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Please click here to view the MASNET announcement.
Review of the Performance of the Company and its Subsidiaries
SGX group's business comprised mainly operating a Securities Market and Derivatives Market. We present herewith the unaudited financial information for the quarters ended 30 September 2002 and 30 September 2001.
First Quarter Results - 3 Months ended 30 September 2002 vs 3 Months ended 30 September 2001
Net Profit / Operating Profit
The group recorded $18.6 million net profit after tax and minority interests, and $17.4 million operating profit for the current quarter ended 30 September 2002. This compared to $14.5 million net profit after tax and minority interests, and $11.9 million operating profit for the previous corresponding quarter ended 30 September 2001.
Operating Revenue
The group generated operating revenue of $58.0 million for the current quarter, compared to $48.9 million for the previous corresponding quarter. The 18.7% increase was attributable to the increase in revenue from both Securities and Derivative Markets.
Although securities trading value dropped 12.8% to $27.1 billion in the current quarter, from $31.0 billion for the previous corresponding quarter, the trading volume increased by 16.6% to 25.9 billion shares in the current quarter from 22.2 billion shares for the previous corresponding quarter. Securities clearing fees increased by 31.4% to $18.8 million from $14.3 million, mainly due to increase in non-capped transaction volume and the impact of securities market fee revision since December 2001.
Derivatives trading volume increased by 23.8% to 9.9 million contracts in the current quarter from 8.0 million contracts for the previous corresponding quarter, largely on higher Eurodollar trading volume. This resulted in a 23.5% increase in derivatives clearing fees and related income to $11.7 million from $9.5 million.
Access and terminal fees increased by 11.7% to $8.3 million in the current quarter from $7.4 million for the previous corresponding quarter, mainly due to increase in SGXAccess fee income and the monthly SESOPS fee increase from $400 to $480 per terminal from 1 October 2001 onward.
Account maintenance and processing fees increased by 7.7% to $8.7 million in the current quarter from $8.1 million in the previous corresponding quarter, mainly reflecting the securities processing income of Asia Converge Pte Ltd in the current period. Asia Converge Pte Ltd commenced operations in November 2001.
Sales of software and other computer services increased by 60.9% to $1.7 million in the current quarter from $1.1 million in the previous corresponding quarter, mainly reflecting the support and maintenance fee income of Asia Converge Pte Ltd in the current quarter.
Operating Costs
Total operating costs increased by 9.6% to $40.6 million in the current quarter from $37.0 million for the previous corresponding quarter.
The current quarter included $1.4 million expenses of Asia Converge Pte Ltd. This amount represented 38.6% of the total increase in the group operating cost between the two quarters.
Total staff costs for the current quarter included $1.4 million of staff costs related to Asia Converge Pte Ltd. Excluding this impact, the Group's staff costs increased by 12.2% between the two quarters, mainly due to increase in variable bonus provision. Total headcount for the Group, excluding Asia Converge Pte Ltd, stood at 757 as at 30 September 2002 compared to 806 as at 30 September 2001.
Depreciation charges increased by 34.3% mainly due to SGX Centre's premises depreciation which started in November 2001.
Performance of the Securities Market
For the current quarter ended 30 September 2002, the Securities Market generated $37.4 million of operating revenue and $22.8 million of segment profit. This compared to $31.9 million of operating revenue and $17.5 million of segment profit for the previous corresponding quarter.
Despite the adverse impact of the weak global economy on global securities markets, including ours, the number of new listings increased to 12 in the current quarter from 4 in the previous corresponding quarter.
As a result of consolidations and mergers of local brokers, the number of Securities Market members dropped to 26 as at 30 September 2002 from 33 as at 30 September 2001.
Performance of the Derivatives Market
For the current quarter ended 30 September 2002, the Derivatives Market generated $16.6 million of operating revenue and $6.3 million of segment profit. This compared to $14.3 million of operating revenue and $3.8 million of segment profit for the previous corresponding quarter.
