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Even as the rumor mill went into overdrive on the Singapore Exchange (SGX) exploring possible tie-ups with overseas exchange operators, market observers were quick to downplay that likelihood.

Bloomberg had cited “people familiar with the matter” as saying that the SGX had discussed selling a stake in itself – possibly even taking part in a full merger – with parties including Nasdaq and CME Group of the United States.

SGX and the firms all declined to comment when asked. Many observers have dismissed such talk, citing SGX’s failed US$8.8 billion (S$12 billion) bid for Australian operator ASX in 2010, and Deutsche Boerse’s recent blocked €29 billion (S$43 billion) bid for London Stock Exchange Group. They show the difficulty of pulling off such large-scale deals without a full government and regulatory support.

But there have also been successes. The SGX’s £87 million (S$150 million) purchase of the Baltic Exchange, while a smaller deal, is set to boost the derivatives market here. Analysts pointed to possible synergies for SGX in a major tie-up, including exposure to a much larger market, and more options for local investors, especially if cross-listings are allowed – when firm lists on one or more foreign exchanges as well as its domestic one.

But some also queried if such deals really draw foreign investors to the local market, and so boost trading liquidity. Analysts cited various issues such as winning bigger regional and global firms to raise capital on SGX and lifting trading velocity.

Also, not all bourse collaborations have done well. Trading activity on the Asean Trading Link that allows cross-border trading on the bourses of Singapore, Malaysia, and Thailand has been very slow, prompting Jakarta to hold off on joining up. As one analyst said.

Mergers between exchanges are proposed when parties feel their own exchange is marginalized, and they want to create something bigger. But when everyone is concerned about their own liquidity being diluted, or there isn’t enough regulatory or government support, then it becomes very difficult to make it work.

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