ASEAN Trading Link To Spur Growth in Asia

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ASEAN Trading Link To Spur Growth In Asia
By Jessica Titlebaum

Virginie Barbot can just feel it, the energy shift in the financial markets towards Asia. The senior account executive at CQG’s Singapore office says Western firms have long been part of this trend and are now looking to move more resources East. But there is also organic growth in the region, which reinforces the growing momentum.

“Due to the financial crisis firms are turning to Asia as a leading source of growth but they are not the only ones, the local financial community is gearing up as well,” said Barbot.

One recent example of this is the Association of Southeast Asian Nations’ (ASEAN) plan to launch a regional trading link for four regional stock exchanges later this year. The link aims to attract more foreign investors, increase cross border trading and spur development in the region.

The trading link, provided by NYSE Technologies, will offer a standardized trading entry point for investors, with sponsored access to non-members and risk management capabilities. It will also provide a network for the exchanges to receive integrated market data feeds.

“The ASEAN Link creates a unique platform for cooperation between these markets. The initial functionality presents market data and order routing in a single consistent format. This eliminates a lot of the technology “friction” associated with cross border trading into these markets,” said Peter Tierney, senior vice president at NYSE Technologies. “The exchanges expect these links to play a big role in greater intra-ASEAN trading (investors in one ASEAN markets trading other “local” markets) as well as inbound flow from Asia, Europe and the Americas. The partnership could also lead the way for process of harmonization rules across the different exchanges.”

The NYSE Technologies project will kick off with Bursa Malaysia and the Stock Exchange of Thailand linking to the system in late 2010. The Singapore Exchange, waiting to complete their securities trading platform updates, will join the link during the first half of 2011, followed by the Philippines Stock Exchange.

“Thailand and Malaysia may have smaller marketplaces and alone won’t attract foreign participants but together, the attraction to these markets is greater,” said Kesara Manchusree, managing director of the Thailand Futures Exchange, a subsidiary of the Stock Exchange of Thailand. “We hope foreign participants will come but that local SE neighbors will also want to trade our markets too.”

Initially, the trading link will only connect the ASEAN stock markets but derivatives exchanges could be folded in eventually.

“I see futures in the future,” said Rama Pillai, the senior vice president at the Singapore Exchange, who noted that two of the participating exchanges do not have derivatives platforms yet.

Trades would be cleared in home markets under home market rules. Phase two of the project will include clearing services through any partner broker.

Besides playing a role in the development of the derivatives markets, the collaboration will also motivate emerging markets. The Ho Chi Mihn City Exchange (HoSE), the Hanoi Exchange and the Indonesian Exchange (IDX) have not yet “put pen to paper” but were also involved in the ASEAN talks, said Pillai.

Overcoming Cultural Challenges

While the participating countries are located in the same region of the world, they differ in language, currencies and regulation. To address these challenges, the exchanges have established four working groups focused on business development, technology execution, regulations and market operations.

The exchanges have also scheduled educational workshops. Participating regulators and brokers met in January in Indonesia to discuss the trading link and another one is scheduled for April in Vietnam, showing a dedication to development and growth on the part of the emerging markets.

“One would think that Singapore is the leader in this joint venture but in reality, everyone is an equal partner,” said Garry Jones, executive vice president and head of global derivatives at NYSE Liffe.

Since home brokers participating in the venture will be selling foreign products, the exchanges have made an effort to meet and get to know each other.

There are many benefits that will stem from the ASEAN Trading Link including a larger presence in the global arena, stronger intercontinental relations and assistance for the emerging markets. The group may have some cultural differences to overcome but participants expect technology will enable them to achieve their goals.

“Technology exceeds language barriers,” said Pillai.