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How Does Singapore Exchange Limited Make Money?

It is important to know what a particular company does and how it makes its money before investing in it. Investing in a business without such knowledge is akin to travelling to an unknown territory without a map.

On that note, let’s check out what business Singapore Exchange Limited (SGX: S68), or SGX, is involved in and how it generates its revenue.

SGX is largely a local stock market operator and regulator that provides listing, trading, clearing, settlement, depository and data services. It is the “most international” exchange as nearly 40% of listed companies on it are overseas companies. It is also the world’s most liquid offshore market for Asian derivatives.

The annual report of the firm can clue us in on the business segments it has, and the revenue raked in by each segment. Let’s take a look at the table below for the revenue contribution of each segment for the financial year ended 30 June 2016 (FY2016):

Source: Singapore Exchange Annual Report 2016

Revenue from Equities and Fixed Income segment contributed to 49% of the total revenue. This segment provides issuer services (contributed 10% of Equities and Fixed Income segment’s revenue), securities trading and clearing (25%), and post trade services (14%).

Revenue from Derivatives segment comes from the provision of derivatives trading and clearing services, membership and collateral management. This division raked in 40% of total revenue.

Revenue from Market Data and Connectivity comes from providing market data and connectivity services.

Pictorially, the following is how the revenue of S$818 million can be broken down into:

Source: Singapore Exchange Annual Report 2016

Behind every ticker symbol lies a living, breathing business. Buying a stock without fundamental knowledge of what the company does and how it makes money can be dangerous.

Once we know the basics of a company’s revenue streams, we can then delve into other aspects of the firm such as its profitability, strength of its balance sheet, its cash generating abilities, and more.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.