Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange. It offers a platform for trading securities such as equities, fixed income, and derivatives. SGX also offers services such as market connectivity and assists companies in raising capital through initial public offerings (IPOs).
Since Singapore is a small market, many investors may feel that growth is limited for SGX. The era of the “S-Chips” (i.e., Chinese companies that came over to IPO in Singapore) is over, the bubble burst thanks to numerous cases of fraud and poor governance, while many companies have been delisted from SGX due to poor interest and market liquidity. These events all seem to point to declining interest in securities trading, which negatively affects SGX’s growth prospects.
However, recent initiatives announced by the bourse gave me good reasons to believe SGX is on the path to growth again.
MOU with UOB and CCOIC
In late April, SGX announced a collaboration with United Overseas Bank Ltd (SGX: U11), or UOB, and the China Chamber of International Commerce (CCOIC). A Memorandum of Understanding (MOU) was signed to help China enterprises use Singapore as a launchpad to expand into ASEAN. The MOU signing is also in line with the second Belt and Road forum held in Beijing. Under this MOU, it is estimated that more than 180,000 Chinese enterprises under CCOIC can benefit from UOB’s banking experience and SGX’s capital market infrastructure to venture into Singapore and Southeast Asia.
This MOU is a good base for SGX to extend its presence into China and to make it more attractive for them to explore multiasset solutions for capital raising. Over time, SGX will benefit from consultancy fees for assisting these companies, and should any of them wish to IPO in Singapore, SGX will also receive a boost in their equities division.
Options for natural rubber
In May 2019, SGX launched the industry’s first options contract on TSR 20 rubber (which is the global benchmark rate). This offers market participants a new risk-management tool and adds to the diversity and range of derivatives SGX possesses. The new product also broadens SGX’s suite of rubber derivatives, and in Q1 2019, volume for rubber derivatives surged by 21% year on year to almost 3.5 million tonnes.
Realignment of organisation structure
In June, SGX announced a new organisation structure effective 1 July 2019 where four business and client units will report to the CEO. Fixed income, currencies, and commodities (FICC) will all be combined to form a new unit, headed by Lee Beng Hong, who has 16 years of international banking experience in global markets. He will be joining SGX on 1 August 2019.
The equities and equity derivatives business will be merged to form a platform for clients to access a range of equity products, including trading, clearing, and research services. This division will be headed by Michael Syn, the current head of Derivatives. The Market Data and Connectivity (MDC) division will be renamed Data, Connectivity and Indices (DCI) and will continue to be headed by Ng Kin Yee. Finally, there will be a Global Sales and Origination (GSO) division that combines the equities and debt capital market teams with SGX’s nine international offices and special teams.
Forward-looking initiatives that pave the way for growth
SGX has been busy the past few months forging alliances and also launching new products to drive growth in its derivatives division. These initiatives are forward-looking and establish a good foundation for SGX to continue to grow both the equities and derivatives businesses, though they will require a gestation period before results flow through. Investors have good reasons to feel optimistic about SGX’s growth trajectory in FY 2020 and beyond.