been a vital force in moving things forward to achieve our goals and this is most evident in the significant progress we have made over a relatively short period of time.
“Since the formalization of Asean Exchanges in April 2011 by officially introducing Asean Exchanges website and until now, we have put in place the Asean trading link to connect our markets and are able to also now provide streamlined, cost-effective post-trade procedures for cross-border transaction conducted via the Asean trading link.”
He added: “Each of the Exchange members has embarked on their own in-market engaging activities with the market players to market and create greater visibility of Asean products to investors.”
Alvin Lim, managing director and head of banking, Singapore, at HSBC, agrees the project has shown good progress since its launch, but believes it is still in its early stages.
“More work needs to be done to bring the regulations of the different exchanges closer to each other, such as rules on foreign investors and disclosure levels,” he says. “Investors will also need to be better educated about the new opportunities and benefits such an alliance could bring.”
Lim thinks it is too early to tell whether the project is achieving its aims, but believes there is more interest in Asean investment opportunities from investors in other parts of the world, such as China, Europe and the US. And he adds that the creation of the FTSE Asean Index Series is a step in the right direction towards achieving its aims.
And while a lot of progress has been made in the Asean Exchanges project, there are some that believe there needs to be clear milestones on the road towards the finished product.
“The game-changer would have to be central clearing for all the exchanges,” adds a separate banking source in Singapore. “But that is likely to be some way off, given the lack of a central currency like in Europe and the diverse regulatory framework within Asean.”