Asia's stock markets need to forge closer links if they are to stave off the threat posed by foreign competition, according to Hong Kong's securities regulator. Securities and Futures Commission chairman Andrew Sheng proposed that markets in the region create a unified trading and clearing network based on the European model. He said the Internet was changing the face of trading and investors could now put their money anywhere in the world. He said revamping the exchanges could help stem the outflow of funds from the region as investors sought more liquid markets. The regulator is also working with Hong Kong Exchanges and Clearing to strengthen the SAR's market structure to enhance competitiveness. The aim is to streamline the process of initial public offerings, lower listing costs to attract more overseas listings, remove limits on derivatives position and extend trading hours. Mr Sheng said Asian stock markets needed to compete harder with their counterparts in the United States and Europe, while the lack of co-operation among Asian stock markets had led to exchanges in the region unable to attract many institutional investors. 'By segmenting into local markets, Asia lacks highly liquid markets,' Mr Sheng told the Asian Securities Analysts Federation 2001 Conference, held in Hong Kong yesterday. He suggested that the exchanges should consider looking at what was happening in the European markets, where exchanges were merging or building up alliances to set up cross-border trading. Mr Sheng said Asian markets would be much more appealing to overseas companies if they built up a network for settlement and trading. He said studies showed that the merger of trading, clearing and settlement in Europe concentrated liquidity and reduced clearing and settlement costs by US$1 billion per year. He said Asia had huge sums in savings, but much of the funds were invested in US or European markets rather than regional exchanges. Asia's 11 stock markets, including Japan, Hong Kong, and China, had a market capitalisation of US$4.57 trillion as at the end of October, representing 16 per cent of the world's total, Mr Sheng said. This is despite the fact that Asia now represented half the global population, one-third of gross domestic product worldwide and 26.1 per cent of worldwide exports. In contrast, the US only represented 22 per cent of GDP worldwide and 36 per cent of exports worldwide. However, the US had a market capitalisation of US$12.76 trillion, representing 55 per cent of the world total. HKEx chairman Charles Lee Yeh-kwong said the exchange had been working on a possible alliance with New York and other exchanges and would soon announce changes to trading hours. He said the market supported shortening the lunch break and extending trading hours from 10 am to 6 pm, with an hour for lunch. The exchange has one of the shortest trading hours in the world, opening from 10 am to 12.30pm and from 2.30 pm to 4 pm.