Futures Trading Delay Another Disruption for Singapore Exchangeby and
Regulator tells SGX to conduct “thorough investigation”
Exchange has suffered several malfunctions in recent months
Less than six months after Singapore Exchange Ltd.’s chief executive officer apologized for a trading halt, Southeast Asia’s biggest bourse suffered a disruption to some of its most popular products.
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., according to data compiled by Bloomberg. The delay also affected India’s Nifty 50 Index Futures and iron ore contracts, Bloomberg data show. While the exchange gave little information publicly, it said a specific issue relating to the expiring December Nikkei contract was the cause.
SGX has had a number of technical issues hit its markets in recent years. In July, it halted stock trading mid-morning and failed to reopen for the rest of the day. CEO Loh Boon Chye apologized for that malfunction, while his predecessor Magnus Bocker in 2014 issued a public apology after two trading disruptions in the space of a month. Those mishaps led to a reprimand from the Monetary Authority of Singapore, and this year’s disruptions have earned the ire of customers.
“Traders don’t like these sorts of situations, it puts them at a disadvantage,” said Alex Lambert, an independent futures trader in Singapore. “It puts a lot of pressure on everyone involved.”
The regulator said in an e-mailed statement that it told SGX “to conduct a thorough investigation to find out the root cause of the delay and submit its investigation findings to MAS.”
Thursday was the final day of trading for the December Nikkei contract, according to data compiled by Bloomberg. Expiry days often see heavier-than-usual volume. While trading in the futures was down in Singapore, it continued in Japan at Osaka Exchange Inc.
“It’s a very serious situation, especially at roll time because it’s a critical time,” said Lambert. “I am glad I am not working for SGX today.”
Trading of the contract in Singapore took a hit. While 133,000 of the December futures changed hands on the venue Wednesday, just 57,000 were traded on Thursday, data compiled by Bloomberg show. Volume in Osaka fell to 74,000 from 104,000. A representative at Japan Exchange Group Inc., which operates the Osaka exchange, declined to comment.
“For today, some volumes might get pushed to Osaka,” said Eddy Lim, CEO of Zhongtai International Securities in Singapore. “In the long term, SGX should still retain its position as it’s a cheaper alternative -- unless the alternative starts to bite my pocket due to disruptions.”
While traders had the option of sending orders elsewhere, the delayed start may have created some issues, said Nick Ronalds, head of equities at the Asia Securities Industry and Financial Markets Association in Hong Kong.
“A futures trader who needs to hedge or unwind a hedge, if his preferred market isn’t available, needs to find an alternative which won’t be a perfect match due to different contract sizes,” he said. “You also have two positions rather than one offsetting the original one.”
The exchange operator’s recent technical malfunctions also include a near two-hour disruption in derivatives trading in August 2015 and a one-hour halt in October 2015. MAS’s acceptable maximum unscheduled downtime for financial institutions is four hours in any 12-month period.
SGX in September formed a committee to look at ways to improve the operational resiliency of its markets after the July malfunction.
“It’s not unusual for a technical glitch to happen,” said David Gerald, president of the Securities Investors Association of Singapore, an industry group representing shareholders. “What’s important is that we’ve got to recover quickly and ensure that the market functions and trading is orderly.” Gerald is a member of the committee reviewing SGX’s back-up systems and processes.