SGX, the Singapore Exchange, is looking to further boost its Chinese derivatives business by offering to collaborate with a planned new local futures venture backed by the founders of one of China’s largest hedge funds.
Loh Boon Chye, the bourse’s chief executive, told the Financial Times he was willing to open its clearing infrastructure to the challenger, called Apex, so it could conduct futures trading in the city state.
Apex is a new Singapore derivatives exchange focused on commodities. It is backed by Eugene Zhu, former head of Dalian Commodity Exchange, and Ge Weidong, a renowned trader who is head of Chinese hedge fund Shanghai Chaos, a mainland-based investor with an outsized impact on markets.
The SGX offer comes amid a strained political relationship between China and Singapore. Analysts saw a spat between the two countries over nine impounded armoured cars in Hong Kong as an indication of Beijing’s increased assertiveness across east Asia.
Mr Loh told the Financial Times that the arrival of a new exchange underlined Singapore’s potential as a way to play the China market from a distance.
“To us, it really signifies that Singapore is a price discovery centre for China. The [proposed] exchange is China focused. It reinforces some of our value proposition,” said Mr Loh. Apex declined to comment.
Singapore, where a majority of the population is of Chinese extraction and speaks Mandarin, has competed with Hong Kong to be an alternative gateway to the mainland. In recent years SGX has focused efforts on attracting investors and traders for offshore Chinese products.
Its FTSE China A50 futures contract, which tracks the country’s 50 largest blue-chips, is the only index on Chinese shares available outside China and is one of SGX’s most actively traded products. Last year SGX also launched new derivatives based on the MSCI indices, which track Chinese companies listed outside the mainland.
SGX is now willing to offer to clear derivatives trades for the new exchange, potentially saving it the challenge of securing a clearing licence and the cost of investing in the necessary technology.
Asked whether SGX would be willing to offer clearing facilities, M Loh said: “A new entrant coming through — we will be open to partnership. We need to grow with other exchanges. It’s an ecosystem,” he said.
A clearing house sits between two parties in a deal, managing the credit risk to the market if one party defaults. It monitors the changing prices and positions of futures contracts, which can be open for months, or even years, to ensure investors can meet their obligations to their counterparties.
The move to set up a new exchange in Singapore comes as the Dalian Exchange is seeking approval to let foreigners trade directly in Chinese commodity futures. At present, overseas investors must set up a China-registered company to trade Chinese futures.
Mr Loh welcomed this prospect, saying: “I’m a believer that a bigger market overall, globally, benefits Singapore. A fully opened up Dalian is beneficial.”