The volume growth in the current quarter was mainly attributable to the active trading in Eurodollar contracts. The volume in the current quarter increased 35.9% to 6.4 million contracts from 4.7 million contracts for the previous corresponding quarter, and represented 65.1% of our total derivatives volume for the current quarter. Euroyen trading volume, in contrast, fell by 33.4% to 0.4 million contracts, on lower yen interest rate volatility.
MSCI Taiwan Index Futures contract trading volume grew by 23.4% to 1.2 million contracts in the current quarter compared to 1.0 million contracts for the previous corresponding quarter. MSCI Singapore Index Futures also performed well, as volumes surged by 73.3% to 184,726 contracts in the current quarter compared to 106,564 contracts for the previous corresponding quarter.
On the Singapore Dollar-denominated product front, the Singapore Government Bond Futures trading volume dropped by 66.5% to 15,726 contracts in current quarter from 46,878 contracts for previous corresponding quarter. In contrast, the Singapore Dollar Interest Rate Futures contract recorded a trading volume of 37,494 contracts during the current quarter, an increase of 11.5% over the previous corresponding quarter.
Trading volume on our electronic market (ETS) increased by 30.5% to 0.5 million contracts in the current quarter from 0.4 million contracts for the previous corresponding quarter. This was mainly attributable to business development and marketing efforts on equity index products.
Investment Performance
The investment portfolio managed by independent fund managers appreciated by $5.3 million in the current quarter, compared to appreciation of $5.6 million for the previous corresponding quarter.
Interest from bank deposits amounted to $0.7 million for the current quarter, $0.9 million lower than the previous corresponding quarter, mainly on declining interest rates.
Balance Sheet
The Group remained debt-free and its major assets as at 30 September 2002 included $323.0 million placed with independent fund managers, $263.2 million of cash and cash equivalents, and the SGX Centre premises at net book value of $211.9 million. Shareholders' equity for the Group amounted to $855.2 million as at 30 September 2002, up by $18.6 million from $836.6 million as at 30 June 2002.
Cash Flow
The Group had net cash inflow of $10.1 million for the current quarter, compared to $7.2 million net cash inflow for the previous corresponding quarter.
Contingent Liabilities
As at 30 September 2002, the Group had unsecured contingent liabilities to banks for US$73 million of standby letters of credit issued to Chicago Mercantile Exchange. These standby letters of credit provided guarantees as margin for the open positions of our clearing members, and were in turn supported by the margin funds placed with us by the latter. The Group also had A$4.8 million unsecured guarantee to ASX International Services Pty Ltd in respect of obligations of SGXLink Pte Ltd.
Net Profit / Operating Profit
The group recorded $18.6 million net profit after tax and minority interests, and $17.4 million operating profit for the first quarter ended 30 September 2002. This compared to $21.7 million net profit after tax and minority interests, and $13.2 million operating profit for the fourth quarter ended 30 June 2002.
Operating Revenue
The group generated operating revenue of $58.0 million for 1Q FY2003, compared to $60.0 million for the 4Q FY2002. The 3.3% decrease was mainly attributable to the decrease in income from the Securities Market.
Securities trading value decreased 6.5% to $27.1 billion in 1Q FY2003 from $28.9 billion in 4Q FY2002. As a result, securities clearing fee decreased 3.3% to $18.8 million from $19.4 million, while account maintenance and processing fees decreased 11.8% to $8.7 million from $9.9 million, between the two quarters. However, IPO listings increased to 12 in 1Q FY2003 from 4 in 4Q FY2002.
Derivatives clearing fees and related income, net of rebates, increased by 14.6% to $11.7 million in 1Q FY2003 from $10.2 million for 4Q FY2002, mainly due to 18.9% increase in the trading volume to 9.9 million contracts in 1Q FY2003 from 8.3 million contracts in 4Q FY2002.
Operating Costs
Total operating costs decreased by 13.3% to $40.6 million from $46.8 million between the two quarters. The 21.0% decrease in staff costs was mainly due to the first time accrual in 4Q FY2002 for staff's unutilized leave balance in accordance with SAS 17, the new accounting standard on employee benefits, and an adjustment to the last quarter's provision for staff bonus for the financial year ended 30 June 2002.
