SGX’s derivatives boom under threat as Chinese futures dominate

Trading volume surged 165%.

The Singapore Exchange posted a 16% jump in net profit for the third quarter, driven by robust growth in its derivatives business. However, the local bourse’s new cash cow may be under threat from the domination of FTSE China A50 Index Futures.

According to Colin Cieszynski of CMC Markets, it’s no surprise that the derivatives business drove the strong numbers, with the lion’s share coming from the explosive 165% y-o-y increase in trading volume on the FTSE China A50 Index futures.

He noted that quarterly trading volumes on the FTSE China A50 contract are now more than 40% of total derivatives volumes for SGX.

Operating profit margins were a bit of a letdown, as expenses grew faster than the top line, with an increase in salaries and investment in technology.

“A key worry for the SGX and their derivative business may be the ‘concentration’ on the China A50 future contract. There is already talk that competing derivative products on the China A50 - or on similar tracker funds and futures contracts with exposure to Chinese equities - may be launched in HK and various other futures exchanges. This, together with the need to address a stagnant domestic securities market, will be an issue that the next CEO will have to deal with,” he warned.