SGX Moves To Boost Competitiveness
Thursday, June 02, 2011

The Singapore Exchange announced on May 31 an initiative to cut trading costs, a move it says will make the institution one of the most competitive exchanges in Asia.

The SGX will reduce the minimum bid size for securities as of July 4, and this is expected to lead to a tightening of bid-ask spreads by as much as 80%. This, the SGX says, will cut trading costs by an estimated SGD1.7bn (USD1.4bn), based on turnover figures for 2010.

“This initiative addresses our customers’ need for more cost-efficiency and trading opportunities," commented Chew Sutat, Head of Securities at SGX. "Tighter spreads will encourage investors to increase their participation in SGX, the best market for accessing fast-growing Asia. This will in turn enhance liquidity here in Singapore.”

To cater to the narrowing of the bid sizes, SGX will widen the Forced Order Range for all securities to +/- 20 bids from +/- 10 bids across all price ranges. Forced Order Range is a pre-execution mechanism which helps investors to avoid error trades when entering prices of orders. Any orders outside the Forced Order Range must be confirmed by the use of the Forced Key function before those orders can be submitted.

The revised Minimum Bid Size and wider Forced Order Range will apply to all securities traded on SGX except exchange traded funds, loan stocks and bonds.

The SGX has announced a number of other initiatives recently as it seeks to boost its attractiveness to international investors, including the addition of eight more American Depository Receipts (ADRs) to its GlobalQuote board. All the ADRs are fungible with those listed in the US and allow investors, for the first time, to manage their exposure to these companies round-the-clock. Five of these ADRs are of major Japanese companies including the world’s biggest automaker Toyota Motor Corporation. Two of the new ADRs are from major China companies which only have US listings. Their quotation on SGX will give investors their first-ever opportunity to manage exposures to these companies during the Asian time zone, when news flow relevant to the companies is likely to occur. The eighth ADR is from a major South Korean company, POSCO, one of the world’s largest steel makers.

“Our increasingly diverse ADR suite enables customers to manage risk and trade across several time-zones with ease and at competitive cost," said Sutat. "Recent market events underline the importance of this flexibility.”

By September 2011, the SGX will also become the world's first exchange to start the clearing of Asian Foreign Exchange Forwards, a move intended to enhance Singapore’s global standing as a market for trading of interest rate derivatives and foreign exchange. The clearing of Asian FX Forwards will include the non-deliverable currencies traded in the region, namely the Chinese Yuan (renminbi), Indonesian Rupiah, Indian Rupee, Korean Won, Malaysian Ringgit, Philippine Peso and Taiwanese Dollar.

The clearing of FX Forwards is the next over-the-counter clearing offering following the November 2010 launch of clearing of Interest Rate Swaps denominated in Singapore dollars. SGX has cleared nearly USD80bn notional of Interest Rate Swaps since the launch.

Singapore was ranked the second largest interest rate derivatives and foreign exchange centre in Asia and fourth largest foreign exchange centre globally in a survey by Bank for International Settlements.

Magnus Bocker, SGX CEO, said: “Demand for OTC traded financial derivatives clearing will grow rapidly and we are pleased to be able to extend the service to cover Foreign Exchange Forwards for Asian currencies. Asia is the world’s fastest-growing region and this service will benefit our members as they grow their businesses here.”

The eleven SGX Clearing Members eligible to clear FX Forwards are Barclays Bank Plc, Citibank N.A., Credit Suisse AG, DBS Bank Limited, Deutsche Bank AG, Hong Kong and Shanghai Banking Corporation Ltd, Oversea-Chinese Banking Corporation Ltd, Standard Chartered Bank, Royal Bank of Scotland Plc, UBS AG, and United Overseas Bank Ltd. SGX expects the membership to grow in the months to come with membership interest from all banks active in these products.