Asian Tiger Pounces Into Pole Position: Singapore Is Largest FX Center In Asia

All eyes are most certainly on Asia. Whilst Japan still holds its premier position as the world's largest retail FX

Singapore has long been vaunted as a highly stable and sophisticated region in which to conduct investments, whether stock, equity or other traditional banking activity. Nowadays, however, it has emerged as the largest FX center in Asia, according to a report issued on Thursday, last week by the Bank for International Settlements (BIS).

Third Largest Institutional FX Location Globally

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The BIS Triennial Central Bank Survey represents one of the reports which substantiate this, representing a highly comprehensive source of information on the size and structure of global foreign exchange (FX) and OTC derivatives markets. By increasing market transparency, the survey aims to help policymakers and market participants to better monitor patterns of activity and exposures in the global financial system. It also helps to inform the current discussions on reforms to OTC markets.

The Singapore Foreign Exchange Market Committee (SFEMC) also carries out a semi-annual FX survey of the top 30 trading banks in Singapore. This survey is conducted based on the location of the trading desks. The most recent FX survey done for the month of April 2013, recorded an average daily turnover at around US$381 billion, a 6% increase compared to the last survey in October 2012.

This figure demonstrates that whilst Japan remains home to the world’s largest retail FX market by far, Singapore is the largest institutional FX center in Asia, and third largest in the world after London and New York.

Singapore: Asia’s Largest FX Center

Average daily foreign exchange (FX) turnover volume in Singapore grew 44% to US$383 billion in April 2013, compared with US$266 billion in April 2010. Global turnover growth in the same period was 35%.

Ms. Jacqueline Loh, Deputy Managing Director of Singapore’s national financial markets regulator, the Monetary Authority of Singapore, explained in a public statement: “The results of the BIS and the SFEMC surveys demonstrate Singapore’s consistent standing as a key foreign exchange center in the world and in Asia.”

“Our growing strength in foreign exchange complements the development of capital market and asset management activities in Singapore. It will also better position our financial center to serve the investment and risk management needs of financial institutions and corporates throughout Asia” concluded Ms. Loh.

The BIS has been monitoring the institutional trading activity closely, and the Trienniel Central Bank Survey of turnover took place initially in April this year, with results published last week. Central banks and other authorities in 53 jurisdictions participated in the 2013 survey. Data was collected from about 1,300 banks and other dealers in their jurisdictions and reported national aggregates to the BIS, which then calculated global aggregates.

Trading in foreign exchange markets averaged $5.3 trillion per day internationally in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. FX swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.
The growth of foreign exchange trading was driven by financial institutions other than reporting dealers. The 2013 survey collected a finer sectoral breakdown of these other institutions for the first time.

Smaller banks which were not participating in the survey as reporting dealers accounted for 24% of turnover, institutional investors such as pension funds and insurance companies 11%, and hedge funds and proprietary trading firms another 11%. Trading with non-financial customers, mainly corporations, contracted between the 2010 and 2013 surveys, reducing their share of global turnover to only 9%.

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USD Still On Top

The results of the survey documented that the US dollar remains the dominant vehicle currency and it was on one side of 87% of all trades in April 2013. The euro was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010. The turnover of the Japanese yen increased significantly between the 2010 and 2013 surveys.

So too did that of several emerging market currencies, and the Mexican peso and Chinese renminbi entered the list of the top 10 most traded currencies. Methodological changes in the 2013 survey ensured more complete coverage of activity in emerging market currencies.

Trading Becoming Centralized Around Major Cities

Trading is increasingly concentrated in the largest financial centers. In April 2013, sales desks in the United Kingdom, the United States, Singapore and Japan intermediated 71% of foreign exchange trading, whereas, in April 2010 their combined share was 66%.

This situation serves to demonstrate that the Asia-Pacific region continues to dominate across the retail and institutional FX sectors, and in the case of Singapore, is free of the economic woes of Europe and other regions affected by weak economies, stifling debt and bank collapses which have plagued their markets for the last five years. It also has a conservative and well organized regulatory structure for financial markets activity.

Added to this, Singapore, like most of its developed Asian peers has a highly sophisticated and technologically advanced financial sector with an investment-savvy population.

Vermilion software announced today that it has expanded its operations in the Far East by opening a new office in Singapore. The firm produces client reporting solutions and considers Singapore to be an ideal strategic location for further operations in the Asia-Pacific region, given the growth of institutional trading firms in the region.

Simon Cornwell, the company’s co-founder and Global Sales and Marketing Director stated today that “It is a very important expansion for Vermilion.  Our delivery of support to our clients in the Asia-Pacific region, reflects our position as the thought leader in the client reporting space.  As our client base continues to grow, it made sense to expand into the Far East, offering our existing clients who have operations in this region true in-house support.  Some of Australia and Singapore’s biggest institutions have sought out our product encouraging organic growth for the company. ”

“The offices in Singapore will be the hub for Vermilion in the Far East and will operate sales, implementations and support services, making Vermilion a truly global firm” said Mr. Cornwell.

With further executing venues such as the Singapore Exchange ever growing, with strong trading volumes being conducted, and building further ability to access China, Singapore appears to be going from strength to strength.

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