Speech By Mr Seck Wai Kwong, SGX Senior Executive Vice President & Chief Financial Officer At The 14th Derivatives World Singapore On 2 October 2007

Mr Ben Wilkie, Managing Editor, FOW,
Distinguished guests,
Ladies and gentlemen:

1. Good morning. I am glad that FOW has brought the Derivatives World exhibition to Singapore for the 14th consecutive year. It is a pleasure to see our partners and customers from around the world here. And to those of you who are visiting Singapore for the first time, a warm welcome!

2. The talk in the Asia Pacific financial markets over the last two weeks has been about the jump in the share prices of some of the stock exchanges here. This is presumably in response to market speculation that the wave of consolidation among Western exchanges is starting to hit the shores of this region.

3. SGX’s own share price rose a record 17 percent in a single day just last week. Today, it continues to trade at more than $13 – just slightly below our record high of $13.90.

4. I am sure many of you would be keen to hear me proffer a reason for the rise in our share price. However, and unfortunately, I don’t have any new information to share with you on this.

5. As with any other listed company, our goal remains to generate higher and higher levels of earnings in a sustainable manner, to create greater value for our shareholders. Therefore, I propose to touch on some of the structural changes SGX has carried out over the last few years, to enable us to realise this goal.

Switch to electronic platform generates gain in market share

6. Key to this was our decision in 2003 to switch derivatives trading from the floor to an electronic platform. Research has shown that when exchanges make this move, trading volumes receive a significant boost. SGX too has gained market share after the switch. Our average share of the global market for Nikkei 225 Index futures increased from 18 percent to 25 percent, while our share of the MSCI Taiwan Index futures grew from 47 percent to 54 percent. SGX estimates

Foreign stock listings spur trading volumes and turnover velocity

7. As part of our Asian Gateway strategy, SGX has been successful in attracting foreign companies to list on SGX. More than one-third of the nearly 750 companies 741 companies listed as at end-August 2007, of which 269 (about 36%) are foreign. listed on our exchange are of foreign origin, making us the most international exchange in the Asia Pacific.

8. More importantly, the size of these listings is growing bigger. In our last financial year, we had six listings that each exceeded $1 billion market capitalisation. In two years, the number of companies with market capitalisation above $1 billion has doubled to 120, accounting for 85 percent of total market capitalisation. Forty percent of these 120 companies are foreign.

9. These large listings attract foreign institutional investors, who increase trading volumes and contribute to higher turnover velocity on our exchange. Turnover velocity for our securities market averaged 74 percent in the second half of our last financial year, compared to 58 percent the year before.

10. While China firms have traditionally formed the lion’s share of our foreign listings, we are also seeing greater interest from other regions. In fact, among our foreign listings in our last financial year, the number of listings from outside China overtook those from China for the first time.

Structured warrants and beyond

11. We also embarked on a series of steps to move beyond the cash market. The first of these was in 2005 when we revitalised our structured warrants business, which familiarised investors with the concept of leverage.

12. Our structured warrants business has grown. More interestingly, over time we have been able to increase the number of structured warrants with underlying instruments, i.e. companies or indices that are not listed here. Consequently, foreign participation in our structured warrants market increased from 44 percent to 47 percent in our last financial year, demonstrating our ability to draw foreign liquidity. The trading value of structured warrants climbed 49 percent to reach $19 billion in the last financial year.

13. Going forward, we will introduce Single Stock Derivatives on our securities platform in early 2008. This will acquaint investors with the idea of margins on top of leverage and will set the stage for domestic options products to be traded on SGX in due course.

Adjacent product and customer areas present opportunities

14. At SGX, we also constantly look at what we call adjacencies – meaning we look at product and customer areas we are not serving which are adjacent to the ones we are serving, and explore how we can get into those spaces.

15. Our development of an over-the-counter, or OTC, clearing facility was in response to this. We saw a market need for OTC clearing in Asia for products such as oil swaps and Freight Forward Agreements, and launched SGX AsiaClear® last year. Today, it has gained good traction and is growing rapidly, with about 140 counterparties and more than US$2.9 billion in trades cleared to date.

New products expand our marketplace

16. Another example of adjacency is REITs or Real Estate Investment Trusts and, by extension, shipping and business trusts. We expanded the market in our last financial year with an additional six REITs and two shipping trusts. These include the largest China REIT, the first REIT in healthcare and two shipping business trusts from Singapore and Europe.

17. Today, we are the second-largest REIT market in Asia. Market capitalisation for REITs increased by 138 percent to $29 billion, moving us closer to the leader, Japan with $43 billion.

Structural transformation leads to sustainable growth

18. These structural changes have resulted in higher and higher peaks, higher and higher troughs in trading volumes. We are also seeing higher and higher sustainable levels of earnings, which enable us to pay higher base dividends.

19. SGX will continue to structurally transform our business to position the exchange for future growth. By early next year, we will reduce the minimum bid schedule to lower the cost of trading. We are rolling out a new data engine by end of this year, as well as a new trading engine by July next year. This will enable us to meet the needs of new market participants, including algorithmic traders. We expect this to generate higher volumes and earnings.

20. You can see that we are very passionate about what we have done and will continue to do. Our goal is to bring forth new structural transformations in our business, so that SGX can reinforce its position as the Asian Gateway, benefiting our customers, partners and shareholders.

21. I thank you for listening to me so patiently and I also thank the organisers for hosting this event. I wish you all a fruitful conference. Thank you.