Biz Sch News 16 April 2015

What makes a world-class stock exchange?

Not all stock exchanges are created equal. Even among well-developed markets, some exchanges prosper, while others stagnate or fail. At the Think Business talk about “Building a world-class stock exchange”, Professor David Reeb outlined crucial elements for transforming a regional exchange into a truly world-class stock market.

NUS Biz David Reeb Stock exchanges have seen many changes in the past decade with the globalisation and liberalisation of capital markets, which has made it easier for firms to access overseas capital through initial public offerings (IPOs) and listings on foreign stock markets.  The year 2014 alone saw a record-breaking 129 cross border IPO deals. 

David Reeb talk

According to Professor Reeb, there are four criteria for exchange success:

  1. Market Capitalisation
  2. Percentage of foreign firms
  3. Number of initial public offerings (IPOs)
  4. Capitalisation as a percentage of gross domestic product (GDP) of the country.

The Singapore Exchange (SGX) meets only two out of the four criteria by the finance professor.

David Reeb bernard yeung

“Market capitalisation and the small number of IPOs are where the Singapore bourse falls short,” said Professor Reeb.

He pointed out that the market capitalisation of $998 billion representing companies on the SGX made up only a third of the value of those listed in Hong Kong, and a quarter of those listed in Shanghai. This ranked the SGX 19th in Professor Reeb’s list of top 25 global stock exchanges.

David Reeb NUS

“There is definitely room to grow. The attraction of Malaysian, Indonesian, Bangladeshi, Thai and Filipino firms will be the real opportunity for Singapore in the next 25 years,” he added.

Professor David Reeb is a Professor of Finance and holds the Mr and Mrs Lin Jo Yan Professorship in Banking and Finance at NUS Business School. His research, which focuses on corporate finance, financial disclosure choices and international business, has appeared in many influential academic journals in accounting, finance, law and management.

The event was the second of Think Business Speaker Series for the year.

For media coverage of this event, click here.