The Association of South East Asian Nations
(Asean) bourse link-up has the potential to boost liquidity in
the regions exchanges, according to local lawyers.
But it will require a strong public relations
campaign, and resolution of regulatory uncertainties.
Phase one of the Asean Trading Link opened on
September 18, connecting Singapore Exchange (SGX) and Bursa
Malaysia (BM). It allows investors to access stocks outside
their home jurisdictions by facilitating connections between
It is quite clear that an Asean exchange link
will provide a wider platform for trading and give investors
wider choices, said Sin Boon Ann, director at Drew &
Supporters believe the link will make Aseans
exchanges more competitive with regional rivals, such as the
Hong Kong Stock Exchange and Shanghai Stock Exchange.
But some counsel have warned that investors must be
aware of the exchanges differing regulatory regimes. This
is a similar situation Latin Americas integrated market,
the Mercado Integrado Latino-Americano.
While investors are paying attention to Asean, it
is difficult for one of its exchanges to compete against those
in other regions, said Bangkok-based Baker & McKenzie
partner Thananan Sangnuan. However, the link will
increase the competitiveness of the region as a whole,
The link is set to expand rapidly. The Stock
Exchange of Thailand (SET) is expected to join in October. The
four other participating exchanges Hanoi Stock Exchange
(HSX), Ho Chi Minh City Stock Exchange (HOSE), Philippine Stock
Exchange (PSE) and Indonesia Stock Exchange (IDX) will
participate at a later date.
Regulatory issues across
A potential shortfall of is that the broker system
means there is no central clearinghouse. Instead, transactions
are governed by the relevant exchanges regulator. It
makes it important for investors to be familiar with
regulations across all three jurisdictions.
Most sources agree that SGX, BM and SET are the
ideal exchanges to open the link. Together, they represent 67%
of the seven participating exchanges market
Further, Singapore, Thailand and Malaysia have the
benefit of high corporate governance standards compared to
other Asean jurisdictions. In the recent CG Watch 2012 study co-published by CLSA Asia-Pacific Markets
and the Asian Corporate Governance Association, the three
jurisdictions are among the top five for corporate governance
standards in Asia.
Regardless, Stamford Law partner Ng Joo Khin
recommended that counsel look into the disclosure regimes of
the various countries and how transparent the corporations are
expected to be. He noted that Singapore-listed companies are
required to announce material information very promptly.
Are the disclosure rules in all other countries just as
robust? Admittedly, some may not be, he said.
Ng also raised questions about cross-border
disputes. He asked whether there is an easy and cost-effective
avenue to enforce against recalcitrant directors or companies
in other countries, and warned that costs, cultural and
language differences as well as physical distance could be
Investors should also pay attention to the
links clearing mechanism. Sin recommended looking at
clearing systems, such as how effectively the link will ensure
seamless clearing for the traded securities and handle
Certain home-country regulations may also be
adjusted. Sangnuan said that the link has prompted rule changes
in Thailand, even before the Asean link has been implemented.
For example, Thai securities companies can now publicise the
research and reports of foreign securities companies.
While Singapore, Malaysia and Thailand are all
attractive targets, the most popular Asean jurisdiction among
foreign investors is undoubtedly Indonesia. However it is
unclear when the IDX will join the link and how it will benefit
Sources agree that the Indonesian Capital Market
and Financial Institutions Supervisory Agency (Bapepam-LK) will
not handle issues related to the link this year.
Iwan Setiawan, partner at Makes & Partners,
said that counsel are waiting for the Indonesia Financial Services Authority (OJK) to
begin operations to look into this issue.
Counsel disagree on how the link will affect
Indonesian or foreign investors. Rambun Tjajo, partner at
Hadiputranto Hadinoto & Partners said it is not very clear
how the link will assist thier development as there are
effectively no restrictions for foreign investors to invest in
share trading on the IDX.
In addition, Tjajo said that from an Indonesian
investors perspective it is far from clear that the Asean
exchange link would, at least in the short-term, make any
Richard Weiss of Makes & Partners agreed, and
said that the low stock prices on the IDX may make Indonesian
investors reluctant to invest in other Southeast Asian
exchanges with higher share prices. He added: We may see
more investors looking at Indonesia via the link, rather than
Indonesian investors looking elsewhere.
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