Steady, sport. Singaroo not worth jumping up and down about
Singapore Exchange's decision to buy ASX, Australia's main stock exchange, signals its determination to dethrone Hong Kong as the leading financial centre in Asia.
SCMP Business, October 25
And immediately our worry-mongers started wailing. This new Austrapore (or Singalia or Singaroo, take your choice) market will be the world's fourth-largest by market cap or fifth by trading, or whatever it is, and Hong Kong will be consigned to shadows. Alas, woe is us.
It is time to review some salient facts here. A stock exchange is the largest physical space, indoor or outdoor, within which people can distinctly hear each other shout or in which they can distinctly make out each other's hand signals.
This may not be the definition of a stock exchange but historically it certainly was the most important requirement of one. There is no point in going somewhere to transact business with other buyers and sellers of securities unless you can make out their bids and offers.
Making these out before the early 20th century meant making them out by the only means of rapid communication available between numbers of different people at the same time. This meant by voice or hand signals.
Stock exchanges were thus constructed as large halls and, because not all the people who might have an interest in the securities traded there could fit into such a hall, they conducted this trading through intermediaries - stockbrokers.
Now here we are in the early 21st century and our idea of the stock exchange is still governed by concepts of 100 years ago. We still think of physical spaces and formal intermediaries - trading floors occupied by brokers.
But millions of people can now whisper and be heard by other millions of people on the other side of the world. The previous communications limit of a single trading floor has been expanded to the entire planet. Why then do we still talk of stock exchanges in nineteenth century terms?
There need be only one stock exchange for the entire world. It's called the Web. Trading platforms for the Web can be created by many competent software engineers and all financial instruments can be traded on such platforms by anyone around the world at any hour of the day or night at very low cost.
If we haven't quite got there yet in securities trading, we are surely headed there within a very few years. The old-style stock exchange will soon be a museum piece.
Investors do have a requirement to come back down to earth from the Web occasionally, however. They need a place to register their trades, to confirm their legitimate ownership of securities they have bought on the Web. This has to be in a legal jurisdiction where the rule of law prevails. Hong Kong scores well on this count.
It is also helpful to investors if this location happens to be the base of operations for the companies whose securities they buy. Title to securities can mean little if the owners can be defrauded of title to the underlying assets. It helps if the police can get into the boardrooms as well as the share registries.
On this count Hong Kong now scores increasingly poorly. The writ of both our police force and the Securities and Futures Commission does not run to the mainland, but the mainland is where our exchange's biggest listings now originate.
Most of all, investors want to be able to buy and sell at low transaction costs and here we score very poorly. Aside from the commission you pay your broker, the stock exchange collects a stamp duty on transaction, an SFC transaction levy, a trading fee, a trading tariff, a transfer deed stamp duty and a transfer fee.
Count them, six separate stings and this doesn't even include brokerage. Put it all together and our stock exchange's prospects in a Web-linked financial world do not look particularly bright. Our legal system stands us in good stead but there are plenty of good legal systems in the world, and the best have clout in the boardroom as well as the share registry. Most of all, our costs are out of line.
So what shall we make of this 'determination to dethrone Hong Kong as the leading financial centre in Asia'?
Well, nothing, frankly. Time will inevitably remove all stock exchange thrones from Asia anyway. What does it matter that the Singaroo exchange could be bigger than Hong Kong's when, in a few years, the Web will just shove all old-fashioned notions of stock exchanges aside?
If we still want to be a big noise in the securities transaction business at that time, we need keep up the rule of law, watch whom we list in Hong Kong and knock those trading costs way back. But it will still only be a mouse that roared.