By Saeed Azhar and Kevin Lim
SINGAPORE (Reuters) - Singapore Exchange (SGX) (SGXL.SI: Quote, Profile, Research, Stock Buzz), Asia's second-biggest listed bourse operator, said on Monday its derivatives business could continue to grow at an annual pace of over 20 percent as investors seek to profit from volatile markets.
SGX also said that it was better placed than Hong Kong or Tokyo to become the main centre for Asian derivatives as it had a two-decade headstart in offering regional products.
"We expect more than 20 percent growth," Chief Executive Hsieh Fu Hua told the Reuters Global Exchanges and Trading Summit 2008, adding the figure was in line with global trends and not an official forecast.
"Derivatives lend themselves to more globalize trading than the cash market... The growth rate will be higher." he said.
Futures contracts, options and warrants are the most common types of derivatives -- contracts whose value is derived from an underlying asset such as stocks or bonds. Investors use them to bet on price trends or to hedge risks in volatile markets.
SGX last month posted its smallest profit in four quarters as stock trading volumes slowed amid global financial market turmoil. But derivatives revenue grew by 36 percent from a year ago, with trading in exchange-traded funds soaring in the January-March quarter, as investors looked for ways to profit from the heightened price volatility.
Derivatives, which also include structured warrants, currently account for almost of quarter of SGX's revenue.
Hsieh said the exchange plans to launch a new futures contract for 50 Asian stocks excluding Japan, as well as a "substantial number" of single-stock derivatives on Singapore-listed firms in 2008.
These new products will complement existing derivatives listed on the SGX such as futures on Japanese, Taiwanese, Singaporean and Indian stocks.
SGX was in a better position to attract "eyeballs" for its new regional contracts, increasing the chances of a successful launch, as it had been in the business since 1984 through the former Singapore International Monetary Exchange, he added.
"SGX is the only exchange in the Asia-Pacific region that trades more derivative contracts related to foreign indices than domestic," said Nomura Securities analyst Anand Pathmakanthan in a note to clients.
Singapore also had been successful in exploiting inefficiencies in other Asian bourses, the Malaysian-based analyst added. For example, SGX has a 25 percent global share of Japan's benchmark Nikkei 225 .N225 index contracts, higher than Osaka, because of Singapore's more favorable tax regime.
M&A BLUES
Financial exchanges around the world are eyeing takeovers or strategic tie-ups as increasingly sophisticated electronic trading systems allow investors to tap into global markets, putting more competitive pressure on exchange operators.
SGX took a 5 percent stake in the Bombay Stock Exchange (BSE) in March last year, but said a lack of clear rules would restrict further mergers and acquisitions among Asian exchanges. Continued...
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