Singapore Derivatives Breakdown Sends Futures Traders to Osaka

Malfunctioning software at Singapore Exchange Ltd., operator of Southeast Asia’s largest bourse, delayed derivatives trading for three hours and sent investors to Osaka to buy and sell Japanese index contracts.

Nikkei 225 Stock Average futures volume on Osaka Securities Exchange exceeded Singapore’s for the first time since Feb. 11 as the error prevented any derivatives trading until 10:45 a.m. Singapore time. The outage affected futures on the FTSE China A50 Index, India’s CNX Nifty Index and Japan government bonds.

“I’m kind of surprised because Singapore Exchange is making a big push to take more business from Osaka,” said Chris Marshall, head of volatility trading at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest bank. “I’m surprised that they had this little glitch, but all other big exchanges do. We just traded in Osaka, no problem.”

Yesterday’s delay was caused by a system-monitoring process that malfunctioned, the bourse said in a statement after the market closed. Derivatives trading soared 30 percent in the quarter through Dec. 31, with buying and selling of Nikkei 225 and China A50 futures hitting records, Singapore Exchange reported Jan. 22. Revenue from the business increased to 28 percent of total sales from 25 percent, it said.

Disruptions in electronic markets have been under scrutiny since the May 2010 flash crash in the U.S. that briefly wiped $862 billion from stocks. Osaka’s derivatives platform malfunctioned in March, while in October orders for Indian stocks improperly entered by a Mumbai brokerage sent the S&P CNF Nifty Index down 16 percent in eight seconds before rebounding.

Missed Chances

“We had missed opportunities in trading because of the disruption,” Terence Koh, managing director of Genk Capital Pte, a proprietary trading company, said by phone in Singapore yesterday. “Especially when the Nikkei is damn volatile now. There’s the uncertainty that the system may go down again.”

Almost 130,000 June contracts on the Nikkei 225 changed hands in Osaka yesterday compared with 118,000 in Singapore, less than half the number traded on April 8.

Nikkei 225 futures fell as much as 0.2 percent to 13,180 in Osaka before rebounding while trading was halted in Singapore. They traded at 13,165 in Singapore.

Yuji Nakagawa, manager of derivatives trading at Toyo Securities Co. in Tokyo, said the delay may have contributed to a decline when contracts opened in Japan.

“I get a feeling that Nikkei futures in Osaka started trading a bit lower than expected today because it didn’t have a catalyst with the contracts not trading in Singapore,” he said.

The city-state’s bourse plans to add equity-index futures on the Philippines and Thailand to offerings that include Nikkei 225 Stock Average and Indian contracts, President Muthukrishnan Ramaswami said in a March interview. SGX is planning yuan and foreign-exchange futures, as well as commodities contracts as it seeks to become a trading hub, he said in the March interview.

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