Singapore Exchange sets sights on China

Singapore Exchange sets sights on China

May 9, 2014

Max Mason

Singapore Exchange chief executive Magnus Böcker says he is unlikely to make a second run at a merger with the ASX, and will instead focus on China after Singapore became just the second place able to have Chinese companies list directly on its exchange.

An $8.4 billion merger between the SGX and Australian Securities Exchange was rejected by Julia ­Gillard’s Labor government in April 2011. The deal was designed to help the ASX gain a foothold in Asia faster and let the SGX tap into Australia’s wealth of commodities knowledge.

But Mr Böcker insisted the SGX had moved on in recent years and a future merger was unlikely despite the fact Australia was now under a new government.

“A lot of the reasons why we wanted to do it . . . some of those reasons are not there any more, and I think that is the driving force, it’s not whether it’s a government there or not,” he said.

“We are always looking at everything but it would only be driven primarily by what is good for our customers. When I look at it, mergers and acquisitions might not be my primary target right now.”

But that hasn’t stopped the two exchanges from working with each other, in areas such as OTC (Over the Counter) clearing, and Mr Böcker said he expects the ASX and SGX will, in time, be working together on other opportunities.

“I think we see each other far less as competitors and far more as collaborative partners. If you look into the next 10 years, the important thing for me is not to compete with any of the other exchanges, but to grow the market.”

Singapore had the opportunity to become the financial powerhouse of Asia. Aside from Hong Kong, Singapore is the only country allowed to have Chinese companies list on its exchange, and it stands to benefit not only from the growth of IPOs in China, but increased interest from Western investors looking for a more well-regulated and transparent market.

Around 40 per cent of companies listed in Singapore are non-­local entities and the SGX allows trade in a number of currencies.

“In Singapore, we have the China A50 contract, which is the only contact outside China if you want to have Chinese exposure. That is a very good example of a contract that is unique for Singapore and the growth rate we’ve had with that has been phenomenal,” Mr Böcker said.

“When you look back at the SGX, we traded Nikkei 225 even before Japan traded Nikkei 225, then we added one or two more contracts, Taiwan, India, and now China, we’ve added Indonesia, Thailand. So you will see us adding more contracts.”

China taps Singapore market

However, along with the opportunity of being able to have Chinese corporate tap directly into Singapore comes the inherent risk of companies which have not been subjected to the same accounting, governance or legal standards required in developed financial markets.

Mr Böcker said SGX benchmarks for listing have not been relaxed, rather they have become more stringent.

“[The Chinese government] want to have other financial markets giving Chinese companies opportunities to tap into other financial centres. They have seen that there is a general interest from Chinese companies to establish themselves in Singapore, you see quite a number of Chinese companies putting up their regional, or non-Chinese headquarters in Singapore, and as a natural follow-on to that, I believe they can see that capital raising is quite important,” Mr Böcker said.

The SGX is optimistic that the first Chinese company will list directly on the Singapore Exchange later in 2014.

More stock exchanges would be welcome in Singapore to improve its credentials as a financial hub .

“Singapore has a unique opportunity to be the financial centre of Asia in the same way London is for Europe,” he said.

“I think that that will not happen just by having one exchange in ­Singapore, we need to have more exchanges.”

Adding further new products to the SGX is one of Mr Böcker’s key goals and he is looking to have more high-frequency trading in the Singaporean market and does not believe the negative hype surrounding market makers.

“Is there something called low-frequency trading today? What is high-frequency trading? I can give you a few names and most of it becomes negative, not because you know anything about, but just because of the name of it. When I say high frequency trading, you immediately turn negative,” he said.

It is important for the SGX to keep expanding in order to become an international market, but there will be tough regulation on who it allows into the market and what they can offer.

“High-frequency trading, or a market maker, I think we are missing them in Singapore, I’d like to see them come, I’d like to see more liquidity providers. But no one is welcome to our market, to trade in our market at a discounted fee unless you also add value to the market,” Mr Böcker said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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