Singapore Exchange is booming this year led by the Asian group’s equity, foreign exchange (FX) and commodity derivatives products but the exchange is also exploring opportunities in interest rate derivatives and other new products.
Speaking to FOW, Singapore Exchange chief executive officer Loh Boon Chye said the Asian exchange group has built a diversified base of derivatives products from which to work.
Loh said: “The strong volume growth in listed derivatives, led by the A50, CNH and iron ore contracts, is a manifestation of the multi-asset strategy that we have deployed for some years now.”
Singapore Exchange traded in first nine months of this year 230 million contracts, according to FOW Data, up 14% on the same period last year.
“Our equity index products provide easy access to China, India and Taiwan as well as other growing Asian economies while, in commodities, we have iron ore and freight which are synergistic. Our currency products are also growing as demonstrated by the recent Triennial BIS report which showed that Singapore has increased its market share by 11%.”
This year’s performance has been led by some of the group’s flagship products such as the FTSE China A50 index future which was up a fifth in the first nine months to 84 million lots, the SGX iron ore 62% future which reported trading volumes up 15% to 43.6 million contracts and the US dollar/ CNH future which was up a quarter to 31 million lots, according to FOW Data.
And these liquid markets are attracting more trading firms from outside of SGX’s home region, said the chief executive.
“In terms of international coverage, we have a large presence in the UK which is now our largest office outside Singapore. We have also seen a significant increase in the number and participation of remote trading and clearing members that serve marketplaces outside of Singapore.”
“Our T+1 volumes have increased 36% in the past years so the overnight session now accounts for 21% of the total volume and we only see that number increasing over time as the overall aggregate volumes also increase.”
SGX is also weighing the opportunity to expand its geographic reach further by offering new interest rate products, leveraging the Japanese government bond (JGB) futures it has been trading since 2002.
Loh said: “In Japan, the era of zero interest rates is over, so now there is a cost to money and requirement to manage risk.”
The Japan Exchange Group, which also trades Tokyo Overnight Average Rate (TONA) futures, said on Monday expectations of rising domestic interest rates should invigorate this market.
Loh continued: “For us in rates, TONA is just the start. We see an opportunity to develop rates products to complement the comprehensive multi-asset platform already offered by SGX.
“Asia, of course, is not a single block. In some Asian countries interest rate risk management is embedded in non-deliverable forwards but, in some cases at least, we feel we can complement those with STIR (Short-Term Interest Rate) products. There is also the potential for longer-dated futures, along the yield curve. We see that as another opportunity to augment further our offering.”
Singapore Exchange president and head of global markets Michael Syn said in August the group plans to launch perhaps as early as this year Asia’s first perpetual futures.
Here, Loh said regulatory clarity is vital to give institutional investors the confidence they need to start using these new products, which have so far been deployed in the offshore cryptocurrency markets.
The SGX chief said: “The recent BIS report also showed that Singapore, Hong Kong and Tokyo are three of the top five global hubs for FX. So it is encouraging to see that, from a regulatory point of view, the Asian markets are stepping up to provide clarity on crypto rules and regulations, which creates the all-important trust that institutional investors need. Without that trust, capital will stay on the sidelines.”
Loh continued: “Institutions demand transparency, governance and resilience. That is important because the key test of a market is not how fast it is growing but how it performs under pressure.”
As well as new products, the 24-7 crypto market presents another challenge to traditional market operators like SGX.
“On the topic of 24x7 trading, there could be an opportunity there but that will ultimately depend on whether there is genuine market need,” said Loh. “The FX market, for example, is currently 24x5 for institutions but 24x7 for retail which trades significant volumes on FX ECNs. I don’t think the demand is quite there yet but, if that emerges, I don’t think it would require any significant changes from an operational point of view to move to 24x7 for FX.”
Loh said last month the group is keen to “explore opportunistic investments including bolt-on acquisitions that are strategically aligned and value accretive to the Group”.
Asked to expand on that, Loh told FOW: “I still see huge opportunities to grow organically based on our multi-asset class strategy but this can be supported by bolt-on acquisitions.
“In the maritime space for example we see the opportunity to move along the value chain, leveraging our strong presence in freight indexation and derivatives with the Baltic Exchange,” Loh said. “Specially, we see opportunities in the upstream processes which are only now starting to digitise.”
