“It will be a meaningful presence,” Peter Hiom, Sydney-based deputy chief executive officer at ASX, said in an interview Jan. 31, adding that the Singapore office will focus on derivatives products. “There’s an untapped opportunity for us in Southeast Asia.”
Asia’s third-largest listed exchange by market capitalization is expanding in derivatives, already its biggest source of revenue, as trading volumes for cash equities in its home market stagnate. Inflows into hedge funds are set to jump 25 percent this year to the most since 2007, Barclays Plc said last month, citing a survey of investors. CME Group Inc., the world’s biggest listed exchange, and units of Deutsche Boerse AG, the fourth largest, have offices in Singapore as the firms jostle for a share of the Asian market.
ASX’s expansion into Singapore comes about three years after it had an A$8.3 billion ($7.3 billion) merger with Singapore Exchange Ltd. (SGX), Asia’s fourth-largest listed exchange, vetoed by the government. The firm’s international ambitions were dented when former Treasurer Wayne Swan rejected the tieup, saying the move amounted to a takeover and wasn’t in the national interest.
The exchange will report results for the first half of the 2014 financial year on Feb. 13. Derivatives contributed 32 percent of total revenue in the year through June 30, 2013, data compiled by Bloomberg show.
ASX shares rose 20 percent in 2013, compared with a 3.6 percent gain for Singapore Exchange Ltd. Hong Kong Exchanges & Clearing Ltd. (388) slid 2 percent and Japan Exchange Group Inc. surged fourfold since it began trading last January through the end of the year. ASX gained 0.1 percent to A$35.66 in Sydney today, after a 3.1 percent monthly decline in January.
The bourse will in April start offering asset managers the ability to lodge collateral for derivatives trades with the exchange rather than their brokers, a product it’s calling client clearing, Hiom said. Australian customers of a unit of MF Global Holdings Ltd., which collapsed in October 2011 after a $6.3 billion bet on bonds of some of Europe’s most indebted nations, faced lengthy battles in foreign courts to get repaid.
“MF Global is just an example of why you have to focus on this,” Hiom said. “But the reason is regulatory change globally.”
Clearinghouses cut risk by collecting collateral to back each transaction, monitoring daily price moves and making traders put up more cash as losses occur. Venues such as LCH.Clearnet Group Ltd., which last year was granted a license to operate in Australia, and those run by U.S. exchanges CME Group and IntercontinentalExchange Group Inc. have become more important to the financial system as regulators globally push more trades through them.
The U.S. Dodd-Frank Act requires clearing for most swap contracts after the Group of 20 agreed in 2009 to promote the use of clearinghouses to improve the stability of the global financial system.
“The client clearing service is an important extension of the OTC clearing service we provide,” said Hiom. “It’s about delivering that as an onshore solution.”
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