07/03/2012 (The Star) - Bursa Malaysia is banking on cross-border links with other bourses in South-East Asia to grow instead of costly mergers and acquisitions, its top official said.

The exchange operator’s plan to link up with the Singapore Exchange in mid-2012, followed by Thailand in August, would attract investors into the region that was seen as an emerging market darling, said Bursa chief executive Datuk Tajuddin Atan.

“(Cross-border) mergers and acquisitions have currently hit a wall and we can actually grow in creating our own Asean stock exchange networks,” Tajuddin told Reuters on the sidelines of the Bursa Malaysia Palm Oil Conference.

Seven exchanges in Asean alone have a combined capitalisation of about US$2.4 trillion – nearly half the S&P 500 index’s US$5.6 trillion. Forging alliances among stock exchange operators has become the alternative to mega mergers due to political and regulatory hurdles.

Bursa, which has stayed away from large cross-border acquisitions, is focusing also on reducing costs and improving its delivery system at a time when bourse operators are reporting lower profits as investors shun risk.

“We are comfortable with the volatility in global markets, this is our business. But we want to create more of a facilitative trading environment,” said Tajuddin.

With a market value of US$1.3bil, Bursa has dominated the palm oil trade with its benchmark futures contract, which it calls the most liquid futures contract in the world.

It went a step further in 2009 to forge a strategic alliance with CME Group that led to the creation of a dollar-denominated contract based on settlement prices of the vegetable oil on Bursa.

Both the ringgit and US dollar-based palm oil contracts are now available on CME’s Globex trading platform.

“With that partnership, our derivatives business has seen foreign participation rise by 57% in 2011 alone. Even on the domestic side, it is up by 30%,” Tajuddin said.

Given the rising interest in palm oil, the world’s most consumed edible oil, Bursa would launch options for the tropical oil this year although a firm date has not been announced yet, said Tajuddin.

“We had plans for this since last year. It is about time, given the ecosystem for the cash and futures markets are strong and in place. The timing is about right given the volatility in the markets,” he said.

Palm oil futures have risen more than 6% in February alone, driven by hopes of strong demand from top buyers India and China chasing high stocks in Indonesia and Malaysia, the largest suppliers of the vegetable oil. — Reuters