Singapore Exchange Ltd. (SGX) is exploring mergers and acquisitions to drive its ambitions as a multi-asset exchange.

The bourse has operations in place across asset classes and now will concentrate on bolstering them, Chief Executive Officer Loh Boon Chye said in an interview on Wednesday (Feb 17). That means seeking deals that bulk up the foreign exchange, fixed income, data and capital markets connectivity businesses. SGX had previously set a goal to have the fixed income, currencies and commodities segment, along with data, connectivity and indices, double revenues by about 2025. It may reach that goal before the initial target date, he said, adding the segments combined could account for 50% of revenue by then.

“We are not stopping our M&A focus,” Loh said. “We have said we will bulk up and given that we are now a multi-asset exchange, one of the ways is to also scale up further. We will look at acquisitions.”

The bourse is hardly a newcomer on the M&A front. Since the beginning of 2020 alone, it has entered a flurry of deals to boost its non-equity businesses, most recently announcing joint ventures to spin off its bond trading platform and provide digital-asset infrastructure. It snapped up the part of foreign exchange trading platform BidFX it didn’t already own, and acquired a majority stake in index provider Scientific Beta Pte. Still, it sees room for more.

See: BidFX acquisition a medium-term positive for SGX: analysts

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Loh declined to comment on the price tag of potential acquisitions, instead stating valuations will be guided by the credit strength of SGX’s clearinghouse and funds it can raise in capital markets. He all but ruled out participating in a round of consolidation among major exchanges, as rivals deploy varying growth strategies amid a low-rate environment.

Exchange M&A can be tough even at the best of times, with bourses often seen as national symbols and governments sometimes loath to let them go. SGX found that out in 2011, when its proposed tie-up with ASX Ltd. was scuppered by Australia. While Switzerland’s SIX was able to buy Spain’s Bolsas y Mercados Espanoles SA last year and said last month it’s seeking more deals, Hong Kong’s exchange called off a bid for London Stock Exchange Group Plc in October 2019 amid opposition by the latter and a cool reception from Beijing.

“I’m not sure if exchange consolidation is a natural path going forward,” Loh said.

While SGX has made the move to a more multi-asset strategy, it still faces a tough domestic environment amid a lack of big-ticket listings and the continued struggle to emerge from Singapore’s biggest-ever economic contraction. At the same time, rival hub Hong Kong is on a red-hot streak with share sales. Still, record bond issuance amid low interest rates globally and the growing importance of market data and passive investments are allowing exchanges to pursue growth in other areas.

Bolt-On Deals

Loh took the helm in 2015, joining the exchange from Bank of America Corp. where he ran Asia-Pacific global markets. A career banker, his top priority at the time was to restore confidence in the Southeast Asian market after a penny-stock crash. Since his arrival, SGX’s stock performance has been in the middle of the pack of the 27-member Bloomberg World Exchanges Index. Its gain of 20% over that period beats Japan Exchange Group Inc.’s 16% rise, though rival HKEx has more than doubled.

The bourse restructured its business segments in 2019 in a bid to diversify outside equities, though as of this past December, about two-thirds of revenue continued to come from its equities business.

Today, Loh’s focus is on finding bolt-on acquisitions in Asia and elsewhere, including potentially with co-investors.

Here are some more of Loh’s comments:

Succession

  • As Hong Kong’s stock exchange prepares for a new chief, Loh didn’t put a specific timeline on succession at SGX, saying that’s “a board matter.” He added, “I hope together with my team, we are delivering value to our shareholders and the overall capital markets ecosystem.”
ESG

  • Sustainability is the biggest change for markets besides Covid-19, Loh said, adding that for anything that’s sustainability or ESG the exchange will “double the pace” to achieve its objectives, which include listing more green bonds
  • SGX is working toward rolling out infrastructure for carbon credits trading, in line with Singapore’s goal to be a carbon credits market in Asia, and is on the lookout for partnerships.
  • Partners would include “players who want to look at offset, participants who can create the offset, the technology around that that could verify some of this, market structure, academia,” Loh said.
FTSE Partnership

  • Despite MSCI Inc.’s decision in May to move index licensing for most derivatives products to Hong Kong, SGX customers migrated over 90% of their trading volumes to derivatives products that it launched together with FTSE Russell, Loh said.