Will This New Exchange In Singapore Be A Threat To Singapore Exchange Limited?

Stock exchange operator Singapore Exchange Limited (SGX: S68) can be seen as a monopolistic business given that it is the sole exchange operating in Singapore. But, it would be wrong to paint the same monopolistic brush over the company’s derivatives-related business.

In November 2015, Intercontinental Exchange, the company which owns the New York Stock Exchange, successfully launched its new ICE Futures Singapore market. ICE Futures came about from Intercontinental Exchange’s acquisition of the Singapore Mercantile Exchange (SMX), a currency and commodity derivatives exchange that was launched in 2010.

With the launch of ICE Futures Singapore, Intercontinental Exchange had become the first international exchange group to setup trading and clearing-related infrastructure in Singapore. Will this new exchange be a threat to the business of Singapore Exchange?

According to the product brochure of ICE Futures Singapore, it seems that Intercontinental Exchange would only be focusing on the derivatives trading sector. Therefore, the securities-related businesses of Singapore Exchange should continue to enjoy its strong competitive position in the Singapore market.

But, given that the derivatives segment of Singapore Exchange had accounted for 40% of total revenue in its latest fiscal quarter, the launch of ICE Futures Singapore may still be something that current and prospective investors of Singapore Exchange would want to keep an eye on.

ICE Futures Singapore had launched with five main products, namely, Brent crude oil futures, Gasoil futures, Gold futures, and onshore and offshore renminbi futures. If we look at the breakdown of the derivatives contracts in Singapore Exchange’s derivatives business segment, we can see that none of the five products from ICE Futures Singapore is a major contributor to Singapore Exchange’s businness.

Thus, for now at least, it would seem that Intercontinental Exchange  might have little impact on Singapore Exchange’s current derivatives business. That being said, if and when ICE Futures Singapore and Singapore Exchange expands their product suite, there may be inevitable overlaps.

So, while ICE Futures Singapore should not pose a direct threat to Singapore Exchange at the moment, the presence of an alternative exchange in Singapore may just limit the future growth potential of Singapore Exchange.

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