Singapore Exchange Ltd. (SGX) will start clearing Asian currency forwards contracts by September, underpinning the city-state’s efforts to challenge Tokyo as the largest foreign-exchange trading center in Asia.
The forwards will include non-deliverable contracts for currencies such as the Chinese yuan, Indonesian rupiah, Indian rupee, South Korean won, Malaysian ringgit, Philippine peso and Taiwanese dollar, SGX said in a stock exchange filing.
Non-deliverable forwards are agreements in which assets are bought and sold at current prices for delivery at a future date. They are short-term contracts, settled in U.S. dollars, allowing companies to hedge their currency risks.
“Demand for over-the-counter traded financial derivatives clearing will grow rapidly,” Chief Executive Magnus Bocker said in the statement. “Asia is the world’s fastest-growing region and this service will benefit our members.”
The new service follows an initiative in November last year to clear interest-rate swaps denominated in Singapore dollars as part of a global effort to process over-the-counter derivatives through central clearing houses. SGX has cleared swap contracts with a notional amount of almost $80 billion to date, according to its statement.
SGX, operator of Singapore’s equities market, is focusing on organic expansion after the Australian government on April 8 rejected its A$8.4 billion ($9 billion) bid for Sydney-based rival bourse operator ASX Ltd. The merger would have created the world’s fifth-largest exchange, helping the combined entity attract more business away from Hong Kong Exchanges & Clearing Ltd., the world’s most profitable exchange.
The company remains open to merger opportunities although its priority is to grow existing business and improve efficiencies, Bocker, who stitched together eight European stock exchanges under OMX and later merged the combined entity with Nasdaq, said on May 19.
Last month, SGX started trading rubber futures in its derivatives market. Dealings in lead and steel futures quoted on the London Metal Exchange will begin in the third quarter, with those for copper, zinc and aluminum having been introduced in February. The company invested S$250 million ($203 million) in a new trading platform that it said will be the world’s fastest order processor when it goes live in August.
Global FX Market
Global foreign-exchange market turnover averaged $4 trillion a day in April 2010, 20 percent more than in 2007, according to a triennial survey of 53 central banks published by the Bank for International Settlements in September last year.
The U.K. accounted for 36.7 percent of the trading volume, followed by the U.S. with 18 percent. Japan ranked third with a 6 percent share and Singapore next with 5 percent, the BIS report showed.
Eleven SGX member banks will help to clear the currency forwards, today’s statement shows. They are units of Barclays Plc, Citigroup Inc., Credit Suisse AG, DBS Group Holdings Ltd., Deutsche Bank AG, HSBC Holdings Plc, Oversea-Chinese Banking Corp., Standard Chartered Plc, Royal Bank of Scotland Group Plc, UBS AG, and United Overseas Bank Ltd.