Singapore's derivatives ecosystem continues to chart healthy growth

Singapore

MORE global derivatives players are setting up their regional bases in Singapore to expand in the region, the Monetary Authority of Singapore (MAS) has said.

Benny Chey, assistant managing director of its development and international group, told The Business Times: "Our derivatives ecosystem continues to see a healthy expansion of players across multiple asset classes. We continue to see global derivatives players coming from the US, Europe and China, setting up their regional bases in Singapore to expand in the region."

Over the last two decades, Singapore has built a track record in the global derivatives market, spanning equities, currencies (FX) and commodities. Active firms include INTL FCStone, a subsidiary of a Fortune 500 company, which has set up its Asia hub in Singapore.

In the past three years alone, the Singapore Exchange (SGX) has welcomed over 20 new derivatives trading members. Five of these have taken up derivatives clearing memberships and seven have set up operations in Singapore. About half the new members come from China and Hong Kong, and the rest from Australia, South Korea, the Middle East, Taiwan and the US.

SGX's derivatives ecosystem today boasts of a community of 112 firms, including 65 trading members and 26 clearing members. Talks are underway with more global players interested in SGX's derivatives trading and clearing membership. Potential players include leading international online brokers, and financial institutions listed in the US and China.

"This has served local and global investors well in accessing Asia and meeting their risk management and investment needs," Mr Chey said.

He was responding to queries from BT after index provider MSCI signed a licensing agreement with Hong Kong Exchanges and Clearing, which will effectively lead to many derivatives moving from Singapore to Hong Kong next year. SGX will continue to offer equity derivatives based on the MSCI Singapore index.

Singapore's derivatives ecosystem is deep and broad, and goes beyond specific products or commercial arrangements, Mr Chey said.

For example, the Bank for International Settlements' FX and over-the-counter derivatives 2019 survey listed Singapore as the largest FX and derivatives trading hub in the Asia-Pacific and the third largest globally.

"We also have a broad suite of FX, commodities and other derivatives across three derivative exchanges in Singapore. SGX also has a strong and diversified multi-asset portfolio that has strong international appeal," he said.

MAS managing director Ravi Menon said Singapore has been successful in attracting "key liquidity providers and platforms to base their pricing and matching engines here".

Speaking at an event in May organised by ACI Singapore, an association for financial markets professionals, Mr Menon said seven institutions have moved these activities to Singapore: Citibank, Standard Chartered Bank, UBS, JP Morgan, BNP Paribas, XTX and Jump Trading.

Another two - BNY Mellon and Deutsche Bank - will also be doing so, he added.

MAS will continue to work with exchanges to facilitate product innovation to meet Asian players' growing investment and risk management needs.

SGX integrated its cash equities and equity derivatives businesses a year ago to form a single expanded platform capable of scaling product and service innovation for clients.

On Tuesday, it announced that it will launch 10 Singapore Single Stock Futures (SSFs) on June 15 to meet the growing demand for a broader suite of Singapore-linked equities products.

The underlying securities for the SSFs are transport group ComfortDelGro Corporation, casino-and-leisure group Genting Singapore, offshore and property conglomerate Keppel Corporation, telco Singtel, Bangkok-based beer maker Thai Beverage, agri-related Wilmar International, Yangzijiang Shipbuilding and the three local banks - DBS Group Holdings, OCBC Bank and United Overseas Bank.

Most of these securities are also constituents of the SGX MSCI Singapore Free Index (SiMSCI).

In recent months, index trading activities from the SGX cash equities market and SiMSCI futures reached a record high of almost S$650 million in a single day.

David Friedland, managing director of Interactive Brokers, said adding SSFs brings additional hedging and trading opportunities to end clients and can be significant as it could be the first step towards launching a single stock options market down the line.

"Time will tell, but there seems to be reasonable interest in these products," he said.

Teyu Che Chern, chief executive of Phillip Futures, has witnessed SiMSCI's growth over the years.

"Now that SGX is leveraging its expertise to launch the Singapore Single Stock Futures, we are most happy to do our part as a Singapore-based broker to support and offer increased trading and hedging opportunity to our clients," he said.

While most analysts downgraded SGX last week owing to the potential earnings setback from MSCI's move, other experts noted that most of the products that HKEx has struck a deal on are not heavily traded here.

"If moving them to Hong Kong increases volume, I see that as a positive, as it would increase derivative visibility in the region, which helps both exchanges long term," Mr Friedland said. Others pointed to SGX's track record.

Richard Simmonds, managing director for the Asia-Pacifc at trading solutions provider Virtu Financial, said: "The SGX has an impressive history of releasing innovative products and its launch of Singapore Single Stock Futures and SiMSCI index products is another example of the SGX responding to clients' demands for additional ways to access the Singapore markets."

On how SGX can fend off potential rivals, Mr Friedland said: "Continue to offer state-of-the-art systems, competitive pricing and risk controls.

"Hopefully, as Singapore attracts new listings over time, a single stock options market can be created, which could further drive new listings and business."