Derivatives exchange of the year: SGX

For SGX the past 12 months have all been about market access and connectivity, with the exchange leveraging its strong Asian network to bring markets closer together. This is something clients have clearly appreciated.

The most obvious example has been a new cross-border derivatives trading link between SGX and the National Stock Exchange (NSE) of India. Although this service was only launched at the end of July, it had taken many months to put things together.

The NSE and SGX have had a bit of a rocky relationship and, in 2016, the Singapore exchange took its Indian counterpart to court after, in a bid to bring more liquidity onshore, NSE stopped licensing its indices overseas.

The latest tie-up marks a maturing of the relationship between the two exchanges, and underscores the strength of SGX’s Asian network in bringing such important partnerships to fruition.

“This is just another proof of concept that two exchanges with very strong networks – NSE with its domestic offering and SGX with its international footprint – can come together in very different ways to collectively bring additional liquidity to clients to grow contracts and improve market access,” said Beng Hong Lee, head of fixed income, currencies and commodities at SGX.

He adds that this stands to benefit the whole financial ecosystem.

“Global clients that today use us as a gateway into Asia can now get into India without having to set up a separate account with brokers onshore,” says Lee. “From an Indian perspective, they will have a gateway where global users of that contract can get into their infrastructure through SGX in an easier manner. It’s a win-win on both sides.”

Global clients that today use us as a gateway into Asia can now get into India without having to set up a separate account with brokers onshore

Beng Hong Lee, SGX

The benefit to clients has been clear.

Greg Kallinikos, chief executive officer for Asia at StoneX Group, a global brokerage firm, says: “Through the Connect, StoneX is able to continue providing seamless access to the Nifty derivatives contracts, now listed on NSE, while participants continue to face SGX as the central counterparty and enjoy its renowned global risk management and clearing standards. This arrangement also allows our clients to continue with their efficient portfolio management, using other SGX products.”

SGX has forged ahead with other partnerships this year, too. Another noteworthy one is a deal struck with New Zealand’s stock exchange (NZX) to list the country’s main dairy derivatives contracts in Singapore.

Lee describes this arrangement as one of a kind since, rather than list the contracts on both exchanges, NZX agreed to migrate the entire client base over to SGX, including the open interest. The contracts began trading on SGX at the start of December 2021.

“This is a very interesting collaboration because it moves beyond the traditional kind of partnership arrangement, where we grow and nurture new indices and bring ecosystems together, to one where, possibly for the first time, two exchanges to scale liquidity on a single platform through combining product expertise and client connectivity,” says Lee.

New Zealand remains the top exporter of dairy products in the world, and bringing the contracts on to SGX’s platform makes sense in terms of promoting internationalisation of the industry.

Since migrating the contracts over, open interest in them has more than doubled, from just over 60,000 lots to more than 127,000 lots, as of August 15. Meanwhile, derivatives average volume has increased from 1,157 in the first half of last year to 1,677 lots for the same period this year.

Lee says this kind of arrangement could be used as a template for other domestic contracts where there is only a fairly limited international participation.

China partnership

SGX also claims to be making great strides in terms of partnership agreements in China, which Lee says is a key priority when it comes to providing market access in Asia.

Although Lee is unable to reveal too much about the partnerships that have been struck in the country this year, largely because of the stringent non-disclosure agreements (NDAs) that are attached to them, the one he is most excited about is the deepening relationship with the China Central Depository & Clearing company (CCDC).

Although the memorandum of understanding with CCDC was originally signed back in 2020, Lee says that the two partners are now working together to further digitalise and streamline China’s onshore primary market infrastructure.

“There is a lot of room to enhance the efficiency for institutional investors and underwriters in the primary bond market, says Lee.

He adds that this feeds into the strategic approach that SGX has taken towards establishing a platform to be fully multi-asset and multi-format.

“CCDC is the biggest depository in the country, and there are many ways linkages where we could work with them around data, [Sense?], settlement and clearing in order to facilitate the whole internationalisation of the RMB,” says Lee.

Unlike Hong Kong, where the Hong Kong Monetary Authority owns the depository, SGX – rather than the regulator – owns the depository in Singapore.

SGX is now planning to roll out more electronic workflow automation solutions to the market.

“Beyond being a traditional exchange service provider, we are extending ourselves to services that have deeper engagement and interaction with clients through technology, through workflow and through data,” says Lee. “This is a journey, and hopefully we can share more good news as we execute on this plan.”