Tax
The lower effective tax rate for 4Q FY2002 was mainly due to the adjustment for FY2002 full year tax provision to 22% from 24.5%.
Segment Performance
For 1Q FY2003, the Securities Market generated $37.4 million of operating revenue and $22.8 million of segment profit, compared to $40.9 million of operating revenue and $20.6 million of segment profit for 4Q FY2002.
The Derivatives Market generated $16.6 million of operating revenue and $6.3 million of segment profit for 1Q FY2003, compared to $15.1 million of operating revenue and $1.5 million of segment profit for 4Q FY2002.
Investment Performance
The investments placed with fund managers appreciated by $5.3 million in 1Q FY2003, compared to $9.5 million appreciation for 4Q FY2002.
Interest from bank deposits remained fairly constant at $0.7 million for both quarters.
Forecast Statement
Not Applicable.
Unusual Items After the Financial Period
In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen from 30 September 2002 to the date of this report which would affect substantially the results of the operations of the Company and the Group for the financial period in which this report is made.
Current Year Prospects And Initiatives
Our operating revenue is primarily dependent on the level of activities on our exchange, including the volume and value of the securities and derivatives contracts traded. Other factors such as the number of and market capitalization of listed entities and the number of new listings also affect our revenue.
Global equity market conditions have remained uncertain since our full year result announcement for FY2002. However, we are not aware of any business factors, other than those disclosed in this announcement, that will have a substantially adverse impact on the Group's business performance.
We highlight below our business initiatives and their expected time frame on calendar year basis.
Securities Market Initiatives
In our efforts to continuously grow the securities market and make it an international market place with world-class infrastructure, we have been undertaking various initiatives to expand the market, improve the infrastructure and increase product varieties to attract greater institutional and retail interest to our market.
Following are highlights of major projects and initiatives:
(i)Rules & Regulations(a) Membership Structure
We plan to broaden our membership base by attracting new international members by marketing our membership to securities houses on both regional and global bases. In addition, we are streamlining the membership class structure. We will be introducing a new membership structure that allows new and existing members to choose between trading-only membership or clearing-only membership or trading and clearing membership. We expect to launch the new membership structure in the fourth quarter of 2002.(b) Listing Manual
Further to the launch of the new listing manual on 1 July 2002, we conducted another public consultation process on further amendments relating to the recommendations by the Disclosure and Accounting Standards Committee and other issues. We have received comments from ten respondents, and expect to finalize the proposed amendments by the end of 2002.In addition, following a number of meetings with listed companies and having identified the need, we will be releasing a Practice Note on continuous disclosure requirement in the fourth quarter of 2002.
c) SGX-ST Rules
We are reviewing the SGX-ST Rules in consultation with member companies and others, and expect to release the Consultation Draft of the new rules for public comment in the fourth quarter of 2002.(d) CDP Clearing Rules
We are revising the CDP clearing rules to incorporate the Risk Based Capital requirements that were enacted on 1 October 2002.(e) Corporate Announcement System
To facilitate reporting by listed companies, we are planning to replace the existing MASNET system with a web-based corporate announcement system which will enable global usage and allow for customized corporate data subscription. We expect to launch the new system by the end of 2003.(ii)Trading Access and Settlement Facilities
(a) SGXAccess
On 29 March 2001, we launched SGXAccess, an open interface for securities trading which provides for wider and more direct distribution of products. SGXAccess uses a widely accepted international protocol, Financial Information Exchange (FIX 4.2).In April 2002, SGX was named Computerworld Honors Laureate for the development of SGXAccess. The award recognizes organizations and institutions that are leading the global information technology revolution.
Nine members have adopted SGXAccess while another three members have committed to adopt SGXAccess by the fourth quarter of 2002. We will continue to market SGXAccess to other member companies, on-line brokers and potential overseas brokers and traders. We expect SGXAccess transaction volume to grow as more companies seek to take advantage of the increased flexibility and versatility accorded by SGXAccess.
