Singapore is soon to play host to three major clearing houses
by way of Eurex, Intercontinental Exchange and domestic
incumbent, the Singapore Exchange. The presence of all three
could transform the major offshore financial centre into one of
the world’s largest clearing hubs,
says Jonathan Watkins.
Hubs are defined as the effective centres for an activity or
network. Some of the more well-known examples include Hollywood
for movies, Savile Row for tailors or Bordeaux for fine
The conundrum for firms
considering establishing themselves within the focal points of
these respective industries is whether the benefits of the
overall magnitude of the area outweighs the opportunity to grab
entire market share for yourself in a separate location.
It is a share of the pie vs growth of the pie argument.
"The intended benefit of a Singapore clearing cluster is to
grow the overall marketplace in Asia for central clearing in
hard currency, and to promote sustained infrastructure
investment in Asia by clearing participants and clearing
intermediaries from the rest of the world," said Michael Syn,
head of derivatives, SGX.
"This anchors the developmental logic of promoting Singapore
as a multi-market multi-central counterparty jurisdiction, so
as to grow the clearing pie for international access to Asia,
complementing other jurisdictions which are anchored on the
share of pie in domestic/regional Asian clearing."
Deutsche Boerse announced its intentions to launch a clearing
house in Singapore at the start of this year, while
ICE’s way consisted of acquiring an existing
infrastructure through the Singapore Mercantile Exchange
Though the three clearing houses will be squeezing into a
710 square kilometre space, the country is rife with a plethora
of opportunities, subsequently drawing major financial firms to
set up in Singapore.
Forthcoming regulations will introduce mandatory clearing of
OTC derivatives in the region next year, which all three
central counterparties (CCPs) will hope to capitalise on.
Increasingly large commodities markets and the growing
internationalisation of the renminbi also strengthens
Syn added that while there are numerous financial centres in
Asia which are domestic hubs, Singapore’s
attributes qualify it as an international hub.
| "The intended benefit of a Singapore
clearing cluster is to grow the overall marketplace in
Asia for central clearing," Michael Syn, SGX.
"The qualities of an international hub suitable for
mediating East-West clearing must include a trusted and
independent jurisdiction, global regulatory recognition, a
strong credit rating, and an established pool of international
financiers and traders," he added.
Asia is seen as the prominent region for growth by global
exchanges, and within the continent, Singapore is well-placed
to reach all corners of the continent.
Capturing trading flows from Southeast Asia and providing
investors with exposure to China, Singapore is already somewhat
of a hub in terms of financial markets.
Natural route for the West
But for clearing in Asia, Singapore is now aiming to become
what Amsterdam is to equity options, Houston is to energy
trading and what London is to foreign exchange.
"Singapore is the regional hub for much of the region's
physical commodity trade," said Jennifer Ilkiw, vice president,
ICE, Asia Pacific.
"ICE has had a presence in Singapore for more than a decade
and in recent years we have seen increased participation from
Asian market participants across our global energy markets, for
example Brent, Gasoil, Fuel Oil, Coal futures, as well as more
participation across our soft commodities and Liffe interest
The natural route for growth has seen exchanges in the US and
Europe turn east. With China holding so much potential, Hong
Kong is also an attractive location for setting up a clearing
"The focus of the global financial markets is
increasingly moving into the fast-growing Asian
But with China’s markets closed to foreign
participants, Singapore’s links to Southeast Asia
appear to have swung the decision for major European exchange
Eurex, which has had a presence in the country for five
"Asia has become the growth engine of the world economy.
Thus, the focus of the global financial markets is increasingly
moving into the fast-growing Asian economies," a Eurex
spokesperson told FOW.
"Based on these developments, we decided to expand and chose
Singapore as the main location for our Asian activities.
"Singapore is ideally suited to this role due to its
strategically advantageous position as well as the geographic
and cultural links it offers – to both South and East
Asia. It also has a stable political and legal situation and a
well-developed, internationally open capital market
ICE took an alternative route by purchasing SMX and its
clearing house, SMXCC, providing the US group with the
necessary infrastructure to get its operation up-and-running in
a shorter timeframe.
"A period of business transition is currently in place in
order for ICE to implement technology and platform changes at
both SMX and SMXCC in consultation with the market and
regulator," added Ilkiw.
"ICE expects to transition SMX and SMXCC from existing
technology to the ICE trading platform and ICE clearing
technology and expects to relaunch the exchange and clearing
house in the second half of 2014."
Though timescales are not set in stone, at some point over
the next few years, at least three major clearing houses will
have set up in Singapore.