Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

In the digital age, the ability to keep operating even in the midst of internal failures. known as business continuity planning, can mean the difference between survival and going under. When it comes to big banks or exchanges, the health of the entire financial system can be at stake.

Perhaps the simplest definition of why the issue is so important is contained in the first two paragraphs of the Monetary Authority of Singapore's guidelines, published as early as 2003 and updated several times since:

"The potential impact of a major operational disruption may incapacitate the financial system. The quick recovery of business functions after disruption is therefore crucial in maintaining confidence in institutions."

Singapore Exchange Ltd. executives may need reminding of those rules. Right now, it's fair to say that confidence in that institution has been shaken.

Futures on the Nikkei 225 Stock Average, which usually open at 7:30 a.m. local time, didn’t start trading on Thursday until about 10:15 a.m. The delay also affected contracts on India’s Nifty 50 Index and iron ore.

The exchange gave little information publicly about what happened. Given the implications, it's understandable that SGX might prefer to avoid talking about it.

This was at least the fourth disruption at Singapore's trading venues in the past 18 months. It also happened at the worst possible time, the day after the Nikkei 225 most-active futures contract expired. On these days, known as a rollover, there is heavy activity from investors creating new positions.

The monetary authority responded by asking SGX to investigate, a less forceful approach than the reprimand it issued in 2014, when trading was halted because of a power failure. There's little need for the MAS to wield a big stick this time. The impact on the exchange's bottom line should be incentive enough for SGX to act.

Derivatives are its biggest breadwinner, accounting for 37 percent of revenue in the first quarter of the exchange's fiscal year. That's even after a 24 percent drop in volumes from a year earlier.

Daily Bread
Derivatives was the biggest contributor to revenue at Singapore Exchange in the quarter ended Sept. 30
Source: SGX filings

The decline in trading follows two years of steady and strong growth in that business.

Uncertain Futures
Singapore Exchange's derivatives revenue has slipped in recent quarters
Source: SGX filings

It's impossible to establish definitively whether the slowdown reflects fallout from the disruptions earlier this year. Euronext also reported a drop in derivatives revenue in the third quarter, which it attributed to reduced volatility. What's certain is that the latest trading glitch won't help.

SGX is setting an unfortunate track record here. To re-establish confidence, it must do better than saying the delay was the result of a "specific issue" that was "addressed immediately." (A near three-hour delay may not be every investor's idea of immediacy.)

Fail to do so, and its customers may look elsewhere. Business continuity in derivatives is a given. The trading doesn't have to take place in Singapore.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net