The missed opportunity of the ASEAN Trade Link

Photo: Gunawan Kartapranata/CC BY-SA 3.0

The Singapore Exchange announced the end of the ASEAN Trade Link. Was it a good business decision or an underdeveloped opportunity?

By Oliver Ward

Five years after its inception, Singapore Exchange announced the termination of the ASEAN Trading Link in the first week of October. Singapore Exchange announced the decision without fanfare in a public consultation paper.

The ASEAN Trade Link was initially established to mirror MiFID in Europe

Like MiFID (Markets in Financial Instruments Directive) in Europe, the ASEAN Trade Link was developed to become a single-entry point for the ASEAN exchanges. It allowed stockbrokers and international investors to connect directly to the Singapore Exchange (SGX), Bursa Malaysia Berhad (BMB) and the Stock Exchange of Thailand (SET) through one sole broker in any of the three countries.

Brokers, clients and local markets all stood to benefit from the ASEAN Trade Link

Unlimited access to all three markets within the trade link allowed one sole broker to offer investment options to clients across the region. Before the foundation of the trade link, the broker had to establish a relationship with an additional vendor in the country they wished to invest in. With an additional broker involved, the client would have to pay more in broker fees.

The markets expected trading volume to increase annually by between 20 and 30% through the increased investor access.

The ASEAN Trading Link did not have the same initial effect

However, only Thailand saw an increase in liquidity from the creation of the ASEAN Trade Link.


Source: World Bank

Source: World Bank

For brokers, the short-term benefits were also negligible. Daniel Lee, director of electronic trading DBS Vickers, said that many firms already had their own access to multiple markets and the ASEAN Trade Link did not make much of a difference.

Was it right to kill it?

The ASEAN Trade Link suffered from several drawbacks. The lack of a centralised clearing and settlement system meant that it was not a fully operational end-to-end platform. This made it undesirable for day-trading investors.

The lack of harmonisation in market regulation was also an issue. Differing capital controls and exchange jurisdictions for each market deterred international investors.

But had the link been given the opportunity for reworking, the long-term effects could have been highly positive. There were already measures emerging to solve the issues. In 2015, Singapore, Malaysia and Thailand launched the Collective Investment Scheme framework to increase harmonisation and streamline the cross-border movement of funds.

The platform needed the time to develop a supranational regulatory body like the MiFID. With a central regulatory body and legal harmonisation, the ASEAN Trade Link could have competed for global investment in the Asia-Pacific region. Aligning settlement systems, trading hours and company disclosure requirements would have attracted more retail brokers and channelled more international funds into the ASEAN markets.

There were also signs of progress in clearing and settlement. In 2014, the ASEAN exchanges appointed Deutsche Bank to provide clearing services. The better standardisation of clearing services was a step closer to launching an ASEAN clearing house in the future.

Together, the ASEAN markets represent a more enticing package to international investors. The combined markets would offer more than 3,000 listings and would be among the largest ten stock exchanges in the world.

The ASEAN Trade Link was an opportunity to begin the transformation to a single market. Integration is a slow and gradual process but brings with it a wealth of opportunities. With the ASEAN Trade Link lying in ruins, the integration of ASEAN’s capital markets will have to start from scratch again and seek an alternative to closer integration and market standardisation.