(b) Real-time Market Data Feed
On 1 July 2002, we launched the SGX SecuritiesBook, a new real-time multi-level data feed dissemination system. This system allows investors to access full order book information on the SGX securities market, on a subscription basis. The greater transparency and the enhanced price discovery offered by the system will enable investors to make better-informed decisions.Three members and three information service vendors have subscribed to SGX SecuritiesBook. Going forward, we will also offer SGX SecuritiesBook to listed companies and conduct direct marketing to institutional end users to improve awareness of this facility. In addition, we will make the facility available via internet.
(c) Broker Front Office Trading System
To facilitate members' migration to SGXAccess, we are evaluating the feasibility of providing a broker front office trading system to the broking community. We have presented the proposed vendor details and system model to the local trading members and are now gathering feedback from them.(iii) Product Initiatives
(a) Exchange Traded Funds (ETFs)
ETFs are indexed funds or baskets of stocks that trade in the same way as individual stocks. Further to the 5 ETFs launched in May 2001, Singapore's first local ETF, the streetTRACKS SM Straits Times Index Fund, was listed on SGX on 17 April 2002. This product was jointly developed by SGX and State Street Global Advisors.(b) Securities Borrowing and Lending
The SGX Securities Lending programme was launched on 7 January 2002 and to date we have built a lending pool with about 1,200 participants registered to lend about 480 million shares of 185 eligible securities valued about $600 million in total.We continue to enhance the facility to increase borrowing activities. Effective 8 April 2002, borrowers are able to request for successive rollovers of the loan term of T+3 market days. From 15 April 2002 onward, live information on the securities lending pool is accessible via SGX website. This information allows market participants to make more timely decisions to cover potential fail trades and to execute additional trading strategies.
We are developing the next phase of the lending programme, which will provide borrowers with the flexibility of requesting for specific loan periods and negotiating the borrowing rates.
The Securities Lending programme provides investors with additional income opportunities, improves investment and hedging opportunities for market participants and helps pave the way for the development of an active equity options market.
(c) Unit Share Market
Subject to regulatory approval, we are considering the implementation of a Unit Share Market to replace the existing Odd Lot Market with a view to improving efficiency in the trading of odd lots, thereby increasing liquidity of the underlying shares. This in turn will make the market more attractive to a wider spectrum of investors, especially those who desire to trade in smaller parcels of shares and those with odd lot holdings arising from corporate actions. Evaluation of public feedback is now underway.(iv)Cross Border Linkage/Strategic Alliance
(a) Cross Border Linkage Infrastructure
The ASX-SGX co-trading linkage, the first such facility in the world, was officially launched on 20 December 2001. This electronic linkage allows brokers at each exchange to transmit orders through their existing trading terminals directly into the electronic trading system of the other exchange for execution. Information necessary for clearing and settlement is also provided.This facility is intended to increase the liquidity of the securities covered. The linkage may also serve as a model for regional co-operation to enhance our market reach, liquidity and product range to meet the needs of investors. Through 30 September 2002, about $187 million in securities trading value has gone through the link.
(b) Strategic Alliance With Tokyo Stock Exchange
(v) Listing Marketing
On 1 October 2001, SGX and Tokyo Stock Exchange (TSE) signed a Heads of Agreement (HOA) to pursue a strategic alliance. Under the agreement, both Exchanges continue to engage each other in the discussion of issues relating to products listed on SGX and TSE as well as new product development.During the current quarter, we have made marketing trips to Malaysia, Indonesia, Thailand, India and China to promote SGX as the preferred listing venue. The response, particularly from China, has been encouraging.
Apart from continuing to reach out to potential foreign listings through marketing efforts in these countries, Taiwan and other South East Asian countries, we plan to organise a 2-day "China Play" event to showcase China-related companies that are listed on SGX-ST to both institutional and retail participants during the fourth quarter of 2002, and organise a series of events to commemorate SESDAQ 15 th Anniversary in November 2002.
Derivatives Market Initiatives
In our parallel efforts to continuously grow the derivatives market, we have been expanding trading access and improving the facilities for transaction execution. In addition, new products have been scheduled for launch to provide additional market liquidity and to increase trading and hedging opportunities.
