Exchange initiatives in Asia
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4 October 2013
In a recent post we discussed that OTC derivative market reform process is giving rise to new opportunities for several market participants. We identified provision of collateral management services as one such opportunity. It comes as no surprise that the Singapore exchange and Clearstream are partnering to offer precisely such service. This development also highlights another trend that has been observed for some time now – that of partnership and alliances in the exchange landscape, particularly in Asia. Even though the Singapore Exchange (SGX) failed in its bid to take over the Australian Stock Exchange, it has been very active in forging partnerships and alliances with other exchanges, both in the region and globally. Recently it bought a controlling stake in the clearing house LCH.Clearnet. It also partnered with the London Stock Exchange to provide investors in each country the opportunity to invest in the most actively traded stocks on the other’s exchange. It has similar partnership for cross trading of certain products with other exchanges like the National Stock Exchange of India. The exchange has increased the trading hours to accommodate such collaborative initiatives with other exchanges. Besides partnering with other exchanges, it is also adding new services to expand vertically. The exchange started offering clearing services for commodity derivatives through its AsiaClear offering a few years ago. In addition to providing CCP services as mandated for OTC derivatives under the proposed reforms, the SGX is collaborating with the Korea Exchange to develop the latters’ OTC clearing capabilities. Going beyond traditional partnerships with other exchanges, the SGX partnered with Chi-X to offer a dark-pool platform to the investors in the region. Even though that initiative did not meet with much success in terms of attracting volume, it displayed the exchange’s intention to explore newer opportunities. The SGX is one of the four exchanges to join the ASEAN trading link, an initiative that offers a common link to investors in the seven ASEAN bloc countries to trade in other member countries. In addition it is looking for organic growth by adding product base and improving distribution services (e.g., developing Chinese Yuan capabilities). Not to be left far behind, the Hong Kong Exchange has acquired the London Metal Exchange. Regulators in Malaysia have allowed CME to buy a 25% stake in the Bursa Malaysia’s derivative business and revamp its technology. In Japan the Osaka Securities Exchange merged with the Tokyo Stock Exchange to make it the third largest exchange by market capitalisation. These developments show that the exchanges in Asia have been very active in forging new partnerships and broaden their suite of offerings. The trend is expected to continue in the future.