Speed Gives Way to Safety as SGX Upgrades Derivatives Market

Singapore Exchange Ltd. is shifting its focus from speed to safety as Southeast Asia’s biggest bourse embarks on the latest upgrade to its derivatives-trading technology.

SGX’s matching engine -- the software that puts two sides of a trade together -- already meets customers’ demands for speed, so the exchange has put better execution and risk management at the center of a new project, according to Michael Syn, the bourse’s head of derivatives. Increasing the speed of an Asian exchange makes little difference past a certain point because the signal first needs to cross the vast distances between the region and the rest of the world.

“Over the last five to 10 years, a lot of the market-structure fashions in the West were also reflected in the East,” Syn said in a phone interview. “That wave has passed.”

Exchanges across Asia, including in Japan and the Philippines, have copied the U.S. and Europe in accelerating their execution speeds. Nasdaq OMX Group Inc., which supplied much of that technology, is now seeking to sell post-trade and risk-management systems to the region’s exchanges, according to President Adena Friedman.

“Right now we have the trading engines across the region pretty well established,” Friedman said. Systems for market surveillance, central securities depositories and clearing will fuel the next phase of growth, she said.

SGX awarded Nasdaq the S$100 million ($73 million) contract to upgrade its derivatives trading engine in December. The project, which includes support and maintenance for about six years, will be completed by the end of 2016.

Nasdaq’s technology will improve the risk-control systems of the SGX platform by adding functionality and improving the automated trading interface.