SINGAPORE Exchange (SGX) is stepping up efforts to grow its foreign exchange (FX) business with new products that will offer clearing and accessibility to large traders of Asian currency futures.
SGX and EBS BrokerTec, provider of one of the world's most-used electronic platforms for wholesale currency trading, plan to launch SGX-listed FX block futures on the EBS Market in the early part of the second quarter of 2016 pending regulatory approval, the companies announced together on Thursday.
EBS BrokerTec is a division of ICAP Group.
The block futures, which will typically be used by large corporate treasuries and banks to make bulk hedges, will initially offer contracts in the Indian rupee, the Korean won, the Singapore dollar and the Chinese onshore and offshore yuan currencies.
The trades will be cleared through SGX's Titan OTC trade registration system, allowing traders to enjoy the risk mitigation benefits of clearing, SGX head of derivatives Mike Syn told The Business Times.
Mr Syn said the products are particularly useful in Asia, where large trade volumes and increasing currency volatility have increased the need to manage forward exchange rates.
"Two-way currency risk on a forward basis is becoming more volatile and Asian FX is getting more important," Mr Syn said.
The longer-term plan is to explore the possibility of adding more currencies, Mr Syn said. If SGX and EBS can make clearing and trading of block futures seamless, that would also pave the way for clients to cross currencies that are normally not as liquid by piggybacking on a dollar cross, for example. "Liquidity builds liquidity, and we hope that this will attract more people to use it," Mr Syn said.
The new products come amid a focus at SGX to strengthen its derivatives business and to leverage Singapore's position as a currency hub. Equity index and commodity contracts currently dominate SGX's derivatives business, which saw revenue grow 69 per cent to S$90.9 million in the three months ended September from the year-ago period. In numerous briefings, SGX chief executive Loh Boon Chye has said that growing the market for currency futures is a key prong of the market operator's strategy of diversifying its business mix.
"This collaboration is a sign of our commitment to innovate and grow the Asian currency futures market," Mr Loh said in a statement. "It will also provide a mutually beneficial market for both our customers given the strength of EBS's network and SGX's risk management and clearing tools."
SGX shares closed at S$7.68 on Thursday, higher by 1.5 per cent or 11 Singapore cents, after the announcement of the new products.