Singapore Exchange Plans New Products as Derivative Trade Booms

By Jonathan Burgos

July 28 (Bloomberg) -- Singapore Exchange Ltd. plans to introduce new derivatives products to benefit from record levels of trading in the securities.

Contracts the bourse plans to introduce in the financial year ending June 2011 include futures and options that track European and Indian stock indexes, Janice Kan, senior vice president for derivatives at the Singapore Exchange, said in a July 26 interview.

The average daily volume of trading in futures and options totaled 240,292 contracts in June and 310,809 in May, exchange data showed. The record daily average across a whole year was 250,651 in 2008. Average daily trading in Hong Kong, whose stock market is four times the size of Singapore’s, was 456,742 contracts in June, according to the Hong Kong bourse’s website.

“The futures market thrives on volatility and uncertainty,” Kan said. “When there is volatility, people seek to hedge their investments. Futures are very efficient contracts to use for this.”

Historical volatility on Singapore’s benchmark Straits Times Index rose to a 10-month high in June as Europe’s mounting budget deficits sparked concern the sovereign debt crisis will spread. The gauge gained 3 percent last month following a 7.5 percent slump in May.

More than 10 stock and fixed-income futures and options instruments trade actively on Singapore’s exchange, bourse data show. Its Singapore Commodity Exchange Ltd. unit offers trading in futures for rubber, gold and coffee. Over-the-counter trading of iron ore, energy and freight-forward swaps are available on the clearinghouse SGX AsiaClear.

Euro Stoxx 50

Singapore Exchange announced this week a deal with Eurex, Europe’s largest derivatives exchange, to sell futures and options contracts linked to the Euro Stoxx 50 Index in the next six months. The contracts will be denominated in U.S. dollars.

The average daily volume of euro-denominated Euro Stoxx 50 Index futures traded on Eurex was more than 1.6 million contracts in the first half, while the options had 1.2 million contracts, Singapore’s bourse and Eurex said in a joint statement on July 26. The contract will be the Singaporean exchange’s first non-Asian index futures product.

“There is a lot of potential for this contract,” Kan said.

Her company will explore the feasibility of offering U.S. stocks futures and options after the European stock-index product is introduced, Kan said.

Within Asia, the bourse plans to offer options linked to India’s S&P CNX Nifty Index, she said. Nifty futures contracts are the third most-actively traded on the Singaporean exchange this year, bourse data showed.

Growth Engine

Kan said the exchange is also planning to revive trading on Chinese stock futures, which have not been active on the exchange since 2008. The bourse introduced a contract in 2006 based on the FTSE/Xinhua China A-50 Index.

Restrictions in China create demand for offshore trading in Chinese stock futures, even after the country introduced a futures contract in April, Kan said.

“Asia is the next growth engine for the world economy,” Kan said. “These products allow us to benefit from the trading flows into the region.”

The new products are expected to help SGX attract more overseas investors such as so-called high-frequency traders, Kan said.

High-frequency traders, who rely on computers to execute large orders at speeds usually at less than a thousandth of a second, now account for 25 percent of Singapore’s derivatives trading, up from about 10 percent two years ago, she said.

(bloomberg.com)