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SGX’s Push To Expand Commodity Derivatives

SGX logo singapore exchange Singapore Exchange (SGX: S68), operator of Singapore’s Mainboard and Catalist stock exchanges, announced yesterday that it would be collaborating with the Shanghai Futures Exchange to develop the commodity derivatives markets in both China and Singapore.

A memorandum of understanding was signed between the two organisations on 19 Oct. The collaboration includes the “development of derivatives for energy, metals, chemicals and commodity indexes” as well as the exchange of ideas, information, and experience.

SGX’s last completed financial year for the 12 months ended 30 June 2013 saw its derivatives segment make up 28% of its overall operating revenue. In its latest first quarter results, it was revealed that the volume of commodity-related derivatives traded (specifically Rubber futures and Iron Ore swaps) for the quarter made up only 0.9% of the total trade-volume for derivatives.

So, despite the importance of the derivatives market to SGX’s overall business, there is still plenty of room for the company to grow in terms of the commodity derivatives market.

SGX’s chief executive, Magnus Brocker, commented that the partnership with SFE “further boosts [its] long-term commitment to China” and “will enable customers to access opportunities in Asia.”

Liu Nengyuan, chief executive and president of SFE, also delivered a positive message about the collaboration as he mentioned that it “will increase market efficiency, and promote the development of the derivatives markets and the economies of both China and Singapore.”

Over the past five years ended 21 Oct 2013, SGX’s 60% return has lagged the Straits Times Index’s (SGX: ^STI) 100% gain. The reason for the company’s underperformance compared to the broader market could perhaps be traced to its corporate results; revenues and profits have actually declined over its last six completed financial years as shown in the table below.

  12 months ended June 2008 12 months ended June 2013
Sales S$769m S$715m
Profits S$478m S$336m

Given such results, investors ought to keep a lookout for the company’s efforts in kick-starting its growth. Let’s see what SGX’s collaboration with SFE can bring.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.