THE PROMISE OF MALAYSIA

This blog post also appears on TabbFORUM and ATMonitor.

If any country epitomizes the wilder side of capital markets trading in Asia, it’s Malaysia. But there are signs that Malaysia is ripe for a bit of refinement, which would give this dynamic country the focus it needs to be more competitive in global markets.

On the upside, there are many growth opportunities and a lot of energy to be found in Malaysia. The more relaxed regulatory environment is a striking contrast to the more mature markets of Europe and North America. It’s also a market where major brokers are consolidating to get ready for the next stage of Malaysia’s national evolution. On the other hand, the country’s tendency toward a more free-for-all spirit can sometimes be seen as a challenge.

A case-in-point is the challenge facing the Bursa Malaysia as it attempts to move its members to a new trading platform. The exchange is slated to decommission its incumbent legacy trading platform and 8,000 terminals in use by exchange members by the end of 2012. Not only has the expiration date of the system been changed at the behest of members, but an effort to involve more external suppliers has unraveled as the exchange’s members have not selected a single supplier or set of suppliers that will provide access to the exchange’s new system. This has occurred in an environment that has less regulation and is governed by a great sensitivity to the price tag for any new trading technology, making for a very competitive environment for suppliers.

Despite the growing pains, major brokers in Malaysia are seeing the need to combine forces to become more powerful regional and global players. Even established Malaysian firms are reaching out beyond borders to improve their profile in the region. For instance, the CIMB Group Holdings of Malaysia, a commercial bank that offers investment banking, announced in early April that it will buy the Asian equities business of the Royal Bank of Scotland Group (RBS) for £88.4 million ($142.7 million).

Malaysia is also reaching out on the derivatives front. Bursa Malaysia has had a strategic agreement with the CME Group since 2009, with the partnership making contracts available through the electronic trading platform CME Globex. This synergy is an ambitious attempt to expand the Malaysian derivatives market and the effort has been gaining ground.

Yet it is equities that seem to hold the greatest promise. Malaysia is working to make Bursa Malaysia much more connected to other Asian exchanges to facilitate cross-border trading and thus attract more international investors. Bursa Malaysia and the Singapore Exchange are slated to inaugurate their connection by June. This is the first move in a much larger effort to create electronic trading connections among many Asian exchanges. The Bursa Malaysia-Singapore link will coincide with a summer launch for the highly touted ASEAN Trading Link, an initiative of the Association of South East Asian Nations dedicated to paving the way for an economic pact that parallels the European Union.

With so much happening in Malaysia, trading software and services providers face an ever-growing list of requirements from market participants that want to keep up with the rapid rate of change. All suppliers will have to offer products, features and support that go far beyond meeting local and regional mandates. They must offer the innovative capabilities, partnerships and technical support required for achieving global reach, thus guaranteeing customers a path for growth. This is essential, as Malaysia is one market that is not going to rest on its laurels.

While you’re here…

• See commentary from our recent SunGard Industry Seminar in Kuala Lumpur.
• Read additional articles about trends and challenges in global markets.