Singapore, Malaysia agree to new stock exchange trading link

Singapore and Malaysia unveiled a plan to create a trading link that allows each country's investors to access the other's stock market.

The news was announced by Malaysian Prime Minister Najib Razak at a Securities Commission conference in Kuala Lumpur on Tuesday. The link will be established by the end of the year, he said. Singapore and Malaysia's regulators and national exchanges will work on the arrangements for the system, which will connect markets with more than $1.2 trillion in value and about 1,600 listed companies.

The move comes just months after the closing of an earlier attempt to connect the markets, which started in 2012. While that effort failed, the success of Hong Kong's links with exchanges in mainland China made it more pressing for bourses in Southeast Asia to establish their own regional alliance, said Song Seng Wun, an economist at CIMB Private Banking in Singapore.

"Regional competition has put pressure on the exchanges," said Song. "The two exchanges don't want to be left behind and have investors flock elsewhere so now they're waving a flag and saying, ' we too will have a trading link."'

Singapore Exchange Ltd.'s shares closed down 2 percent on Tuesday, while Bursa Malaysia Bhd. stock fell 1.1 percent amid a sell-off in global equities.

A rise in trading flows under the Hong Kong-China stock connect demonstrates the potential opportunity for regional exchanges, said Bloomberg Intelligence senior industry analyst Sharnie Wong.

The announcement came after bilateral discussions between Najib and Singapore Prime Minister Lee Hsien Loong at a retreat last month. It's the latest move in what's been a long-running effort to introduce cross-border trading between the two countries separated by a causeway.

A Singaporean over-thecounter market, known as Clob, that traded billions of shares of Malaysian-based companies was in 1998 banned by Malaysia, which alleged that Clob was an illegal exchange.

The Clob dispute didn't stop the nations holding talks in 2004 about allowing investors to trade securities on each other's exchanges by the end of 2005. While that didn't happen, the Asean Trading Link started in 2012, with Bursa Malaysia and SGX as its members, later joined by the Stock Exchange of Thailand. That system shut last year, five years after its high-profile debut.

As well as the cross-border buying and selling of shares, the new stock link will cover arrangements including clearing and settlement, a first for the two markets, according to SGX.

The new link's cross-border clearing and settlement will be key for its users, Malaysia's Securities Commission Chairman Ranjit Singh said in an interview.

"Investors will essentially be able to trade equities from another stock market, and settle in local currency as if trading in the local market," he said at the event in Kuala Lumpur. "Retail investors will notably benefit from this."

Institutional investors will also be interested, said Danny Wong, chief executive officer at Areca Capital Sdn. in Kuala Lumpur.