Located in one of globe’s most lucrative
financial regions, SGX has emerged as one of the
world’s fastest growing derivative exchanges in
According to FOWi data, the bourse reached a record Q1
eclipsing the previous year’s volumes by
Since the start of the year, Singapore Exchange (SGX) has
noticeably been focusing on a series of product launches,
collaborations and investments in order to maintain the high
levels of growth it experienced in 2012.
SGX’s head of derivatives, Michael
Syn, talks to FOWi’s Jonathan
Watkins about this rapid growth, the challenge of
attracting international investors and plans for further
FOWi: SGX has recently signed a number of new agreements with
other exchanges based in Asia – including with KRX,
PSE, CFFE. How do these partnerships fit in
with its overall strategy?
MS: Singapore is a fairly small country.
SGX, and Singapore for that matter, has not ever had the
privilege of a large domestic market to insulate it from global
More than any other Asian exchange, we have always had to
fight for global relevance by being highly attuned our
customers’ needs and providing products which meet
Most importantly, we address those needs by delivering
year-after-year on their expectations of efficiency,
responsiveness and high risk-management standards which are fit
for purpose for institutional-grade investors.
Collaboration with Asian exchanges is a win-win for SGX and
its Asian partners, because our Asian Gateway is a proven venue
for Western clients to risk-manage exposure to Asia.
Our peer exchanges in Asia wish to benefit from our
willingness to bring global clients to their doorstep, possibly
also benefiting from our long-term investment in international
Increasingly, many global traders and investors are also
choosing to headquarter themselves physically in Singapore,
which is Asia's leading wealth management and corporate
FOWi: SGX’s CEO, Magnus
Böcker, recently said
consolidation is less of an important development for
Asian exchanges than their western counterparts. What are the
key opportunities for developing the exchange beyond taking the
merger and acquisition route?
MS: The harmonisation of capital markets
and regulatory regimes has had a very different history in Asia
compared to US and Europe.
Capital barriers in particular lead to differing domestic
This means there is much stronger strategic value in
collaboration between Asian exchanges compared to more
fragmented western markets.
In Europe, M&A activity is driven primarily by
consolidation and cost efficiencies, rather than necessarily a
growth of market imperative.
Asian markets are also younger in their evolutionary history
compared to Western markets.
The industry in Asia generally expects a different, and more
positive, outlook which therefore prefers a win-win growth
agenda rather than a consolidation agenda.
FOWi: Looking at our FOWi data, March's activity represents the
highest volumes in the history of SGX. Why do you think was the
MS: While volume growth was creditable for
SGX last year, what was perhaps even more interesting was
open-interest growth of over 100%.
Supported by direct feedback from SGX clients, this is a strong
validation of two drivers of the growth.
Firstly, an elevated need to hedge more dynamically exposure to
Asian market risk factors, which tend to be equity index linked
and commodity linked.
Asian equity and commodity factors tend to have highest
exposure in global portfolios, and also the highest
Secondly, we are noticing a "flight to quality" to a reliable
and creditworthy clearinghouse.
Clients view SGX, and Singapore for that matter, as a
clearinghouse anchored in a neutral offshore/globalised
We have neither a heavy axe in being producer nor consumer, and
they put some weight in the fact that Singapore is Asia's only
FOWi: In what products are you seeing the most
MS: We saw the strongest growth in Asian
industrial commodities, such as Iron Ore, which is the primary
input into steel manufacture.
This is pretty much the backbone of Asia's
industrialisation. Also Rubber, which is a key industrial
commodity in transport.
Very strong growth was also seen in equity indices for China,
India and Indonesia, which are unique for SGX in being the only
liquid offshore futures markets in the world.
And strong growth was also seen in Japanese structured product
hedging, which drove activity in Nikkei options and Nikkei
dividend futures on SGX.
FOWi : Is the exchange's growth in volumes concentrated mostly
in Asia or are you seeing increasing participation from US and
MS: For the period in question there was growth in
participation across all markets, but we did notice pronounced
interest from US/European clients.
This is possibly due to the increased distribution from our
trading hubs located in London and Chicago.
But it may also have been due to the comfort and familiarity in
the international regulatory recognition and passport that SGX
Through a long operating history in Western markets, we are
possibly the most west-friendly of the Asian exchanges.
FOWi: Finally, how do you think the launch of Asian
foreign exchange futures will impact volumes at the end of this
year and into 2014?
MS: Asian foreign exchange markets are also relatively
young in their evolutionary history compared to harmonised
Remember that capital management policies are far more
important to many Asian economies particularly after the Asian
financial crisis almost two decades ago.
They are still largely trade rather than consumer-driven.
All of Asia needs to manage their foreign exchange exposure (a)
between onshore and offshore counterparties and (b) in the
forward currency markets rather than the spot currency
In conjunction with the G20 commitments to bring these
bilateral forward transactions from the OTC space into the
centrally cleared space, it is a logically adjacent offering
for SGX to offer Asian foreign exchange futures to meet the
client needs identified in (a) and (b).
In fact, the launch of these futures is driven very much by
client requests, as they already use SGX futures to manage
their equity risk premium in China, India, Japan, Taiwan,
Singapore and Indonesia, with Thailand and Philippines also
They naturally look to also manage their currency risk premium
on the same venue for both execution and for clearing,
especially with natural portfolio offsets and margin
efficiencies achieved by clearing these pan-Asia risk exposures
with SGX's clearinghouse.
New contracts typically take a few years to get to a tipping
point of liquidity, and our FX futures will be no
However, the tailwinds behind these contracts lead us to
believe that they will find good traction with our client
We are hopeful that they may even bring new clients to the
table for SGX.
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