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NEWS UPDATES Asean Affairs        16  February 2011

Bourse mergers buzz in Asia

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The proposed takeover of Australia's ASX Ltd by Singapore Exchange Ltd (SGX) has ignited talks of possible mergers and acquisitions (M&As) among other Asian exchanges amid the growing threat of competition.

Mergers will increase product offerings, visibility and liquidity of the bourses, besides enabling them to reap economies of scale.

Following news of Singapore Stock Exchange buying Australian Stock Exchange for US$8.4billion Bursa Malaysia said it was open to any potential collaborative initiatives'' that would help grow its business and that consolidation amongst exchanges establishes a stepping stone necessary for becoming a regional and competitive capital market.''

"The proposed consolidation of ASX and SGX (the first merger between two market operators in the Asia-Pacific) may draw greater investor attention to Asia, and we would leverage on this opportunity to promote our strengths.

"Any regional efforts by other players that will increase interest of investors to the Asian markets will be looked upon as an opportunity for other exchanges," Bursa chief executive officer Datuk Yusli Mohd Yusoff told wires.

Recently, stiff competition from new trading avenues such as electronic crossing networks that allow clients to trade publicly-listed shares directly has affected the market share of traditional exchanges.

"Besides improving on size and scale, mergers among exchanges will enable the market to remain on the radar screen of investors, globally and regionally," said private equity firm NewAsia Capital Sdn Bhd associate director Sherilyn Foong.

In terms of stock liquidity, companies listed on the merged bourse are the beneficiaries. First, the market may become larger in the sense that there will be more market participants trading in listed firms.

"Thus, each firm faces a bigger pool of potential investors. Second, larger quantities of a stock will be available at bids above and below the prevailing market prices, thus improving market liquidy. One single big trade is less likely to drive up price movements," said Foong. A CIMB dealer said the uniformity of trading and clearing systems would lead to lower direct transaction costs, thereby encouraging higher trading volume. More importantly, the overall investor home base for the merged bourse will increase.

On the flip side, the dealer said other than government-linked companies, the Malaysian bourse was dominated by medium and small-sized companies.

"A merged bourse will see these companies disappear more into oblivion. Institutional funds will still only be interested in big companies. Liquidity increases, but only in the big companies. This could be a problem for companies listed on the AIM market," he said.

AIM is the London Stock Exchange's (LSE) international market for smaller growing companies. JF Apex Securities deputy managing director Lim Teck Seng said mergers were necessary for regional stock exchanges to increase their market share and profitability.

Exchanges are aware that most investment banking and stockbroking houses are expanding regionally by opening branches via acquisition or interbroking. Thus, the players no longer depend on a single market to survive.

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This year in Thailand-what next?

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