Prospects and Challenges of the Development of ASEAN Exchanges

Abstract

The Association of Southeast Asian Nations (ASEAN) are collectively ranked as the world’s seventh largest economy). This research explores the challenges in integrating the securities market across ASEAN, focusing on ASEAN Exchanges (a collaboration of seven of the regions’ ten stock exchanges). Despite being established as a regional block since 1967, there remains significant disparity among the ten countries. At a regulatory level there exist differences in foreign investment restriction, tax regimes, and the number and structure of financial regulatory bodies. At a normative level variance in operating rules, trading practices, business calendar, technical standards, and market structure presents further challenges in cross-border transactions. At a cognitive level there are differences in the sophistication of investors’ profiles and recognition of ASEAN companies. In light of these institutional challenges, members of ASEAN Exchanges have taken a highly fluid and flexible collaborative approach that seems to have made ASEAN Exchanges work. In terms of the future direction of greater integration the research finds that given the extent of institutional distance and the amount of effort required, the creation of a single pan-ASEAN trading, clearing and settlement entity vertically or horizontally for the ASEAN capital market would not be a preferred option. Compared with such cases of regional capital market integration in Europe and the U.S, the condition of multiple currencies and the likely persistence of institutional distance would make a single entity across the different markets an unrealistic option. However, with the development of modern information communication technologies, it allows ASEAN Exchanges to have the benefits of implementing “home rules apply” cross-border linkages (i.e. trading link and the depository linkage via a global custodian) while tackling the institutional disparities. With this approach, progress has been made. Some institutional disparities have been successfully eliminated whilst others are in the process of being addressed but need more time to see the results.

Keywords: ASEAN, trading, securities