Following are highlights of major projects:
(i) Trading Access and Facilities(a) Global Electronic Trading Centre (GETC)
The Global Electronic Trading Centre (GETC) was opened on 28 October 2002. GETC's state-of-the-art trading infrastructure and facility cater to the demands of traders for direct access to both SGX derivatives and securities markets and other approved overseas markets to trade in various financial instruments, all from one location and with one electronic access.The comprehensive range of trading related services now available at the GETC is designed to provide traders with enhanced trading capability.
The previous ETS Trading Rooms at the OUB Centre and SICOM were closed on 28 October 2002.
(ii) Product Initiatives
(a) Single Stock Futures
Since its launch based on 15 selected stocks listed on SGX-ST on 26 October 2001, six additional Single Stock Futures (SSFs) were listed on 15 August 2002 in line with the growing interest and market participants' request for more SSFs for trading and risk management activities. All these SSFs can be traded electronically through ETS and SESOPS terminals.As of end September 2002, over 19,000 SSF contracts have been traded.
(b) Euroyen Options on Mutual Offset System with CME
We are working on introducing Euroyen options on SGX's Mutual Offset System (MOS) with the Chicago Mercantile Exchange (CME) in the coming month. This new addition will meet market demands for greater cost efficiency by using the instrument for round-the-clock trading and hedging.(c) Middle Eastern Crude Oil Index
On 3 April 2002, SGX and the Tokyo Commodity Exchange (TOCOM) signed an agreement to cooperate on the launch of the Middle Eastern Crude Oil (MECO) Index Futures Contract on SGX. Under this agreement, both exchanges will also explore the possibility of further cooperation in other products, and in the joint development of new risk management tools to meet the needs of investors and traders in the region. SGX and TOCOM have also signed a tripartite licensing agreement on 23 September 2002 with Platts to use Platts' Middle East benchmarks for the purposes of settling both SGX's and TOCOM's MECO Index Futures Contract.The MECO Index Futures Contract started trading on 12 November 2002 via ETS.
(d) DRAM Futures
On 16 September 2002, SGX announced the plan to offer the world's first futures contract based on Dynamic Random Access Memory (DRAM) chips by the first quarter of 2003. DRAM chips are semiconductor chips used in a growing array of electronic products and the prices of DRAM chips have been subject to high volatility due to extreme fluctuations in demand and supply. SGX embarked on the development of a DRAM futures contract after feedback from chip manufacturers, users and other players in the electronic industry regarding their need to manage risks and costs effectively. At the same time, the futures contract will present unique opportunities for trading and arbitraging by players in the financial and futures industries.This initiative is supported by the Infocomm Development Authority of Singapore and the International Enterprise Singapore and subject to regulatory approval, the DRAM Futures contract will be traded on the ETS.
(iii) Cross Border Linkage/Strategic Alliance
(a) Synergistic Alliance
We are in discussion with a number of exchanges about the possibility of establishing trading and clearing co-operation, with an aim to expand the trading product range and allow market participants to manage their positions and risks around the clock with minimal costs.
Securities Processing & Settlement Outsourcing Services Initiative
Asia Converge Pte Ltd
On 27 March 2001, SGX-ITS signed an agreement to form a joint venture company, Asia
Converge Pte Ltd (AC), with DBS Vickers Securities (Singapore) Pte Ltd and OCBC
Securities Pte Ltd to provide securities processing and settlement outsourcing services.
AC has been conducting extensive marketing to acquire new customers. A series of cost cutting measures have also been introduced to increase competitiveness.
AC is currently performing a critical review of the business.
Technology and System Initiative
Consolidation of Trading and Clearing System
We have issued Request for Information documents to external vendors to examine the
feasibility of consolidating our technology operating systems and we have received
numerous proposals from the vendors. We are currently conducting a structured assessment
of the proposals.
This move is part of our broader strategic study currently being undertaken to review our technology plan, in support of our strategic vision of creating a fully integrated trading, clearing and settlement facility for both equities and derivatives products.
