Making Sense of Stock Market Mergers

Dr. Clemen Chiang
Dr. Clemen Chiang

Companies getting together are generally what come to mind when people think of mergers (which Spiking has discussed in a previous post). Once in a while, though, the exchanges on which companies are listed have mergers of their own, as well.

The ongoing talks between the London Stock Exchange (LSE) and the Deutsche Boerse demonstrate how mergers between markets play out and their effect on the economies of their respective countries.

The talks also beg the questions, why do stock markets merge, and has the Singapore Exchange ever been involved in a merger? Spiking scopes out the reasons behind these power-partnerships, including a few the SGX has been in, too.

The Merits of Merging

Stock markets the world over are increasingly pressured to provide investors with faster trades and access to more products in more markets, says CNN, prompting them to join forces to keep up with this demand. News.Markets gives the following, specific reasons for market mergers:

  • A bigger bourse makes it easier for buyers to find sellers and vice versa. It also attracts more companies to list, as well as more traders. A bigger exchange is also more liquid, which helps share prices react faster to market changes.
  • Technology has enabled 24-hour trading. Because traders anywhere in the world can now communicate in real time, trading hours are no longer strictly confined to a single market’s opening and closing times.
  • Institutional investors own most of the shares on a market, which means a bigger bourse can accommodate their liquidity requirements. Institutional investors include mutual funds, pension funds and insurance companies.
  • Many stock markets are taking to merging. Before the talks with Deutsche Boerse, the LSE tied up with the Borsa Italiana in 2009. The New York Stock Exchange’s purchase of Euronext at around the same time, and Nasdaq’s merger with the OMX Group are just a couple of several such recent mergers.
  • Less trading is going on in individual markets, making it a logical choice for these markets to partner up. News.Markets said in February, for instance that two major Wall Street firms have seen losses of 20% and 36% in their sales and trading. And at the SGX, Today quoted a market strategist last month observing that the trading volume in securities has fallen substantially in the past few years.

SGX and the Baltic Exchange

A lot of merger activity has taken place at the SGX over the years; some of it, very recently: The Straits Times reported earlier this month that the SGX has prepared a formal offer to purchase the Baltic Exchange of London. The Baltic Exchange, which was established in 1744, has benchmark indices for global shipping and moves billions of dollars in freight derivatives.

The potential merger has been valued at around USD100 million or SGD134 million. Straits Times quoted an SGX spokesman as saying both exchanges stand to gain from fresh growth opportunities. The SGX in particular would be able to further diversify its sources of income, and benefit from a weaker pound following Brexit.

Straits Times quoted both sides as saying in May that the exclusive talks between them had been extended until the end of August.

SGX and the ASX

The Australian Securities Exchange or ASX, merged with the SGX in 2010. In a joint press release, both sides said the merger unites the complementary businesses of two successful exchanges with internationally recognised regulatory standards within the Asian time zone.

The ASX brought its listings, stock options and fixed income franchises to the table, while the SGX put forward its Asian gateway for international listings, equity futures and OTC clearing. Together, ASX-SGX Limited had pro forma revenues of some USD1.1 billion

The combined exchanges created the second-largest listing venue in the Asia Pacific, with more than 2,700 listed companies from over 20 countries in 2010, including more than 200 listings from Greater China. It also made the largest institutional investor base in the Asia Pacific, and the second-largest one in the world, with combined assets of more than USD2.3 trillion.

The ASX and the SGX agreed to remain separate legal and locally regulated entities. Both went on to maintain their existing brands, which are well-established in each exchange’s home markets, as well as abroad.

SGX and Other Exchanges

Prior to its merger with the ASX, the SGX has forged ties with a number of other exchanges. In 2007, for instance, Live Mint reported the SGX picking up a 5% stake in Asia’s oldest stock market, the Bombay Stock Exchange (BSE) (which Spiking mentioned in a previous post).

Then SGX Chief Executive, Hsieh Fu Hua, said the SGX’s investment in the BSE was consistent with its strategy of building an Asian gateway for securities and derivatives.

In the same year, Finextra reported the SGX signing a Memorandum of Understanding (MOU) with the Abu Dhabi Securities Market (ADSM). The MOU aimed to establish a collaboration between the two bourses for the benefit of the markets in Singapore and the United Arab Emirates.

Under the MOU, efforts were to be made to facilitate cross-border trade and clearing between both countries’ securities markets. The SGX and the ADSM were to exchange information on their securities markets’ operational frameworks, work on investor education, and conduct a staff exchange programme.

A similar MOU was signed in 2008 between Singapore and Bahrain. Albawaba reported the director of the Bahrain Stock Exchange and an SGX senior vice president signed the MOU in the presence of Crown Prince Shaikh Salman bin Hamad Al Khalifa.

The Bahrain Stock Exchange director expressed his delight at signing an MOU with Singapore as a key exchange in the Asia Pacific. He added that he anticipated the MOU would lead to increased capital flow between both countries.

Stay on top of SGX activities with Spiking!

With the various mergers and collaborations taking place, the action on the SGX continues to heat up. Spiking’s verified, up-to-the-minute information sourced straight from the SGX keeps investors up to date, to help them make better-informed investment decisions.

Spiking consolidates the SGX’s latest published disclosures, tracking every stock spiking and more than 8,000 of Singapore’s sophisticated investors. Receiving this information in real time, Spiking app users know which investors are buying or selling which stocks, and can take investing cues from them accordingly.

To find out how Spiking can help you become a better SGX investor, visit the Spiking app homepage today.