While there is growing interest in emerging digital technologies like cryptocurrency and decentralised finance (DeFi), its promises cannot be realised in a single step.

Instead, centralised and decentralised financial markets — the proverbial old and new worlds — will have to co-exist, says Loh Boon Chye, CEO of SGX Group. “We will need to see how we can bring the best of these two worlds together.”

Citing the adoption of cloud technology, Singapore’s financial industry should be mindful not to jump the gun with new technology, but rather, focus on engaging customers and stakeholders, says Loh.

“For exchanges, there has been much discussion about moving data, trading and clearing services onto the cloud,” he adds. “Moving to cloud would impact our market participants and we are highly cognisant that it is a decision that must be undertaken together with them.”

That said, the industry cannot remain stagnant, says Loh. “There will always be stakeholders and customers who take the view that they are very happy with the traditional methods and that new technologies could be more hype than substance.”

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He adds: “We must be careful we do not fall into the trap of creating a solution to a problem that doesn’t exist.”

The price tag on innovation

In his keynote speech at the Investment Management Association of Singapore (IMAS) Digital Summit 2022 on April 20, Loh outlined the bourse’s conversative approach to cryptocurrency.

“In Asia, institutional and retail participation in crypto continues to rise. Your customers may also have requested access to digital assets,” says Loh to investment managers at the hybrid event.

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“While SGX has not offered crypto futures like the other exchanges in the US and Europe, we have been exploring and monitoring this space closely to develop the right products that meet the needs of our customers,” says Loh.

Past the volatile prices and flashy headlines, Loh urges the financial industry to look deeper at cryptocurrency. “Beyond looking at crypto as an asset or investment, store of value or payment, I believe it is more important for us to look at how we can leverage the technology behind crypto and digital assets.”

The future that DeFi promises will take some time to become reality, he says. “There would be some trial and error and experimentation. Ecosystems need to be ready for an entirely new DeFi-run financial system that is independent of the traditional financial infrastructure.”

Policymakers, too, must address risks through standardisation and regulation, and put in place safeguards to ensure market stability, he adds.

“Technology and innovation come with a price tag,” says Loh. “While AUM may grow, so too will costs and pressure on margins. The digitalisation journey is not an easy one, and we have to strike a balance between innovation, tangible benefits, risks and reward. Throughout this journey, what is key is that we have to put customers at the heart of everything we do.”

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