SGX buys 20% stake in BidFX to reinforce FX pillar

Singapore

SINGAPORE Exchange (SGX) on Wednesday said it has bought a 20 per cent stake in BidFX, a nascent specialised foreign exchange (FX) trading platform, for US$25 million in cash, to boost its FX growth trajectory.

The purchase, which comes with an option for the Singapore bourse to buy a controlling interest, is part of SGX's strategy to build core pillars of growth across multiple asset classes beyond traditional equities and fixed income, and to enhance its service offerings to market participants.

"FX is one of our key growth pillars and we are excited to strengthen our service proposition to the market," Loh Boon Chye, chief executive officer of SGX, said at a media briefing.

"The investment will allow us to offer our suite of Asian FX futures alongside the over-the-counter (OTC) products offered on the BidFX platform, bringing together both pools of liquidity," he added.

Since SGX started its Asian FX business in November 2013, Mr Loh said volumes have grown rapidly, with over US$2 trillion in aggregate notional traded across its entire FX franchise. For the 12 months to end Feb 2019, the exchange's FX futures has an average daily turnover volume of US$4.4 billion and notional open interest of US$5.4 billion.

BidFX was one of the firms SGX worked with on its FlexC FX Futures initiative that was launched last year. SGX FlexC FX Futures allows market participants to trade customisable FX futures in an OTC manner and clear transactions on the exchange.

With offices in Singapore, New York and London where most of its R&D team is located, BidFX has 40 staff and about 250 end users. Customers, which include hedge funds, asset management companies, insurance firms and pension funds as well as banks, have access to its broker-neutral order and execution management services.

For the year ended Dec 2018, it generated a revenue of US$8.4 billion, and has been growing at 40 per cent since it was spun off as a division of TradingScreen (TS) in Jan 2017. TS is a provider of a multi-asset execution and order management system. About 19 per cent of BidFX's volume is traded in Asian currencies, excluding the Japanese yen. It is cashflow positive and earnings before interest, tax, depreciation and amortisation (Ebitda) positive.

Jean-Philippe Male, BidFX CEO, said the fresh funds will be used to grow its reach and offering among institutional investors. The company plans to extend its footprints in Sydney, Hong Kong and Tokyo as well as other European cities.

On the stake sale to SGX, Pierre Schroeder, CEO of TS, shared that the company, which has been working on other projects with SGX over the last five years, wanted to accelerate the momentum and exploit the opportunities in the FX market.

"For all these reasons, we needed an investor, not any investor, but somebody who could help us in a multiple number of ways.

"SGX ticks all our strategic objective boxes - size, credibility, neutrality and strategic vision. Moreover, we know SGX very well as we have been supplying SGX with OTC technology for a number of years and we have developed some kind of relationship and trust which makes us confident that we should be able to deliver on the project and transform this into a major FX market platform, " said Mr Schroeder.

Looking at the US$5 trillion a day global FX industry, he noted that successful FX platforms are mostly part of strong financial sector groups.

"It is strategically important for us to recognise early that to become a major player in the FX world we want to be, we needed to be part of a larger entity,'' Mr Schroeder said.

"This also gives our clients the comfort that they contract with a strong vendor with whom they can entrust their critical market solutions in the long term,'' he said.

The control option SGX has secured, he added, also creates a clear path for BidFX to become a subsidiary of a leading Asian FX marketplace - Singapore being the biggest FX centre in Asia and the third-largest globally after London and New York.

Mr Loh reckoned this could take place within two to three years.

On Wednesday, SGX ended at S$7.29 a share, up three Singapore cents from Tuesday's close.