The board of directors of the Philippine Stock Exchange (PSE) has approved the bourse’s participation in the creation of an ASEAN trading board which will pave the way for cross border trading of securities.
In a statement, PSE president Francis Lim said the local bourse is finalizing the terms of a memorandum of agreement it would sign with five other ASEAN exchanges composed of Bursa Malaysia, Hochiminh Stock Exchange, Indonesia Stock Exchange, Singapore Stock Exchange and the Stock Exchange of Thailand.
“The project is underway and still being finalized by all parties involved,” Lim said.
Under the proposed agreement, all participating exchanges will commit to electronically link member exchanges and set up the ASEAN Board, a bulletin board that will provide real-time market data of securities from each exchange. Each exchange shall provide a list of 30 securities following an agreed-upon criteria.
With the ASEAN trading board, investors from other ASEAN countries can buy or sell ASEAN-listed securities through their local brokers.
Lim said strategic alliances among exchanges may be a way for Asian exchanges to create value in the increasingly competitive marketplace and a step towards building an integrated and stronger ASEAN stock market.
According to the PSE, the urgency of developing linkages among ASEAN exchanges arises mainly from global pressures that could make small exchanges irrelevant in the global financial market arena.
Over the past years, various exchanges have been consolidating through direct buyouts, exchanges taking a stake in another, or through the creation of various forms of alliances, including trading linkages.
“The trading technology linkage will be a very potent tool to minimize threats to ASEAN exchanges of being marginalized considering the relatively small size of the market capitalization of individual ASEAN stock markets. This is particularly helpful in the case of the PSE, which lags at 40th slot in terms of market capitalization compared with major exchanges globally,” Lim said.
Earlier studies showed that Asian exchanges’ share of trading typically account for less than 20 percent of global trading volumes.
More companies will seek alternative pools of liquidity if domestic exchanges cannot satisfy their need for greater liquidity and connectivity to a larger network of traders and investors.
Liquidity is vital to the development of a stock market. Markets with higher levels of liquidity tend to have higher stock valuations.
Market linkages are also expected to help broaden product offerings for investors and generate greater international interest in Asian securities.
“Our aim here is to take little steps in making the PSE global while expanding our investor base internationally. This has been one of the many initiatives we in the PSE have been working on in the light of a wide range of innovations that we have also pushed forward. If you will remember, the PSE has acquired a new world class trading system to replace MakTrade and has also approved a plan to implement an extension of trading hours to overlap with its counterparts in the region, which we hope to be in place simultaneously by next year,” Lim said.