Asia Risk awards 2010: Derivatives exchange of the year

Singapore Exchange (SGX)

janice-kan-sgx

Few Asian exchanges can claim to be truly world class, but the Singapore Exchange (SGX) appears to fit the bill with derivatives and technology capabilities that are consistently at the forefront of the business, even by global standards.

SGX offers the widest range of Asian stock index futures and has continued to expand its product scope. On June 17, it launched Nikkei Dividend Index futures – Asia’s first dividend index futures. As of August 23, the cumulative total notional traded was ¥30 billion ($358 million), while open interest stood at ¥13.4 billion.

“We’ve had a long history with the Nikkei 225 whose index futures have been trading very well for 20 years,” says Janice Kan, senior vice-president of derivatives at SGX in Singapore. “SGX collaborated very closely with market participants to launch the Nikkei dividend futures contract in a record time of less than three months of index availability.”

Meanwhile, SGX will soon be the first exchange to offer Nifty options outside India to complement its existing S&P CNX Nifty Index futures. During the past year, SGX has also doubled its share, which currently stands at 15% of the Nifty futures market. On July 19, round-the-clock trading of Nifty futures became available to investors with the extension of SGX’s mutual offset arrangement with the Chicago Mercantile Exchange to include the Nifty futures. “As a result of the mutual offset scheme, investors can offset Nifty futures positions in one exchange to the other,” Kan says.

On July 26, SGX and Europe’s largest derivatives exchange, Eurex, formed a partnership to offer US dollar-denominated SGX Eurostoxx 50 Index futures and options on futures for the first time in Asia. “The SGX Eurostoxx contract will be SGX’s first non-Asian equity contract and could lead to price discovery in Asia before Eurex opens,” Kan adds.

“Whether it is warrants or other types of listed derivatives, SGX has been very responsive to the needs of market participants,” says Edmond Lee, director of equity derivatives at Société Générale Corporate & Investment Banking in Hong Kong. “The exchange has been very innovative in terms of listing new products and there is always lots of interaction between market participants and SGX, who will always take time to listen and make sure that thorough preparation and research is done before listing new products.”

A study released in November 2009 by the Capital Markets Cooperative Research Centre using SGX as a case study found that trading in overseas-listed futures contracts benefits both the index futures as well as its component stocks on the home exchanges. During the same five-year period, a 10% increase in notional
turnover of three SGX-listed futures contracts – SGX MSCI Taiwan Index futures, SGX Nikkei 225 Index futures and SGX CNX Nifty Index futures – resulted in a corresponding increase in turnover of the home futures contracts as well as their component stocks, the study found.

In February, SGX started trading its new Fuel Oil 380-centistoke futures contract based on residual marine grade 380 ISO 8217, primarily bunker fuel oil supplied to ships. Physical delivery will be via free-on-board or inter-tank transfer at exchange-designated Singapore oil installations. Singapore is the world’s largest bunkering port and the third-largest oil-trading hub. The new contract is expected to enhance Singapore’s capabilities as an international oil-pricing centre, Kan says.

SGX has also been at the forefront of clearing for over-the-counter products, for example, with a 90% global market share for the clearing of iron ore swaps. The exchange recently announced an expansion of its AsiaClear business, so far focused on energy and commodities derivatives, with the launch of a new clearing service for OTC traded financial derivatives, making it the first in Asia to clear OTC traded financial derivatives. The service will start with the clearing of interest rate swaps denominated in Singapore and US dollars.

Meanwhile, SGX’s proximity hosting service, currently the fastest in Asia, has also been instrumental in the growth of algorithmic trading activities in the Singapore market with volume contribution rising to 27% in the first half of 2010 from 17% in 2009.

On December 7, 2009, SGX also launched a new derivatives clearing system, SGXClear, with enhanced capabilities in terms of speed and functionality. Powered by Nasdaq OMX technology, the platform is aimed at helping SGX to clear more complex and diverse products, Kan says. One of the main benefits of SGXClear is the introduction of an electronic interface for clearing members. It provides electronic connectivity and enables straight-through processing and automation of members’ back-office operations.

With such a long list of achievements, SGX has distinguished itself as Asia Risk’s Derivatives Exchange of the Year for 2010.

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