SGX 1H13 Boosted By Derivative Trading And IPOs

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The stock markets have done surprisingly well in 2012 despite the seemingly gloomy economic prognosis (consider the EU debt crisis, China’s growth slowing, Japan in recession and the US fiscal cliff saga). At home, the Straits Times Index recorded about 19.7 percent in returns. There should be little doubt that the operator and regulator of the stock exchange would fare rather well also.

Priding itself as the Asian Gateway, the Singapore Exchange (SGX) has had its share of tumult during the year, with its share price having a mini roller coaster ride that was actually roughly in line with the broader markets as well.

In its 2Q13 earnings report card, SGX reported that its net profit grew 16.7 percent in the quarter, underpinned by revenue growth of 9.3 percent. Revenue growth was in turn driven by higher contributions across most of its segments with the exception of SGX’s Depository Services which saw a decline of 3.9 percent during the quarter. The decline in that segment was due largely to a 9 percent decrease in settlement transfer instructions. SGX has begun to take action in this segment with the launch of its new Securities post-trade infrastructure which will allow for lower maintenance costs.

The Main Contributors
Notwithstanding the decline in SGX’s Depository Services, the main contributors to SGX’s revenue and profit growth came from its Securities (+8.7 percent) and Derivatives (+21.1 percent) segments.

The 8.7 percent jump in revenue attributable to SGX’s Securities segment has its roots in volatility. Volatility is actually SGX’s best friend. Why? This is because with volatility, share trading will increase. During 2Q13, SGX experienced securities trades worth $1.2 billion on a daily basis. This is up 8 percent year-on-year but down 9 percent quarter-on-quarter. With the higher trade values, SGX was able to increase its securities clearing revenue by 10.5 percent in 2Q13.

The starlet of SGX’s financial results went its Derivatives segment which scored a jump of over 21.1 percent, with its options and futures revenue doing particularly well. Magnus Bocker, SGX chief executive officer unsurprisingly has this to say about this segment: “ Our Derivatives market achieved a record quarter with daily average traded volume of 358,532 contracts, following record volumes in our China A50 futures and Japan Nikkei 225 options.” He went on further to say that the robust figures from this segment is testament of “SGX’s attractiveness as a centre for risk management”.

Another relatively bright spot in SGX’s revenue figures came from its Issuer Services segment which saw eight new Initial Public Offers (IPOs) during the quarter, raising $798.9 million. In total, the stock market added 20 percent to its market capitalisation, hitting $934.5 billion as of 31 December 2012.

Developments At SGX
Besides the day-to-day operations at the SGX, management also shared that it had been busy at work to comply with various standards. The fruits of their labour will soon be realised as the SGX will be among the earliest exchanges and clearing houses globally to meet new international regulatory and risk management standards. In its report, SGX said that “in doing so, we assure our customers that they can continue to expand their businesses and manage their risks via SGX”.

In The Not Too Far Future…
SGX notes that it has begun to see improving investor sentiments across global capital markets. This improvement in sentiments could ultimately drive increasing trade volumes both in its Securities and Derivatives segments. Worthy to note was SGX’s comments that its IPO and bond listings pipelines remain healthy. Should trade volumes remain at current levels or grow, SGX could see more companies becoming interested in seeking capital market funding.

Editor’s note:
Have any thoughts/comments or feedback regarding this article? Reach out to me on my twitter account, @Tradeabl e. I will also discuss and tweet about various other investment and economic related news in Singapore and beyond, there.

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