What do you do when you run out of sugar? You ask your neighbor, of course. The more neighbors, the better is the mantra the ASEAN Bulletin Board seems to be following with its addition of Vietnam. The Financial Times reports the Ho Chi Minh Stock Exchange will join the original five exchanges that signed a memorandum of understanding in February of this year: Indonesia, Malaysia, Philippines, Singapore, and Thailand. The ASEAN Bulletin Board is essentially a single trading screen where each of the exchanges can list 30 of its stocks, routing orders from brokers to the individual exchanges. The hurdles, according to FT, revolve around logistics: making the trading systems compatible, setting up the central clearinghouse and settlement arrangements and dealing with six different currencies.
In essence, the ASEAN Bulletin Board sounds similar to the partnership between the Chicago Mercantile Exchange in the U.S. and BM&F BOVESPA in Brazil, which dates back to early 2008. Both the ASEAN and Chicago-Brazilian agreements seek to raise the visibility of specific markets and thus attract more liquidity while retaining the listed companies within their own markets.
Little research has been done on such forms of market integration. Rather, studies typically focus on “stronger” forms of integration, be it cross-listing shares in foreign exchanges or consolidating stock exchanges through mergers. On the on hand, firms may seek cross-listing in a foreign exchange if money isn’t available in the home market. Alternatively, they may cross-list in an exchange with tougher requirements, hoping to boost their reputation in the process. For example, a company’s listing on the NYSE or the London Stock Exchange may signal its commitment to improved corporate governance and better protection of minority shareholder rights. On the other hand, studies of exchange mergers have found that merged entities may converge on stricter listing standards. Unfortunately the ASEAN Bulletin Board does not promote homogeneous listing requirements, improved corporate practices, or better financial reporting as companies are still retained in their original market.
Ravi Jagannathan agrees that the primary motivation for the ASEAN Bulletin Board is to attract additional liquidity into the markets involved. Evidently, there is some asymmetry, with less developed markets, like Vietnam, benefiting from the presence of more developed and transparent ones, such as Singapore, in the mix. He points, however, that it would be important to look at the ownership structure of the listed companies. While governance and minority shareholder rights might not be a concern for regional players, they would presumably be of concern to global investors. These are countries where state companies and large business conglomerates account for significant fractions of the GDP.
A possible avenue for the ASEAN Bulletin Board might be to follow Brazil’s lead. In December 2000, BM&F BOVESPA launched the “Novo Mercado,” (“New Market”), an interesting experiment that tries to strengthen corporate governance without listing in a foreign exchange. By creating a different segment within the market—one subject to tighter corporate governance and accounting requirements—the companies listed in the Novo Mercado have seen increased market capitalization and liquidity.
Chavez, Gonzalo A. and Ana Cristina Silva. 2009. “Brazil’s Experiment with Corporate Governance,” Journal of Applied Corporate Finance, 21(1): 34-44 (gated link)
Chemmanur, Thomas J., Jie He, and Paolo Fulgheri. 2008. “Competition and Cooperation among Exchanges: Effects on Corporate Cross-Listing Decisions and Listing Standards“, Journal of Applied Corporate Finance, 20(3): 76-90 (gated link)
Doidge, Craig, G. Andrew Karolyi and René Stulz. 2004. “Why are Foreign Firms Listed in the US Worth More?” Journal of Financial Economics, 71(2)” 205-238 (gated link)