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SGX delivers resilient performance with multiple growth streams and partnerships

Kwa Chong Seng and Loh Boon Chye
Kwa Chong Seng and Loh Boon Chye • 9 min read
SGX delivers resilient performance with multiple growth streams and partnerships
SGX’s Kwa (left) and Loh: As we begin FY2023, we are focused more than ever on our mission to become the global exchange partner of choice / Photo: SGX
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Singapore Exchange’s (SGX) FY2022 ended June has been challenging for financial assets. Our multi-asset strategy has paid off and we delivered our highest revenue of $1.1 billion since listing. This was supported by broad-based growth in derivatives volume across equities, currencies and commodities.

Persistent uncertainties continue to drive risk-management and investment activity on our platforms. Global economies are being challenged on many fronts: geopolitical uncertainties, the highest inflation in a generation as well as rising interest rates. Meanwhile, Covid-19 continues to cast long shadows, with international supply chains still facing difficulties.

It is in the context of these global headwinds that SGX Group has rapidly moved to sharpen our service offering across all businesses to deliver multiple avenues of growth for customers. Our acquisitions and investments over the past three years are bearing fruit. By building, partnering and acquiring, we have advanced our multi-asset exchange, grown our international presence and expanded our network significantly.

During the year, we received long-term Aa2 rating, the highest assigned to any exchange group by Moody’s, affirming our position as a key central counterparty clearinghouse and the robustness of our business model through economic cycles. The strong investment-grade rating reflects the financially disciplined approach we continue to take as we scale up our business.

We remain committed to investing in opportunities to drive long-term growth and total shareholder return. This would allow us to reward shareholders with a sustainable and growing dividend over time.

Multiple avenues of growth

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With portfolio risk-management activity rising with increasing risks in the global economy, all of us at SGX Group are focused on how we can simplify access to Asia with trust and efficiency — through our platforms, products and partnerships.

Our derivatives daily average volume (DAV) reached an all-time high in April. We remain the benchmark for Asian equities, enabling institutional investors around the world to navigate the region’s idiosyncratic risks with confidence. A strong second-half performance lifted the FY2022 revenue of SGX Equity Derivatives by 8%.

Our flagship SGX FTSE China A50 Equity Index futures contract has stood out as the goto access and hedging instrument, providing hyper-liquidity of US$6.4 billion ($9 billion) in DAV and open interest of US$12 billion. Investors also benefitted from the liquidity of our index futures covering the India, Japan, Taiwan and Asean equity markets. Together, our FTSE and MSCI offerings are unmatched, enabling market participants to access close to 100% of Asia’s GDP.

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Complementing our equities offering, our foreign exchange (FX) and commodities product suite remains a highly relevant risk-management toolkit, with FY2022 Currencies and Commodities revenue gaining 22%.

We continue to position ourselves for every opportunity to grow our businesses and better support customers in the US$6.6 trillion global FX market. SGX FX is expanding its leadership by bridging the listed and over-the-counter (OTC) worlds to serve participants in all major currencies across a variety of instruments.

The acquisition of MaxxTrader, together with BidFX, have led to significant growth in our OTC FX activity, which is on track to achieve average daily volume of US$100 billion in the medium term. Our primary OTC FX Electronic Communication Network recently obtained its Regulated Market Operator licence from the Monetary Authority of Singapore (MAS), and plans are underway to roll out products such as non-deliverable forwards (NDFs), FX swaps and NDF spreads.

Record year for commodities

Consolidating our role as a trusted marketplace for price discovery in the commodities powering Asia’s growth — from iron ore and steel, dry-bulk freight, rubber to petrochemicals — SGX Commodities achieved another record year. In FY2022, the volume of our bellwether iron ore derivatives grew 23%, while forward freight agreement (FFA) volume increased 32%. We are also charting new paths, partnering New Zealand’s Exchange to combine their market-development expertise in dairy derivatives with our global distribution capability.

We have expanded our clearing services for seaborne freight by adding FFA and futures contracts for liquified natural gas vessels, leveraging our Baltic Exchange subsidiary’s independent freight assessments. Today, with the largest market share globally for iron-ore and dry-bulk freight derivatives, participants rely on our unique offering to manage bulk cargo and freight risks on a single capital-efficient platform.

A decarbonisation drive is sweeping the commodities industry, fuelling the growth of sustainable transportation including electric vehicles (EVs). With this, we are developing energy battery metals derivatives and we see our franchise playing an increasingly important role in the world’s EV value chain. We have launched an EV exchange-traded fund (ETF) and hosted our first EV company listing, demonstrating how our diversified platforms enable us to capitalise on global trends in more ways than one.

