Sunday, February 03, 2008

Bursa's Soul Mate

There appears to be considerable speculation on Bursa Malaysia Bhd's intention to form an equity tie up with a foreign strategic partner. If that is the case, we assume, it will involve a much bigger stock exchange operator.

Second Finance Minister Tan Sri Nor Mohamed Yakcop was reported to have said that foreign companies can purchase a stake in Bursa Malaysia Bhd and that it was in “some tentative discussions” to divest a stake in the company to a foreign party. Well, my humble opinion on the matter is this – “Don't do it.”

Ten percent of Bursa is not a small thing. The matter needs to be given some serious thought and consideration. A 10% stake is like small change to a major foreign operator. On the other hand, for Bursa, it could have a major impact and as such, it needs to strategise well before any such stake sale. After that, what happens if the petrodollars-rich Dubai counterparts come along and propose an idea for say, a MENA-Asean exchange? Another 10% sale? Then LSE could chime in with another great idea, and another 10%?

It's not just the stake; each sale would bring in certain ramifications, which may preclude other attractive opportunities with other exchanges.

The surge in valuation of almost every exchange in the world over the last two years was due to an appreciation of the stock exchange's market monopoly and the growth in global trading. Exchanges trying to gobble up one another is a sign of “too much of a good thing” going after “another good thing”.

A need to flex

Bursa has yet to flex its potential and leverage on its platform. Exchanges buying up each other is a significant development. By staying still, Bursa could be relegated to a very minor player on the global stage. Going to bed with a much bigger operator however may not be the sole solution.

There may be a better way for Bursa to expand without involving a stake sale. The best possible solution is to do a coordinated venture with another exchange, for example the Singapore Stock Exchange – with or without a share swap. Perhaps the trading systems of both countries could be harmonised to allow brokers and remisiers to buy and sell Malaysian and Singapore shares.

The prospects of such a tie up are enormous for both sides. It will improve transactional fees both ways by boosting volume as it allows Malaysians to buy Singapore stocks and vice versa. The fact that the stocks on Malaysia and Singapore are quite distinct and different will be a major plus point for pushing the deal forward.

A Bursa-SES or SES-Bursa (I can see them at loggerheads for a very long time just over the naming rights) will more than just increase the consolidated volume and variety of stocks.

The consolidated volume would push the joint exchanges onto the global platform more. There would be instantly better recognition and size. This is a case of 1+1=3.

Can it work?

The question is can both parties put aside their differences (that includes pride as well) and make such a plan workable?

Both sides have to put their pride aside to make this workable. Liquidity would improve for all. Working out the fee sharing between the exchanges would be another hurdle. Other related clearing and custodian issues will arise but they are not insurmountable – its been done many times throughout the world. This is just a plan to allow for trading by brokers into Malaysia and Singapore shares seamlessly, not a merger.

It just makes sense. Both economies do substantial economic trades with each other.

The proximity makes it a natural fit. The different make-up in each country's popular sectors promotes choice and alternatives. If the Bursa and SGX were largely dominated by institutional buyers and sellers, then the plan might not yield that much synergy as institutional players have access to all markets wherever they may be sitting in the world.

The fact that both markets have substantive private investors is the nexus for the plan.

While the individual investors can go through the hassle of opening separate accounts in both countries, it's the seamless convenience that will bring about the cross border trading and investing activity.

Remember the CLOB issue, though still a sore point with most Singaporeans - the existence of CLOB made it a natural setting for Singapore investors to trade Malaysian shares. This plan basically expands on that without the potholes. The synergies can go on and on. Nobody really loses out.

There could be some foreign broker to local broker orders that could be lost e.g. a Merrill Lynch order could be routed via a Singapore broker to buy Malaysian shares, but wake up, its happening already. That point is moot.

By having the size, the joint exchanges can deliberate on more hefty issues, or better and more varied ETFs, or more derivative instruments. Instead of one broker screen, you have two. Remisiers should be happy with more choices to offer their clients.

At the end of the day, both exchanges will still be independent. The share swap can just be a token 10% if done at all. The exchanges can still decide on the kind of instruments they want on their exchange, or their own requirements for IPOs, their own regulatory system, etc. Not much would change on that front.

The big question is - Is there political will to push this idea through? Bursa and SGX are like soul mates being kept apart by bickering in-laws. But pondering on such a potential tie up is indeed, great fodder for thought.

1 comment:

hellthy correction said...

i beg to differ on this one. I think it would be a 'BIG' steal (for Bursa) if this deal were to be done. Just look at the amount of politics and red tapes to get the common platform started. Think its more than 5 yrs since Bursa spent millions of ringgit on some software (which is gathering layers of dust now)stored somewhere in some useless storehouse. I think we better not kid ourselves talking about our potential whereas places like SGX, HKEX are already windows to the world financial mkts. So Bursa, go ahead and sell all the 10%s if u wish, if u may, and if u might provided the deal is genuine enough. But at a glance at Bursa's current infrastructure.....i would say its NATO (Talk only no action).


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