Bursa Malaysia , the country's exchange operator, is banking on cross-border links with other bourses in the Southeast Asian region to grow instead of costly mergers and acquisitions, its top official said on March 06.
The exchange operator's plan to link up with the Singapore Exchange in mid-2012, followed by Thailand in August, will attract investors into the region that is seen as an emerging market darling, said Bursa Malaysia Chief Executive Tajuddin Atan.
"Cross border mergers and acquisitions have currently hit a wall and we can actually grow in creating our own ASEAN stock exchange networks," Tajuddin told Reuters on the sidelines of the Bursa Malaysia Palm Oil Conference.
ASEAN refers to the 10-country Association of Southeast Asian Nations. Seven exchanges in this bloc alone have a combined capitalisation of about $2.4 trillion - nearly half of the S&P 500 index's $5.6 trillion.
Forging alliances among stock exchange operators has become the alternative to mega mergers due to political and regulatory hurdles. In February, regulators rejected a $7.4 billion merger of NYSE Euronext and Deutsche Boerse AG, making it the third international exchange combination to fail in the last two years.
Bursa Malaysia, which has stayed away from large cross-border acquisitions, is focusing also on reducing costs and improving its delivery system at a time when bourse operators are reporting lower profits as investors shun risk. "We are comfortable with the volatility in global markets, this is our business. But we want to create more of a facilitative trading environment," said Tajuddin, who became the firm's top official in April last year.
With a market value of $1.3 billion, Bursa Malaysia has dominated the palm oil trade with its benchmark futures contract , which it calls the most liquid futures contract in the world.
It went a step further in 2009 to forge a strategic alliance with CME Group that led to the creation of a dollar-denominated contract based on settlement prices of the vegetable oil on Bursa Malaysia.
Both the Malaysian ringgit and U.S dollar-based palm oil contracts are now available on CME's Globex trading platform.
"With that partnership, our derivatives business has seen foreign participation rise by 57 percent in 2011 alone. Even on the domestic side, it is up by 30 percent," Tajuddin said. Given the rising interest in palm oil, the world's most consumed edible oil, Bursa Malaysia will launch options for the tropical oil this year although a firm date has not been announced yet, said Tajuddin.
"We had plans for this since last year. It is about time given the ecosystem for the cash and futures markets are strong and in place. The timing is about right given the volatility in the markets," he said.
Palm oil futures have risen more than six percent alone in February, driven by hopes of strong demand from top buyers India and China chasing high stocks in Indonesia and Malaysia, the largest suppliers of the vegetable oil.
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