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Exchange Alliances in Vogue as LSE and SGX Offer Cross-Trading

07.16.2012

Exchange groups continue in their quest to form cross-border partnerships as they look to develop their businesses, following the failure of some recent high-profile mega-mergers, as bourses eye the growing potential of Asian markets.

After the collapse of the planned super-exchange tie-up in February between Frankfurt-based Deutsche Börse and the transatlantic NYSE Euronext, when the European Commission wielded its veto on creating the world’s largest stock market, some exchanges are now turning to alliances instead of costly mergers that face falling foul of regulators to increase their footprints.

The London Stock Exchange (LSE), which was also forced to abandon its own plans to merge with TMX Group, owner of the Toronto Stock Exchange, in June last year following a shareholder revolt, is continuing with its expansion in different ways. Late last week, the U.K. bourse announced that it had signed a memorandum of understanding with the Singapore Exchange (SGX) to enable cross-trading of some of the most actively traded stocks on each venue. This follows on from the controlling stake it acquired in Anglo-French clearing house LCH.Clearnet in April as well as the acquisition last December of FTSE International, the index business. The LSE is also in similar talks with ASX, the Australian exchange, to cross-trade its most active stocks.

Under the agreement with LSE and SGX, LSE members will be able to trade the top 36 SGX-listed companies on LSE’s newly-created ‘International Board’. These include securities of Singapore’s leading indices; the Straits Times Index and MSCI Singapore Index. Similarly, SGX members will be able to trade FTSE 100 securities on SGX’s GlobalQuote Board.

“In the last three years, LSE Group has been rapidly enhancing and expanding its operations in developed and emerging economies across the globe,” said Tony Weeresinghe, head of global development at LSE Group. “Building on this, the launch of our International Board is a bold first step towards creating an efficient, global trading network, unconstrained by geography.”

For investors, the collaboration will extend trading hours for the most actively traded securities in both markets to around 15 hours each day, providing more opportunities for investment, trading and risk management for participants in London and Singapore.

“We are excited to be partnering with LSE to offer customers in our respective markets a platform for investing in some of the world’s largest companies,” said Magnus Bocker, chief executive of SGX.

“This partnership delivers on the SGX Asian Gateway offering and is significant for three reasons. First, we are broadening the coverage of GlobalQuote so customers in Singapore can now invest in listed companies across the globe, beyond the U.S. and Asia into Europe. Second, we are raising the profile of our top Singapore-listed companies overseas and offering them more liquidity and access to global capital. Third, this international partnership effectively allows investors to act quickly on information and news flow released across several time zones and be able to manage their risks and returns 24/7.”

For issuers in both markets, the initiative will offer a quotation on a new market without the need for a separate listing, giving access to a new investor audience and the opportunity to benefit from increased stock liquidity. The trading of SGX-listed shares on the LSE is expected to launch by early next quarter, while LSE-listed securities are expected to start trading on SGX in the first half of 2013, subject to relevant regulatory approvals.

“I am delighted to announce the launch of this new partnership with Singapore Exchange,” said Xavier Rolet, chief executive of LSE Group. “Our International Board, a new and innovative concept, will offer our customers around the globe significant, previously inaccessible opportunities.

“As the world’s most international stock exchange, we are committed to bringing global capital and investors to London, as well as raising the profile of companies listed on our markets. This partnership between LSE and SGX will bring exciting opportunities for both FTSE 100 companies and our trading customers around the world.”

Trading will take place during normal market hours in both countries. Each day there will be a one or two hour period (depending on the time of year) in which both markets are open simultaneously. LCH.Clearnet will clear trades of Singapore-listed stocks traded on the LSE. These will be settled via the Singapore Central Securities Depository, CDP. Clearing and settlement arrangements for FTSE100 stocks traded in Singapore are subject to further regulatory approval.

“The Asian markets, that for a long time have been closed, are opening up,” a market source, based in London, told Markets Media.

From this month, SGX will become the first Asian exchange to provide access and connectivity for its customers from new hubs in the U.S. and Europe linking them to Singapore as it looks to move its markets closer to big western investors. This will allow traders to access SGX from Chicago and London via a data center operated by BT Radianz, a technology and telecoms firm.

“Through these hubs, global investors will be able to access the many opportunities offered by Asia’s fast growth,” said Tom Regent, president, global banking & financial markets and sales & marketing at BT Global Services, last month.

In May, SGX and Eurex, the futures exchange run by Deutsche Börse, teamed up to link their data centers in Frankfurt and Singapore to provide traders with easier access to European and Asian derivatives markets.

Meanwhile, CME Group and IntercontinentalExchange, the two largest U.S. futures exchanges, have begun increasing their presence in Singapore in a bid to attract more Asian-based volumes.

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