This will ultimately enhance the liquidity of our markets. Recognising the potential benefits of establishing linkages, the ASEAN Finance Ministers have recently agreed to explore ways to forge alliances within the ASEAN securities markets. Forging successful exchange linkages is, however, not without its challenges. But these are not insurmountable. Let me briefly outline three of them. Firstly, exchanges’ technology and infrastructure will have to be updated and enhanced to cater to an increasingly integrated marketplace and a more sophisticated investor base. There is a need to ensure that the various IT infrastructures are interoperable and scalable, so as to allow partner exchanges to share common platforms and reap the benefits of economies of scale. Secondly, greater harmonisation of standards and regulatory requirements is a prerequisite for deeper linkages and alliances amongst the regional exchanges. Some regional exchanges and regulators have made a start by committing to work together under various MOUs. We should take the next step of looking at other initiatives to bring about greater convergence of standards in corporate governance, trading conventions, rules and regulations. Finally, the success of exchange linkages is highly dependent on investors’ interest in cross-border trades via the linkages. To achieve this, the linkages must provide a cost efficient solution for investors’ trading needs. There is also a need to cultivate Asian investors’ interest in cross-border investments. Asian investors’ investment portfolios traditionally reflect a strong home bias.

Exchanges in the region have already taken steps to adapt to the evolving competitive landscape. Many have restructured, demutualised, and expanded their product offerings. One area where more can be done is to explore deeper strategic collaboration amongst exchanges in the region. Liquidity is vital to the development of a stock market. Markets with higher levels of liquidity tend to have higher stock valuations. Asian stock markets are, however, generally smaller in size and less liquid than the stock markets of the more developed countries. Asian exchanges’ share of trading typically account for less than 20% of global trading volumes. Asian savings are thus still largely intermediated through the more developed markets. It is sensible to work towards greater integration of Asian stock markets to attract both international investors’ interest as well as the growing pool of Asian savings. The regional exchanges should consider closer collaboration in order to create a larger network. Strategic alliances amongst exchanges, whether in the areas of trading, or clearing and settlement initiatives, may therefore be a way for Asian exchanges to create value in the increasingly competitive marketplace. An exchange alliance, which can take various forms, is not only a means to provide a more efficient mode to service cross-border trading but is also a step towards building a pan-Asian market place. Market linkages will help broaden product offerings for investors and generate greater international interest in Asian securities. A more centralised counterparty arrangement will allow better management of collateral and counterparty risks.