Keynote Speech At 12th A-P FOW Derivatives And Securities World Exhibition - Mr Hsieh Fu Hua, SGX CEO, Delivers The Keynote Address At The 12th Asia-Pacific Exhibition Derivatives & Securities World, Singapore On 11 October 2005.

Distinguished guests,
Ladies and gentlemen
Good morning.

I am glad that FOW has brought the FOW Derivatives and Securities World exhibition to Singapore for the 12th consecutive year. This is my third year at this event and it is always a pleasure to see friends, partners and customers from around the world.

This time last year, I informed you about our imperative to migrate our floor traded products to screen. I am happy to say that we have seen the successful migration of our flagship products - the Nikkei 225 and MSCI Taiwan futures. Furthermore, we have since seen improved volumes and market share, with our Nikkei futures reaching record levels with 1.3 million contracts traded in the month of September 2005. Year-to-date volume has also grown 35% compared to a year ago.

Today, I would like to share with you some thoughts and observations on the theme of Asia. I will start by outlining the growth of Asia.


Growth of Asian Markets

Asia is one of the fastest growing derivatives markets in recent years. The compounded annual growth rate of volume traded on Asian derivatives exchanges (excluding Korea) since year 2000 is 30%. Global trading volumes (excluding Asia) grew 18% per annum for the same period.

This growth has not gone unnoticed by market participants and exchanges. New global market participants such as hedge funds, proprietary trading firms and trading arcades have made their Asian presence. In Singapore, we have seen proprietary trading firm Hun Research, trading arcades Refco Trading Services, Schneider and Saxon Financial set up shop here. These new additions, together with even more remotely connected participants, bring with them algorithmic trading which greatly boosts the liquidity and sophistication of our marketplace.

Exchanges have also made a beeline for the region. For example, CME, LIFFE, Euronext, NYMEX and IPE have gotten recognized market operator status in Singapore. CME has set up its Asian hub in Singapore and LiffeNet has announced plans to do the same.

As Asian markets grow, I believe we will see the emergence of a derivatives trading centre, just like the US has Chicago and Europe has Frankfurt. I would like to think that Singapore is a strong contender. As a critical mass of market participants and market operators converges in Singapore, the activity and infrastructure arising therewith will distinguish us from other locales. The conducive regulatory framework and strong market developmental thrust of our government and authorities help in no small way to building our marketplace.


Challenges & Characteristics of Asia

Getting a piece of Asia is no easy task. The disparate and multiplicity of Asia poses significant challenges. If we look at the largest Asian financial derivatives markets - Japan, Hong Kong, Korea and Singapore - trading in these 4 markets alone involve managing the significantly different market practices, jurisdictions, languages and currencies.

Furthermore, doing business in Asia requires careful and intimate understanding of the market and market players. I am into my third year in SGX and much of my time is spent building relationships with my foreign counterparts and foreign regulators. You may have read in the press about our alleged differences with the Taiwanese authorities in relation to the trading of our MSCI Taiwan futures. I am happy to say that the episode is behind us and we are working closely with the Taiwan exchanges in a joint study which seeks ways to improve our markets.

Another characteristic of Asia markets is the dominance of domestic participation in most markets. International participation is rising but still dwarfed by the domestic. The benefit of this for an international participant is the presence of liquidity pools and diversity of trading interests. SGX, unfortunately, has not seen in our market, the vibrant domestic participation witnessed in Korea and Taiwan. We are planning to introduce new domestic derivatives based on the Singapore index and individual stocks in the coming year. We are also exploring ways to put in place alternative distribution channels to grow this segment of our market.

For a more diverse and robust marketplace, it would be desirable to see greater foreign participation in Asia. The steady dismantling of regulations and policies limiting foreign participation in Asian markets are encouraging signs. Needless to say, foreign participation is strongly encouraged in Singapore and majority of the volume in our derivatives market is contributed by international participants, with international members comprising 80% of our clearing membership.


Effective & Efficient Access to Asia

How does one then get efficient and effective access to Asia? Currently, multi-market access is provided through intermediaries who painstakingly manage the multiple challenges of each market. These services are offered by brokers with substantially high costs including regulatory and licensing requirements; systems infrastructure for connectivity and access; service and dealing staff for market information and research.

The alternative is to trade multi-markets in an offshore exchange like SGX. With an established clearing capability and strong credit standing, SGX aims to be an Asian risk management centre. With our electronic trading capability in place, we have taken significant steps in ensuring that our regulatory infrastructure is responsive to the changing market environment. Last year, we rewrote the chapter of our derivatives rulebook governing electronic trading, incorporating direct market access and connectivity routes. Remote trading members are now an important part of our electronic market. Furthermore, we are continually moving towards market practices that are aligned with international best practices. For example, the final settlement price methodology of our domestic futures contract based on the MSCI Singapore index, or SIMSCI for short, was recently changed from an average price method to a special quotation method. This change was welcomed by market participants.

Our offering of Asian equity index and interest rate products allow market participants to benefit from cross-margining savings and trade efficiently in an offshore market complementing the onshore market. In addition to our Nikkei 225 and MSCI Taiwan products, we have just re-launched the CNX Nifty index futures and plan to launch a new China A-share index futures contract next year.

Expanding beyond exchange-traded financial products and into the rapidly growing commodities space, we will also be launching an over-the-counter clearing facility commencing with energy and freight products in early 2006. To date, 13 of our members have signed up to clear OTC products.

To exchanges that have sought alliances, we have found creative and effective ways of collaboration. The mutual offset agreement with CME has worked for 20 years and SGX hopes to seek other possible ways to continue our collaboration. The announced MOU with CBOT to explore the development of Asian-based commodities futures and options is another example. The products will be traded on e-CBOT and cleared by SGX. CBOT brings with them a global network of international market participants in commodities while SGX contributes its expertise in regulatory and clearing processes in Singapore. This collaboration with CBOT is timely with the strong demand for commodities. As an Asian risk management centre, it is also a strategically important business for SGX.


Conclusion

Looking ahead, we are optimistic that we are geared for further growth, as the economic outlook of Asia is expected to be positive and we have successfully renewed our critical trading infrastructure, as well as gained the support of market participants.

On this note, I wish you all a fruitful exchange of views and insights during this conference.

Thank you.