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Friday, 5 March 2010
Contra trading hurts equity derivatives’ growth: SGX chief
Contra trading is here to stay but it is hurting the growth of equity derivatives here and will probably need to be re-priced, the new chief executive of the Singapore Exchange said yesterday.
Contra trading hurts equity derivatives’ growth: SGX chief
By CHEW XIANG 04 March 2010
(SINGAPORE) Contra trading is here to stay but it is hurting the growth of equity derivatives here and will probably need to be re-priced, the new chief executive of the Singapore Exchange said yesterday.
In a wide ranging discussion at an investment conference here yesterday, Magnus Bocker said there were plans to launch trading of Asian companies’ American Depository Receipts (ADRs) as well as encourage over the counter trading and clearing of commodities, interest rate swaps and various derivatives, and develop a deeper and broader fixed income market in Singapore.
Mr. Bocker, the former Nasdaq OMX president, took over as CEO of SGX in December.
Yesterday, he admitted that contra trading could be holding back some types of derivatives trading. Contra trading is a practice unique to Singapore and Malaysia in which brokerages allow buying and selling of shares within three days with no cash up front.
‘I think that the short term gains of having that kind of trading is unfortunately hindering the growth of the derivatives market,’ said Mr. Bocker. ‘Contra trading makes it very efficient for certain trades instead of going into derivatives and therefore it’s holding it back,’ he said, noting that Singapore is one of the few places where it is cheaper to buy on credit than in cash. ‘So we just need to find a pricing mechanism to make the derivatives market more attractive.’
Mr. Bocker also acknowledged that while the Singapore government does not issue much sovereign debt, the local exchange could be a hub for secondary trading, clearing and settlement for foreign government issues and corporates. ‘We need to make it easier to issue bonds .. and also to split them up into more palatable sizes,’ Mr. Bocker said.
On questions that the increasing number of corporate scandals in Singapore show that the exchange needed to relook its dual role as market operator and market regulator, Mr. Bocker said SGX probably had less than its fair share of scandals but admitted it was constantly learning from the companies it polices.
‘I think the split of responsibilities between SGX and the Monetary Authority of Singapore is a very good one,’ he said, cautioning against the desire for ‘public hangings’ of companies or directors who supposedly did wrong.
‘We are regulating our clients, there is a natural hesitation,’ Mr. Bocker admitted. ‘But I’m not so sure a public hanging creates a better market going forward ... as soon as you move (regulators) out you lose the business touch.’
What the SGX was concentrating on was to improve the speed of its responses, by improving its work processes and efficiency, he said.
Mr. Bocker said it was likely that credit default swaps would remain off-exchange because they were fundamentally more appropriate for over the counter trading. There has been considerable official pressure from regulators overseas to bring greater transparency to such instruments but he said he was instead keener to work on exchange products for interest rate swaps and currencies, as well as a pre-IPO market for growth companies to tap venture capital.
The preliminary list of ADRs in a draft factsheet outlining SGX’s plans - subject to regulatory approval - were mostly multi-billion-dollar China based corporates, such as Baidu, Netease.com, Aluminium Corp of China, Petrochina and China Eastern Airlines.
Mr. Bocker said the SGX would have to find a way to get scale and liquidity for the ADR market here to take off.
1 comment:
Contra trading hurts equity derivatives’ growth: SGX chief
By CHEW XIANG
04 March 2010
(SINGAPORE) Contra trading is here to stay but it is hurting the growth of equity derivatives here and will probably need to be re-priced, the new chief executive of the Singapore Exchange said yesterday.
In a wide ranging discussion at an investment conference here yesterday, Magnus Bocker said there were plans to launch trading of Asian companies’ American Depository Receipts (ADRs) as well as encourage over the counter trading and clearing of commodities, interest rate swaps and various derivatives, and develop a deeper and broader fixed income market in Singapore.
Mr. Bocker, the former Nasdaq OMX president, took over as CEO of SGX in December.
Yesterday, he admitted that contra trading could be holding back some types of derivatives trading. Contra trading is a practice unique to Singapore and Malaysia in which brokerages allow buying and selling of shares within three days with no cash up front.
‘I think that the short term gains of having that kind of trading is unfortunately hindering the growth of the derivatives market,’ said Mr. Bocker. ‘Contra trading makes it very efficient for certain trades instead of going into derivatives and therefore it’s holding it back,’ he said, noting that Singapore is one of the few places where it is cheaper to buy on credit than in cash. ‘So we just need to find a pricing mechanism to make the derivatives market more attractive.’
Mr. Bocker also acknowledged that while the Singapore government does not issue much sovereign debt, the local exchange could be a hub for secondary trading, clearing and settlement for foreign government issues and corporates. ‘We need to make it easier to issue bonds .. and also to split them up into more palatable sizes,’ Mr. Bocker said.
On questions that the increasing number of corporate scandals in Singapore show that the exchange needed to relook its dual role as market operator and market regulator, Mr. Bocker said SGX probably had less than its fair share of scandals but admitted it was constantly learning from the companies it polices.
‘I think the split of responsibilities between SGX and the Monetary Authority of Singapore is a very good one,’ he said, cautioning against the desire for ‘public hangings’ of companies or directors who supposedly did wrong.
‘We are regulating our clients, there is a natural hesitation,’ Mr. Bocker admitted. ‘But I’m not so sure a public hanging creates a better market going forward ... as soon as you move (regulators) out you lose the business touch.’
What the SGX was concentrating on was to improve the speed of its responses, by improving its work processes and efficiency, he said.
Mr. Bocker said it was likely that credit default swaps would remain off-exchange because they were fundamentally more appropriate for over the counter trading. There has been considerable official pressure from regulators overseas to bring greater transparency to such instruments but he said he was instead keener to work on exchange products for interest rate swaps and currencies, as well as a pre-IPO market for growth companies to tap venture capital.
The preliminary list of ADRs in a draft factsheet outlining SGX’s plans - subject to regulatory approval - were mostly multi-billion-dollar China based corporates, such as Baidu, Netease.com, Aluminium Corp of China, Petrochina and China Eastern Airlines.
Mr. Bocker said the SGX would have to find a way to get scale and liquidity for the ADR market here to take off.
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