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Home THE DAILY EDGE Business Singapore bourse embracing derivatives

Singapore bourse embracing derivatives over

M&A

Tags: Singapore Exchange

WRITTEN BY BLOOMBERG

MONDAY, 05 AUGUST 2013 14:55

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Singapore Exchange, Southeast Asias biggest bourse, is relying on derivatives for growth

amid a dearth of merger and acquisition candidates in Asia.

SGX is planning energy and bond futures, Chief Executive Officer Magnus Bocker said. The

bourses revenue from derivatives climbed 50% to $234.5 million in the five years through

June 2013, outpacing the 4.4% increase in equity trading to $469.50 million, according to

data compiled by Bloomberg.

Our primary focus is organic growth, Bocker said in an e-mailed response to queries on

Aug. 2. I cannot say that there are clear merger and acquisition opportunities in this

region yet.

Exchanges worldwide have been building their futures and commodities businesses as the

value of stock trading dropped 38% from June 2008, according to the World Federation

of Exchanges. SGX has been searching for other growth avenues since its US$8.8 billion

($11.2 billion) bid for ASX was rejected by Australian regulators in April 2011. Since then

about US$16.3 billion in exchange deals have been completed, according to data compiled

by Bloomberg.

Hong Kong Exchanges and Clearing took over the London Metal Exchange in Decemberand the Japan Exchange Group Inc., formed from the merger of rivals in Tokyo and

Osaka, has said it wants to start t rading commodities. Regulators approved

IntercontinentalExchange Inc.s bid f or NYSE Euronext in June.

ORGANIC GROWTH

SGX has fallen 2.9% since Bocker became CEO in December 2009. The stock hit a Bocker-

tenure high of $10.12 October 2010, the week before the company initated its failed

takeover bid for ASX. The shares slid 0.4% to $7.63 as of 2:05 p.m. in Singapore trading.

In the past three years, SGX rolled out the worlds fastest trading engine, scrapped the

midday trading break and introduced dual listings of American Depositary Receipts.

Brokerages are turning less bearish on the company, with the number of sell

recommendations at the lowest since October 2011, according to data compiled by

Bloomberg.

Credit Suisse analyst Arjan van Veen said he downgraded his rating on SGX in October

2010 because the ASX acquisition looked pricey and didnt provide sufficient cost savings.

Most of the capabilities the Singapore bourse was looking for f rom the transaction have

been built organically, van Veen, who now rates the stock an outperform, said.

The Singapore bourse, which hosts the biggest market for Nikkei 225 Stock Average

contracts outside Japan, started trading iron-ore futures in April and is preparing to add

contracts on foreign exchange and Philippine and Thai equity indexes later this year.

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SECONDARY MARKET

To capitalize on the growing bond offerings on the exchange, Bocker said the exchange is

looking at developing fixed-income products. Companies raised $196 billion selling bonds

on the bourse in the year ended June, compared with $161 billion the previous year, SGX

said in a statement on July 23.

Fixed income is a very important infrastructure play for Singapore and SGX, Bocker said.

While bonds being issued are growing rapidly, there is no adequate secondary market.

We need to develop that before we could have a market for bond futures.

SGX, located in Asias biggest oil-trading center, also plans to introduce trading of gas and

electricity futures in a few years, Bocker said. Unit Asian Gateway Investments Pte. bought

a 49% stake in Energy Market Co., operator of Singapores spot electricity market, for

$17.6 million in August 2012.

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