SINGAPORE (Jan 23): Singapore Exchange (SGX) reported 2Q20 earnings of $99.0 million, 2.6% higher than $96.5 million a year ago. 

This brings 1H20 earnings to $213.3 million, a 13.7% increase from $187.6 million reported for 1H19. 

Operating revenue for the quarter saw a 3% increase to $230.9 million compared to $224.2 million in 2Q19. This was spearheaded by a 19.9% spike in the exchange’s fixed income, currencies and commodities segment, as well as a 3.6% increase in the data, connectivity and indices segment. 

Derivatives revenue fell 5% y-o-y to $78.9 million, as equity derivatives volume fell 18% to 41.3 million contracts. This was due primarily to decreased volumes in the SGX FTSE China A50 Nikkei 225, and Nifty 50 index futures contracts, which booked declines of 29%, 22% and 10% respectively. 

Total expenses for the quarter increased 1% to $111.5 million, mainly due to higher staff costs. This was however partially mitigated by a 6% dip in operating expenses on the back of lower professional fees and technology expenses. 

As at end-December, cash and cash equivalents stood at $504.6 million. 

Earnings per share for the quarter stood at 9.2 cents, up from 9.0 cents the previous year. 

The SGX board of directors has also declared an interim dividend of 7.5 cents per share, payable on Feb 10.

In its outlook statement, SGX notes that volatility could increase geopolitical tensions, as well as market speculation of policy changes leading to the US elections. 

“This would in turn result in higher demand for risk management solutions,” says SGX. “SGX’s broad range of access and risk management solutions in major asset classes enables global asset managers to manage their Asian portfolio risks across time zones,” it adds. 

Separately, SGX has announced that it will be acquiring a 93% stake in Scientific Beta, a smart beta index firm, for 186 million euros ($280 million). 

This will reportedly strengthen the exchange’s research-based index design capabilities as well as broaden its range of index products and clientele. 

Established by EDHEC-Risk Institute (ERI Asia), which is an affiliate of the EDHEC Business School, Scientific Beta is an independent index provider specialising in smart beta strategies. It has more than 60 asset owners and asset managers using its indices to track or benchmark their smart beta investments.

The Singapore holding of the EDHEC Endowment Fund (SHEEF), which is owned by the endowment fund established by EDHEC Business School and its alumni, will own the remaining 7% stake in Scientific Beta and retain a board seat at Scientific Beta after the acquisition.

As of end-Sept last year, an estimated US$55 billion in assets owned by global institutions have tracked Scientific Beta’s indices. This denotes a tenfold over four years on the back of significant growth in factor investing. 

CEO of SGX Loh Boon Chye says that the acquisition marks an important step in the evolution of the exchange’s index business. 

“Scientific Beta brings a highly regarded research pedigree in the rapidly growing smart beta space, along with a strong suite of high profile clients in the US and Europe,” says Loh. 

“Besides being complementary to our existing SGX Index Edge thematic and custom index capabilities, we also see new product opportunities based on Scientific Beta’s indices,” adds Loh. 

The acquisition will be funded through external borrowings and is not expected to have a material impact on SGX’s financial results for FY20. Loh, however, stressed that Scientific Beta’s revenue in 2019 had exceeded 20 million euros, and that the company was profitable. 

“As Asia’s most international exchange and global leader, SGX provides a strong platform for Scientific Beta to expand regionally and across client segments,” says CEO of Scientific Beta Noël Amenc. 

Shares in Singapore Exchange closed four cents higher, or 0.5% up, at $8.82 on Thursday prior to the announcements.