Do You Know How Singapore Exchange Limited Earns Its Money?

Singapore Exchange Limited (SGX: S68) is perhaps one of the most well-known and yet least-understood companies that are listed in Singapore.

Most investors in Singapore would likely be familiar with the company – after all, it is the exchange. But how does Singapore Exchange actually earn its keep? Are retail investors really that important to the company? These are questions I’d like to answer here.

Although the Singapore Exchange is best known for being the operator of the exchange which houses all the listed companies in Singapore, the Securities segment of the company’s business is only one-third of total revenue for FY2014 (fiscal year ended 30 June 2014).

On top of that, the securities business also includes the clearing of not only equities and investment trusts, but also of debt securities, ETFs, and structured warrants.

The other segments of Singapore Exchange includes:

  • Derivatives
  • Issuer Services
  • Market Data & Connectivity
  • Depository Services

In a similar fashion to the Securities segment, Singapore Exchange’s Depository Services business is also dependent on the volume of trades that are executed on the exchange. In FY2014, Depository Services accounted for 14% of the company’s overall revenue.

To some extent, the Issuer Services’ segment is also dependent on investor participation. Only with high investor interest (be it from the retail or institutional investor group) can more companies be enticed to list in Singapore in the future.

With these as a backdrop, it’s perhaps no wonder that Singapore Exchange has been actively trying to boost engagement with retail investors over the past few years so that interest and trading activity in the market can be increased.

In fact, as part of its engagement efforts, Singapore Exchange will be holding its My First Stock Carnivalat Cathay Cineleisure this week starting from Friday. The firm will be showcasing its new interactive investor-education website and guiding first-time investors on how to set-up Central Depository (CDP) accounts. Shameless plug here: The Motley Fool Singapore’s very own David Kuo will also be speaking at the carnival on Saturday (7 February 2015) at 11:30 am, so do catch him there.

Coming back to the Singapore Exchange’s business, the Derivatives and Market Data & Connectivity segments made up roughly 30% and 11% of the company’s total revenue in FY2014.  Both segments have been growing over the past five years and it seems that they are more stable in nature.

Foolish Summary

The Singapore Exchange is actually a company with multiple revenue streams rather than just a clearing house for equity investors.

But having different sources of revenue has not helped in the firm’s growth; Singapore Exchange’s profit has hardly budged between FY2010 and FY2014, coming in at S$320 million for both years. Hopefully, the company’s engagement efforts, along with the reduction in the board lot size in the trading of securities, can help jumpstart growth in the firm.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.