MENU

The Five Different Ways Singapore Exchange Makes Money

Singapore Exchange Limited (SGX: S68) or SGX for short, is the only stock exchange in Singapore.

As investors, we need to understand the companies that we invest in. As the legendary investor Warren Buffet once said: We invest in businesses that we can understand with competitive durable advantage, with honest and capable management and at a reasonable price.

To understand a business, one of the most important thing that we need to do is to understand how the business actually makes money. In this article, we will try to breakdown the revenue of Singapore Exchange to help us better understand its sources of income.

sgx-revenue1

Source 2015 Annual Report

Issuer Services – Revenue from is generated from the listing of equities and debt instruments, as well as fees from corporate actions and issuer services.

Securities – This is the second largest revenue contributor to the group. Here, revenue is generated from the trading and clearing of stocks, exchange-traded funds (ETFs), and structured warrants listed on the SGX Securities exchange.

Derivatives – This is the biggest revenue contributor to the company. Here, revenue is generated from the trading and clearing of futures, swaps and options contracts covering a broad selection of Asian economies, commodities and currencies. It also provides clearing services for over-the-counter (OTC) trading of selected commodities and financial derivatives.

Depository services – This segment derives its revenue mainly from settled trades transacted on the SGX stock market, as well as the transfers of securities that take place independently of the trading on the exchange. It also provides a central back-office system for the brokers participating in the stock market, and custody services for securities held in the SGX depository.

Market data and connectivity – This is the smallest of all the segments. Here, revenue is generated from the offering of connectivity solution to market participants, distribution of market data as well as the creation, management and licensing of indices.

As we can see from above, there are many moving parts that could affect the SGX’s income.

By breaking down the sources of income, investors can better understand the income generating capability of the company.

This simplification process could be useful to help investors make better decisions about the long-term investment merits of the company.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Stock Advisor Gold has recommended SGX.