Exchange traded FX just got a boost by one of the world’s innovative bourses, the Singapore Exchange which announced today that it will be adding six new currency futures contracts for both deliverable and non-deliverable Asian currencies, including AUD/USD, AUD/JPY, USD/SGD, INR/USD, KRW/USD and KRW/JPY pairs.
The initial launch is set for November 11th and provides the existing exchange members the ability to keep related clearing and settlement activity within the exchange, along their existing securities related businesses via SGXClear and Calypso, the two systems used at SGX-DC (for securities and commodity derivatives).
The original plan to launch was noted in a previous post following a positive September for the exchange, and the pairs which include, the US dollar, Singapore dollar, Australian dollar, Japanese yen, Indian rupiah and Korean won will bolster the offering of the exchange’s new futures contracts to both exchange members and regional participants, including hedgers and speculators.
Third-Largest FX Center By a Hair
Singapore recently overtook the lead in Asia with 5.7% of Global FX market share, just slightly over Japan which had 5.6% in April 2013, and thereby becoming the world’s 3rd- largest trading center according to the latest BIS Triennial Survey of foreign exchange trading activity in April 2013.
Forex Magnates’ opines that the retail FX sector in Japan remains much larger than that of Singapore with regards to retail online FX trading. Nonetheless, Singapore experienced substantial growth in its FX volumes to the tune of 44% based on over the last three years, up from $266 billion in April 2010 to $383 billion during the same period in 2013, as per the BIS survey of central banks, and thus provides the momentum that could sustain growth in the region with exchange traded FX products such as those announced today by SGX.
Commenting in the corporate statement from SGX, Magnus Böcker the group CEO said, “The trading of Asian FX futures on SGX offers global investors a transparent, margin-efficient and well-regulated marketplace to seamlessly manage their Asian currency risks. We will be adding more currency pairs to our Asian FX suite over the next 12 to 18 months. This comprehensive range of Asian FX futures will contribute towards the continued growth of Singapore’s FX market, which is already the world’s third biggest FX centre.”
Of the 36 exchange members on the SGX that are licensed as clearing members, of which 26 are also licensed for derivatives trading, many are subsidiaries of foreign headquartered financial services as is normal for multi-national companies seeking membership on major exchanges around the world. One example of a local provider with tremendous history in Singapore is DBS, originally setup as Development Bank of Singapore in 1964 and was a catalyst for the country’s early economic development, DBS Bank now has 4 million customers in the region and is a market-maker in USD/SGD pair.
Andrew Ng, the Group Executive of Treasury and Markets at DBS Bank was quoted in the corporate announcement today from SGX saying,“By bringing Asian foreign exchange trading onto the exchange, SGX helps customers in their currency risk management activities and to minimise counterparty risks. We are delighted to be supporting the launch of Asian FX futures in Singapore as a market-maker for the USD/SGD currency pair.”
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Richard Vine, Head of APAC Futures at ICAP Singapore, was quoted in the above- mentioned SGX corporate announcement today saying, “Volumes and interest in listed FX futures are continuing to grow and the introduction of these contracts by SGX comes at an opportune time for all market participants.”
Mr. Vine concluded, “ICAP Futures & Options expects substantial regional demand for these products and is happy to be working with the Singapore exchange in its continuing efforts to provide market place liquidity and reduced counterparty risk within the reformed global regulatory environment.”
Remote Membership Class from SGX for FX Derivatives in U.S.
In a separate announcement today on the SGX corporate website, demonstrating the groups speed with regards to intra-market and cross-border regulatory cooperation, the exchange announced that it is consulting the market on a new remote membership class, which will enable futures commission merchants registered with the US Commodity Futures Trading Commission (CFTC) to clear swaps for existing and new US customers through SGX’s derivatives clearing house, SGX Derivatives Clearing.
While this proposal is initially aimed at meeting US regulatory requirements, SGX Derivatives Clearing may admit members of other jurisdictions as remote clearing members in the future, according to the release. This follows regulatory changes in the US under the Dodd-Frank Act, which requires that US customers clearing swaps do so through a clearing house registered with the CFTC as a derivatives clearing organization and through clearing members who are futures commission merchants.
Under the Basel III framework, SGX clearing houses have also become qualifying central counterparties, thus enabling SGX bank clearing members to enjoy the lowest capital costs as per the announcement. This year up to 30 June 2013, SGX saw an 86% increase in average month-end open interest, further augmenting its position as a leading center for the management of open exposures by global investors and risk managers, as per its corporate website.
Related Developments in the Region
Both announcements from SGX follow lasts week’s news regarding China and Singapore introducing direct currency trading between the Yuan and the Singapore dollar, following announcements from Hong Kong in late July regarding the Renminbi. The agreement for a new initiative was reached at the 10th Joint Council for Bilateral Cooperation (JCBC), where China extended its Renminbi Qualified Institutional Investor (RQFII) to Singapore which allows qualified Singapore-based institutional investors to funnel offshore RMB from Singapore into China’s securities markets. Singapore is being considered as one of the investment destinations under the new Renminbi Qualified Domestic Institutional Investor (RQDII) scheme, which allows qualified Chinese institutional investors to use RMB to invest in Singapore’s capital markets, according to the new initiative.
In comments from the event quoted by the media, Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), emphasized the positive ties between Singapore and China this year, “Financial ties between the two countries have deepened considerably and Singapore is well placed to promote greater use of the RMB in international trade and investment in the years to come.”
Last week, the Swiss FX rigging probe which was started by FINMA early in the month, had reached further into Asia (after Hong Kong) when Singapore’s Central Bank said that it would assist in the widening investigations on alleged currency rate manipulations. The degree of this unfolding story, which has started to more than scratch the surface, is being closely monitored by Forex Magnates as participants in the worlds’s most liquid markets wait in anticipation.