News that the Singapore Exchange has been shortlisted as one of four exchanges in the running for a 26% stake in the Bombay Stock Exchange is great news. Contrary to some commentators, my view is this is the ultimate in its regionalisation efforts. It would give SGX exposure to stock market-related earnings from beyond Singapore's shores. And considering Indian companies are being told to list in India first before they can list abroad, thereby perhaps negating the need to list abroad, it will give SGX exposure to the booming Indian economy.

There is some truth to the argument, put forward by Kevin Scully in the Business Times on Monday, that the SGX shouldn't be buying stakes in other Asian exchanges at a time when it is trying to position itself as a major capital market.

I have a lot of respect for Kevin, and his views are always based on sound reasoning and many years of experience in the market. But if the SGX's possible investment really doesn't make sense, then either the SGX is truly barking up the wrong tree or the SGX has another agenda that may not be quite so obvious at first.

As Kevin rightly points out, big Indian companies prefer to list on their home or the US markets. My view is though: if the SGX can't get them to come here, then perhaps the SGX should go where they are.

It's not like SGX is buying a stake in ASX, Bursa Malaysia or the Stock Exchange of Thailand. Given the fact that the SGX already has companies from these three markets listed on its own exchange, there doesn't seem to be much of a reason to buy stakes in them. Whatever synergies they might want to derive could be derived through an agreement or contract, such as the SGX's informal cooperation with the Tokyo Stock Exchange, or the WorldLink to the ASX (which failed) and Bursa Malaysia.

No, my view is this is about expanding SGX's earnings into areas that would otherwise be out of reach.

But I can think of another reason why SGX is keen on a stake in the BSE: recently there's been some talk that the SGX could fall prey to another overseas exchange, such as the Korean Stock Exchange or Nasdaq. By buying a stake in BSE, it could either complicate the story or it could enhance the SGX's attractiveness to a potential suitor.

Which is it?


Mark Laudi