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Sustaining momentum in securities

This year saw 17 new equity listings in total that raised $1.9 billion — almost double from a year ago — while secondary equity fundraising reached $5.7 billion. SGX Securities continues to bring together issuers and investors: a milestone in FY2022 was the listing of three special purpose acquisition companies (spacs) offering new fundraising avenues for fast-growing companies.

While market uncertainty has slowed the momentum we saw with spacs and key secondary listings such as Nio and Emperador, we remain positive on opportunities in the equity capital markets.

We continue to have active discussions with a diverse range of companies seeking primary or secondary listings in Singapore as part of their growth ambitions in Asia.

Just as spacs offer choice to investors, we are fine-tuning our securities product shelf with more investment tools across geographies and themes. Besides increasing the number of Singapore and US single-stock futures (SSFs), we have launched a unique SSF on an Asian high-yield ETF that allows investors to manage China bond risk. Expanding our daily leverage certificate (DLC) suite, we welcomed a new issuer and listed the first DLCs on US equity market indices.

Institutional and retail investors continue to demand passive-investing solutions, leading to double-digit growth in assets under management (AUM) in our ETF market for three consecutive years. In FY2022, our ETF AUM grew 27% to surpass $12 billion, with over $350 million in AUM raised from new listings.

Our value proposition in passive investing extends to purpose-built indices. During the year, SGX Indices expanded indexing capabilities in sectors such as environment, social and governance, low carbon and climate risk, collaborating with strategic partners to construct indices that are tradable, liquid and replicable. Scientific Beta, which has received accolades for its climate-index offering, has also launched solutions for investors to hedge against rising interest rates or risk events such as trade tensions and pandemic impact.

Digitalising fixed income

Digitalisation and sustainability are two major trends shaping the future of capital markets. We are harnessing next-generation technology to catalyse efficiency and advance Asia’s capital markets infrastructure, starting with fixed income. Marketnode, SGX Fixed Income’s digitalasset joint venture with Temasek, is using smart contracts and distributed ledger technology to build an issuance-to-depository fixed income infrastructure with partner institutions.

Working with SGX Central Depository, Marketnode launched a “direct-to-depository” service for commercial paper, providing a one-stop documentation and security creation capability. This joint service led to a shortening of the settlement cycle from five to two days. Marketnode also announced its participation in Project Guardian, an initiative with JP Morgan and DBS led by MAS, focused on fixed income tokenisation and decentralised finance for wholesale funding markets.

Towards a more sustainable future

As we look across our businesses through the lens of sustainability, we are acutely aware of both opportunities and challenges. Sustainability efforts in Asia-Pacific have come a long way, with stakeholders responding to the call for action.

SGX Group is committed to working with the ecosystem to facilitate this transition. With the support of MAS, Temasek and Bain & Co, we are host to the Glasgow Financial Alliance for Net Zero (GFANZ) APAC Network Central Office at our premises and look forward to deepening our support for GFANZ’s efforts, as well as channelling Asia Pacific’s contributions to the global transition.

Growth by partnerships

Indeed, alliances and partnerships have been a hallmark of the SGX Group way, from a pioneering clearing link with Chicago in the 1980s to our long-term commitment to connect investors to India through the Gujarat International Finance Tec-City, India’s first international financial services centre (IFSC). The NSE IFSCSGX Connect is a milestone project with the National Stock Exchange of India, bringing our countries closer together through the financial markets.

During the year, we signed a memorandum of understanding with Shenzhen Stock Exchange to establish an ETF link that allows Chinese domestic issuers to tap cross-border capital flows, while enabling investors to access overseas-listed ETFs via domestic exchanges. In collaboration with a Shanghai Stock Exchange subsidiary, we enhanced our data-distribution network in China to distribute SGX securities data, strengthening the connectivity between our capital markets.

Closer to home, we have worked to promote mutual efforts across Asean’s securities markets with the introduction of the Thailand-Singapore DR Linkage alongside the Stock Exchange of Thailand. With depository receipts (DRs) at its core and playing to our own sectoral strengths, this collaboration can bring investors unparalleled access to growth markets in Asean, where the 10 Southeast Asian countries collectively form the world’s fifth-largest economy.

We have also established a wide-ranging collaboration with New York Stock Exchange and renewed our listings agreement with Nasdaq, reinforcing our East-West corridor to provide companies with seamless access to global capital.

As we begin FY2023, we are focused more than ever on our mission to become the global exchange partner of choice — one ecosystem combining the synergies of SGX Group and its subsidiaries to deliver an unrivalled service offering and stakeholder value, in ways that sustain.

Kwa Chong Seng is chairman and Loh Boon Chye is CEO of SGX Group. This is an adapted version of their letter in the company’s FY2022 annual report, published on Sept 12

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