Singapore Exchange Write Up

Brief History of Singapore Exchange

Singapore Exchange (SGX) is the first demutualized, integrated securities and derivatives exchange in Asia Pacific. Formed on 1 December 1999 as a holding company, it is the merger of 3 former exchange companies: the Stock Exchange of Singapore, Singapore International Monetary Exchange Ltd and Securities Clearing and Computer Services Pte Ltd. The merger arose out of the recommendations of a Committee appointed by Monetary Authority of Singapore which recommended that the companies position themselves as leading international exchanges for the trading of Asian products, and the trading of global products in Asia. Previous shareholders from these companies were issued new shares that were fully paid for by SGX.

SGX became the second exchange in Asia-Pacific to be listed via a public offer and a private placement on 23 November 2000 (the Australian Securities Exchange was first to list in 1998). Benchmark indices such as the MSCI Singapore Free Index and the Straits Times Index consist of stocks listed on SGX.

SGX is the most internationalized exchange that connects investors in search of Asian growth to issuers in search of global capital. It offers its clients the world’s biggest offshore market for Asian equity futures, centered on Asia’s three largest economies – China, India and Japan. With more than 40% of companies listed on SGX originating from overseas, SGX provides premier access point for managing Asia capital and investment exposure.

Besides offering a fully integrated value chain from trading and clearing, to settlement and depository services, SGX is also Asia’s pioneering central clearing house. It is headquartered in Singapore, the most globalized city in Asia and recognized with AAA strength and stability, allowing SGX to become a leading Asian counterparty for the clearing of financial and commodity products.

As of 2013, SGX is the 6th largest exchange in the world with more than 770 listed companies and approximately $1 trillion total market capitalization. It is the gateway to the financial market in Asia.

Operation of SGX

SGX is Asia’s most international securities market, supported by the world’s fastest trading engine, state-of-the-art data centers and co-location services. Trading, clearing and settling securities and derivative products is carried out in a centralized electronic auction marketplace operated by SGX. Advanced technology is used for undertaking targeted, balanced, risk-based regulation so as to secure the trust and confidence of its market users in the integrity of the various facilities and services which make up the marketplace.

There are three channels to trade securities in SGX, namely, via SGXAccess, Singapore Exchange Securities Order Processing System, and Virtual Terminal Interface. Orders are routed through one of these accesses to the central trade matching engine, known as the Central Limit Order Book (CLOB), for the matching of trades before such information is transmitted to the Central Depository (Pte) Limited (CDP) clearing and settlement systems (AsiaEtrading.com, 2014).

The after-trade processes of clearing and settling the financial and delivery obligations of buyers and sellers ensure that participants can enter the market with the confidence that their transactions will be completed.


SGX operates through several subsidiaries including Singapore Exchange Derivatives Trading Limited (SGX-DT), Singapore Exchange Derivatives Clearing Limited (SGX-DC), Singapore Exchange Securities Trading Limited (SGX-ST), and Central Depository (Pte) Limited (CDP) (The World Federation of Exchanges, 2013).

SGX-DT provides Euro dollar, Euro yen, and Japanese government bond and stock index futures trading services in the Asia-Pacific region. It also provides interest rate futures contracts trading and hedging services, including hedging loans and deposits, and interest rate swaps in Singapore dollar, the U.S. dollar, and yen; and intra-commodity, inter-commodity, and inter-market trading and arbitrage services.

SGX-DC is the first Asian clearing house authorised as a Derivatives Clearing Organization by US derivatives regulator, the Commodity Futures Trading Commission. New and existing US customers will be able to clear their derivatives contracts efficiently through SGX's derivatives clearing house in compliance with the latest US laws and regulations, including the US Dodd-Frank Act, the Commodity Exchange Act and CFTC's regulations.

SGX-ST operates as a security stock exchange in Singapore. The company provides security listing services to companies and provides marketplace for trading of domestic and foreign securities which are traded on a scripless basis to the general public. Physical shares are deposited in individual’s CDP securities account which debits or credits all share transactions electronically. With the increasing volume traded on stock markets, it becomes more difficult to keep up with transactions using traditional methods of delivering physical shares to buyers. Computerised transfer of shares means transactions are recorded accurately and almost instantaneously. Share owners no longer have to hold physical shares to prove ownership.

CDP is a clearing and depository house which provides depository, clearing, settlement, and computerized book-entry services for the Singapore securities market. The company also acts as a central nominee, holding securities on behalf of its depositors.

Products of SGX

SGX has 3 major categories of products, namely Equities, Debt, and Money Market. Under Equities, SGX offers trading of shares, preference shares, deferred shares, warrants, investment trusts, unit trusts, loan stocks, Real Estate Investment Trusts (REIT), and Exchange Traded Funds (ETF). Under Debt, there are Singapore Government bonds, corporate bonds, convertible bonds, warrant issues, and floating rate notes. In Money Market, there are Treasury bills, Singapore dollar negotiable certificates of deposit, and commercial paper. SGX also offers trading of Global Depository Receipts (GDR).

Services of SGX

SGX offers services such as Issuer Service, Market Data Service, Member Service and Connectivity, and Depository Service.

Issuer service is the equity and debt capital raising platforms for companies in search of global funds. It offers corporate action services and corporate solutions to listed issuers.

Market Data Services are a range of real-time price information, company announcements, corporate actions and reference data products on SGX’s securities and derivatives markets. This information is distributed to a wide range of market participants by international and domestic market data vendors, brokers and financial institutions and also made available through the SGX website and other media channels. It involves sales and distribution of market price data and other information to market users.

Member Services and Connectivity offers trading and clearing members across both the securities and derivatives markets best-in-class access, connectivity and co-location services. SGX Points-of-Presence are hosted in other major financial markets, while POPs from key markets such as the US, Germany and Australia are in turn hosted by SGX in its domestic data centre. This provides access and connectivity to SGX’s trading and clearing platforms in securities and derivatives markets.

Depository Services are provided by CDP, which is the clearing house and central securities depository for all Singapore-listed securities. CDP has links with other central securities depositories including those of the United States, Japan and China to support settlement of cross-border trades. It also provides settlement and custody services relating to securities listed on SGX and unlisted securities.

Uses of SGX Products and Services

Investment managers who can benefit from the products and services provided by SGX ranges from domestic retail investors to international institutional investors. Issuers can value their businesses and raise capital, investors can make decisions on which securities to buy or sell, and those exposed to various risks can find a means of transferring that risk to other parties through the trading which takes place and the prices established in the market.

Aside from securities investors who can benefit from the 770 listings on the Main Board and Catalist board of SGX, other investors such as REIT investors can benefit from the wide variety of REIT listings that is the largest in Asia outside of Japan. Derivative investors can benefit from the licensing agreement with global index provider MSCI which grants them access to a total of 19 MSCI indices, covering Asia’s key growth markets. Similarly, fixed income investors can benefit from the 424 bond listings, each with different characteristics and rate of returns. With a large variety of choices to choose from, investment managers are able to craft highly customized portfolios for various needs.

Improved market infrastructure such as the introduction of securities margining, short-sell reporting and long-dated orders, as well as additional initiatives such as circuit breakers allow investors to more effective safeguard their investments by limiting their losses or locking in their profits . Retail investors can benefit from the educational initiatives that were designed to increase financial literacy and allow them to make informed investment decisions. In addition to online initiatives, these investors can join forums and seminars organized by SGX to meet like-minded people. Established data connectivity with ASX and Eurex provided investors with enhanced and cost-effective access into both markets. Co-location services offer more value-added services and investors greatly benefited from the speed of exchange trading and market data services provided within one location.