Following a highly successful December on the derivatives front, the Singapore Exchange (SGX) expects its commodity and equity-based derivatives to sustain this level of breakneck growth into 2014, citing increased volatility and swaps, according to an SGX statement.
According to Michael Syn, Head of Derivatives at SGX in a recent statement, “We had a breakthrough year for iron ore swaps, futures, foreign exchange and options trading. There were investigations into trading conduct that led to a slight freeze of activity as well as a general withdrawal of liquidity from interest rate markets in Asia last year, however the most attractive derivatives markets in Asia used by end clients are equity and commodity markets right now.”
Derivatives and FX Futures Spike, SGX Looks To Ride Chinese Momentum
Indeed, figures for the 2013 year showed fresh highs for derivatives trading contracts, highlighted by a trifecta of blue-chip Indian, Chinese, and Japanese indices. In particular, yearly trading for futures via the China A50 index came in at a staggering 21 million contracts, up over 100% or from just 10 million contracts a year ago. Alternatively, Japan’s Nikkei 225 rose to the 39 million contract threshold in 2013, its second largest growth swell in the region. Furthermore, India’s Nifty index climbed to 16 million contracts in 2013, constituting the lowest growth margins after reporting 14.7 million contracts in 2012 – an 8.8% YoY growth. Finally, the sum of all outstanding contracts at SGX across a composite of all equity indices, foreign exchange and other options stood at 3.0 million contracts by the end of December, representing a 20% rise since 2.5 million contracts in December 2012.
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In raw terms, the SGX also managed to clear S$3.7 billion ($2.9 billion) worth of financial OTC derivatives during 2013, further embarking on its ambitious goal of landmark reforms to swaps markets that are altering the landscape of the overall industry, not just in Southeast Asia.
“In 2013, we saw significant demand for strategic asset allocation into these three capital markets. For example, the rapid rise in the Nikkei and the depreciation of the yen last year meant there was a lot of re-hedging that needed to be done. We believe we are unique in having contracts for all three markets on a single platform.” Syn added.
SGX Going Global, Europe Now In Crosshairs
The reforms or new rules referenced will ultimately impact many derivatives trades that are privately negotiated, offering guarantees and acute protection via clearing houses, attempting to mitigate counterparty risk. In addition, the clearing is expected to be implemented in Singapore this year, however a concrete timeline has yet to be established. “The SGX would do further work this year to help the exchange’s clearing house receive international recognition. Having already achieved recognition by US derivatives regulator the Commodity Trading Futures Commission at the end of 2013, allowing it to clear swaps on behalf of US firms, the Singapore exchange will now seek similar approval in Europe,” Syn reiterated as a new initiative in 2014.
On this note, the European commission ultimately has the final sway on the verdict of whether clearing houses in Singapore can be utilized by European market participants. Advising them on this matter is the European Securities and Markets Authority (ESMA), which back in September sent out a statement saying that clearing houses operating in Singapore are subject to regulatory measures and supervision.