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Looking for Continued Growth, SGX Goes West

Singapore Exchange has had a good stretch of late.

The exchange’s fiscal first quarter results were reported on October 25, showing approximately $149 million in revenues, a 7 percent year-over-year increase, and net profits of $66 million, a 9 percent year-over-year rise.

In a move to bolster such growth, SGX announced the opening of SGX America and a corresponding Chicago office on October 17. The opening represents the exchange’s first brick-and-mortar presence in the United States. The office may have started with just two people in a temporary workspace, but SGX CEO Loh Boon Chye sees the American branch as integral for the company’s overseas plan.

It was back in 2010 that SGX expanded to London to better serve its European customers. But as SGX’s European and American customers have grown to represent a third of the exchange’s volume (SGX currently doesn’t break the regional statistics down further), the argument for an American division took on the same nature as that for Europe.

Loh cited three key reasons for opening the office – the ability to better serve existing U.S. customers using SGX’s point of presence at CME’s co-location facility (established at the end of 2015), an opportunity to acquire new clients and a chance to develop new product ideas.

Booming Product Overlap

Back in June, Loh was quoted as saying, “I feel that Singapore, being the largest foreign exchange center in Asia, is possibly an area where we can—and should—see quicker development.”

The ensuing months have done much to make that desire a reality. The exchange’s FX futures complex broke multiple records in September, including the first time one million contracts traded since foreign exchange futures products started trading on SGX in 2013. The USD/CNH (dollar/renminbi) and INR/USD (rupee/dollar) contracts have done the heavy lifting.

With the volume boom, SGX’s USD/CNH market share is around 75 percent and its INR/USD market share is some 50 percent.

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Another key driver is the steel value chain – comprising coking coal, steel itself and freight. SGX launched coking coal futures in 2014, but didn’t launch market making capabilities in the product until 2016. Options on that contract were launched in September and now SGX has 99 percent of coking coal’s market share.

SGX’s allure as an offshore Asian trading center is bolstered by its ability to offer certain margin offsets. For just a few examples, there are margin offsets between the Chinese A50 and Indian Nifty futures and the Japanese Nikkei 225 and Taiwanese MSCI futures.

Capital Raising

Singapore has not been exempt from the global IPO decline and overall decrease in public companies. The company’s strategy to increase its presence in the capital raising process is now turning to other alternatives than just increasing traditional support for companies going public, though SGX is pursuing that as well.

SGX has invested several million in CapBridge through its investment subsidiary Asian Gateway Investments. CapBridge is an investment platform for emerging companies to gain access to funding from venture capital firms and accredited individual investors.

In early 2015, SGX contributed $1.5 million to be distributed over the course of three years and CapBridge gained regulatory approval from the Monetary Authority of Singapore to operate in February 2016. In September, a California-based company that developed the first waterborne data center raised $25 million via CapBridge. This October, Capbridge announced SGX would take a 10 percent equity stake in its platform.  SGX likes this exposure to non-traditional means of raising funds.

Loh said SGX also sees corporate debt listings as a way to expand its footprint as some companies are heading straight to debt markets.

SGX’s ambitions overall and in the capital raising space specifically are perhaps best reflected by the exchange’s desire to get in on the planned IPO of Saudi Arabia’s oil giant, Aramco.

If that long-odds shot manifests, it will be another feather in SGX’s cap.

 

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Graduate of University of Minnesota School of Journalism and Mass Communication