Singapore and Taiwan’s Markets to Be Linked: How Will This Benefit Singapore Exchange Limited?

Singapore’s local bourse operator and regulator, Singapore Exchange Limited (SGX: S68), announced a few days back that it will study and work towards a link-up with its compatriot in Taiwan, the Taiwan Stock Exchange (TWSE).

The move will allow “members of each of the exchanges an efficient, cost-effective and direct way to trade, clear, settle and custodise stocks listed on the other exchange”.

Currently, Singapore Exchange has 770 equities, including shares quoted in Renminbi, listed on its stock exchanges here. Meanwhile TWSE has 814 stocks, exchange-traded funds, warrants, and Taiwan Depository Receipts (TDRs).

TDRs are financial instruments issued by Taiwan that allow overseas-listed companies to be traded in TWSE like a local share. One such example is Singapore-based food and beverage company, Super Group Ltd. (SGX: S10). It listed its TDRs in 2010 but delisted them two years later due to poor circulation.

Magnus Bocker, Chief Executive Officer of Singapore Exchange, commented on the link-up:

“We are delighted to cooperate with TWSE on the study of a cost-efficient direct link between Taiwan and Singapore markets. International investors keen on Greater China opportunities are coming to Singapore and Taiwan because we are leading offshore Renminbi centres. There is therefore potential for cooperation in infrastructure and other areas so as to better serve these investors.”

If the link-up takes off, Singapore Exchange will be able to spread its wings wider and hopefully also boost its revenue.

In its 2014 Annual Report, Singapore Exchange mentioned that more value can be created by partnering and cooperating with like-minded peer exchanges to promote and catalyse growth of markets in Asia.

For the financial year ended 30 June 2014 (FY2014), revenue from securities, which made up the bulk of the company’s total revenue, declined some 18% to S$227 million. In FY2014, total trading value was S$286 billion, the lowest since FY2010. During the year, agreements were inked between Singapore Exchange and various exchanges like the Dalian Commodity Exchange, Deutsche Boerse’s Clearstream, Hong Kong Exchanges and Clearing, and Shanghai Futures Exchange. But, more still needs to be done. The company has to look at ways to increase its top-line further and the latest agreement with the TWSE might just help in that effort.

Shares of SGX are going at S$7.27 apiece currently, translating to a trailing price-to-earnings (PE) ratio of 24.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.