'Continuing on the path of innovation': SGX CEO Loh Boon Chye on expanding its forex footprint
The Singapore Exchange is extending its reach deeper into the global foreign exchange market. Will it be enough to win over investors? Money Mind speaks to SGX CEO Loh Boon Chye.
SINGAPORE: Mr Loh Boon Chye became CEO of the Singapore Exchange in July 2015. This was a time when the bourse operator was struggling with lacklustre trading volumes and declining investor confidence.
Faced with the task of reviving the SGX’s fortunes, Mr Loh set out to position the exchange as a gateway to Asia and to different asset classes.
Over the past five years, the SGX has been building on its multi-asset capabilities. It now offers a full range of products from equities to fixed income, currencies and commodities.
Recently, SGX ventured deeper into the foreign exchange market, the largest financial market in the world.
The forex market is an important growth area for SGX, which in May announced it would discontinue its 23-year-long partnership with index provider MSCI.
“The overall FX market is the largest globally. It has over US$6.6 trillion of trading volume or trade value daily," said Mr Loh in a recent interview.
“That said, the FX futures market is a small percentage of that - something like 2 per cent. A large part of the FX volumes are still done electronically, but over the counter. Having established a leading position as the most international exchange and the largest for Asian FX futures, we see the trend of bringing the two pools of liquidity into one,” he added.
In line with the plans to develop Singapore into the largest forex trading hub in the Asia Pacific, SGX has acquired full control of BidFX, a cloud-based electronic forex trading platform.
The acquisition allows SGX to build on its dominance in Asian FX futures, and broaden its reach into the global FX over-the-counter (OTC) market.
Mr Loh said the acquisition will benefit stakeholders.
“The future of the FX market would very much depend and rely upon the price transparency, bigger pools of liquidity - and I think more importantly, how the workflow process for customers can be made even more effective and efficient," said Mr Loh.
"With BidFX, you can now also offer solutions to customers, not just for liquidity, but be able to provide them an end-to-end process in terms of order aggregation and trade allocation. And also, more importantly, being able to do cost analysis for transactions, and then with FX futures and OTC electronic prices. I think customers would benefit from the best price, and deeper liquidity,” he added.
The BidFX deal comes amid the upcoming discontinuation of SGX's partnership with MSCI. From February next year, SGX will not offer futures and options contracts linked with the MSCI equity indices after the licence agreements expire next year, except for MSCI Singapore.
Mr Loh said the move would help SGX refresh its offerings. The exchange organises its business into three verticals: Equities; data, connectivity and indices (DCI); and fixed income, currencies and commodities (FICC).
"The DCI business, and the FICC will double in five years’ time. So that's really part of our growth strategy," said Mr Loh.
"But with equity derivatives, we are refreshing. Also our product and service offerings. So it's not just about replacing some of these contracts. We also offer new contracts, new products such as the ESG (environmental, social, and corporate governance ) where the investors are demanding sustainable investing. We will have ESG variations of some of our benchmark contracts, we will offer real estate investment trust futures. So it is about refreshing and new offerings,” he added.
A refresh is needed for the equities component of its business.
SGX has seen a rash of delistings, with some well-known names including Global Logistics Properties and Perennial Real Estate.
Mr Loh said companies delist for a variety of reasons: Some companies delist because they are not able to meet and comply with listing requirements, while others may have a change in business direction, or have faced a tougher operating environment.
"That said, the companies that have come to list on SGX expect a continued journey in terms of fundraising. They don’t see an IPO (initial public offering) as a destination. They see an IPO as a first step of the journey," said Mr Loh.
"In the last five years, our companies that are listed have raised more than four times in the secondary market, compared to broadly when they first listed. So it’s about the continued availability of financing to support a growing business, which is what companies look for,” he added.
The SGX has also seen a dearth of tech startup IPOs in the last few years. In 2017, two high-profile Singapore startups chose to list overseas. They included gaming hardware firm Razer and gaming and e-commerce company, Sea.
To attract more tech listings to Singapore, SGX in July deepened its partnership with Nasdaq. This will make it easier for Nasdaq-listed firms to seek a secondary listing on the SGX.
Mr Loh said that "the strong foundation" that the SGX has provided in terms of international platforms for investors to access and invest in Asia continues "does not go away overnight".
"Almost 36 years ago, we pioneered the first equity index derivatives. Since then, we have never stopped and never stayed static. We continue on the path of innovation," said Mr Loh.
"We will continue to evolve with more and better offerings for investors, riding on our strength, and our ability to continue to innovate and also being able to look ahead.”