Continued from May 23

Cross-border partnerships

SGX’s Indian co-operation is interesting because it could serve as a template to similar deals with other national markets in the region.

Loh side: “The partnership that we have with the NSE for the Nifty, that will extend and expand the process of investing into India. We also have markets like Taiwan and Japan, and also the ASEAN collection of ten economies that have over 600 million people and growing at 5% a year so that potential is huge. As a bloc, it is going to be the fourth-largest economy in a few years’ time.”

He added: “Depending on client needs, SGX Group will continue to work with other exchanges to further broaden the ecosystem. Collaborations and partnerships aren’t new to us. We have a history of partnerships with other exchanges. Besides NSE, we have a partnership with New Zealand’s Exchange where we jointly work on the New Zealand milk contracts so the New Zealand dairy derivatives are now listed on SGX.”

SGX and New Zealand’s Exchange signed in October 2020 an agreement to make NZX’s milk futures contracts available on SGX, which happened in November 2021.

Loh said: “We have been able to work with them to expand the number of members and have increased open interest by 50%, as well as increasing the liquidity and trading volume.”

He continued on the theme: “We have listing partnerships with Nasdaq and NYSE, and in the next quarter we will launch a depository-receipt link with the Stock Exchange of Thailand. So collaborations are there and we will continue to look at collaborations that will benefit the ecosystem.”

Virtual Steel Mill

Another key strategy for SGX this year is the virtual steel mill, a neat idea that leverages the complementary nature of the exchange’s coking coal, freight and iron ore contracts.

Loh said: “We also offer the global benchmark for iron ore, which has evolved from an OTC-traded and exchange-cleared market into one that offers equal liquidity on screen, which obviously brings in a broader set of financial participants.

“Iron ore is a very reliable proxy for the urbanisation of countries, particularly China, and it is also a good proxy for the macro-economic outlook of China,” Loh added.

SGX is pleased with the progress it has made building screen liquidity in iron ore, particularly its iron ore 62% futures and options, which the exchange sees as a key pillar for the commodity’s eventual inclusion in broader commodity indices.

Loh said: “We will continue to broaden the screen adoption of iron ore, which will lead to eventually its inclusion in commodity indices, bringing us into the investor market, who would then take on iron ore in structured products.”

He continued: “In the commodities complex, for us, it’s not just iron ore. We look at this in two ways, one is the “virtual steel mill” that includes a whole series of ferrous metals including different grades of iron ore; the iron ore also has to be transported so that requires freight, which, while it has come down in price, it clearly went through a very volatile period.”

International Strategy

While SGX has made in Loh’s time massive strides in diversifying its product offering to allow international traders and investors the opportunity to trade different Asian asset classes, that is only part of the challenge.

The chief executive said: “We have a long track record with participants from Europe and the US trading into our markets. Our contracts are CFTC-certified so they are available to US investors. At the same time, while capital is global and borderless, and we have been able to attract many international firms as our trading members, getting close to them on the ground is clearly a better way to further engage with them – and this explains our presence in Europe and the US, which also helps us attract new customers like the buy-side.”

SGX was a pioneer in 2010 when it extended for the first time its trading day so the Asian market was open in European and US hours, a move that has since been emulated by many of its Asian counterparts.

The SGX chief said this longer trading day remains a key feature of the exchange’s global strategy.

Loh said: “Also interesting for US and European participants is that their day starts when most of the Asian markets are closed or closing, so we offer the T+1 sessions which cover the European and US time zones, allowing them to participate in the Asian markets. In the A50, for example, our T+1 volume is 15-16% while the impressive growth in our iron ore screen volume has come largely from clients in Europe and Asia, and the growth has been higher in the T+1 session.”

Interestingly, Loh said SGX is also seeing growing flows from fast-growing Asian economies that are starting to look beyond their national market for trading opportunities.

He said: “We have the big economies covered so that is China, India, Japan, Taiwan, Singapore and some of the ASEAN markets. Our equity derivatives cover close to 99% of Asia’s GDP. We see the ecosystem broadening – for instance, we see flows from Thailand into our cash equity market and we have Taiwanese financial institutions launching ETFs related to our contracts. Also interesting are flows from the other economies like Indonesia, which has a large and growing economy and we have contracts for investors to access opportunities there.”