* Net profit S$75m vs forecast of S$75.2m
* Revenue from derivatives up 16 pct
* Securities revenue down 13 pct
By Anshuman Daga and Manolo Serapio Jr
SINGAPORE, Jan 22 Singapore Exchange Ltd
reported its weakest quarterly profit in more than a
year on Wednesday after a penny stock scandal hammered stock
trading volumes, with revenue from its derivatives business
outstripping securities for the first time.
Since taking over as CEO four years ago, Magnus Bocker has
spearheaded the launch of new financial and commodity
derivatives to make Singapore a regional gateway in Asia.
But the demise of its SGX mini metals contracts, and lower
volumes for its iron ore swaps since China launched a competing
product, could be a warning sign for its big bet on derivatives
as major international exchanges muscle into its home turf.
Revenue from share trading and other listed-securities was
13 percent lower than a year ago, while derivatives jumped 16
percent, underlining the bourse's increasingly diverse business
"On the securities side we had a very tough and challenging
quarter," said Bocker during a briefing on the earnings.
SGX reported net profit of S$75 million in its
second-quarter ending Dec. 30, down 2 percent from a year ago.
That came just below the S$75.2 million average forecast of
eight analysts surveyed by Reuters.
To diversify from cash equities, SGX has been putting an
increasing focus on commodities and contracts that track Asian
stock indices including the Nikkei 225 and China's FTSE A50.
"China A50 is the growth engine in equities and iron ore in
commodities," Bocker said.
Iron ore accounted for 90 percent of all commodities
derivatives cleared by the exchange in 2013. The success of the
contracts - volumes more than doubled last year - helped propel
its total derivatives segment to 32 percent of the firm's total
revenue in its second quarter, from 28 percent a year ago.
It shows the potential of a steel contract SGX plans to
But it also highlights the dangers. From a high of 23.3
million tonnes in July, volumes fell to around 18 million tonnes
a month in October to December after the Dalian Commodity
Exchange launched a China-based iron ore futures contact.
"I think it will be very difficult for any other exchange to
get into iron ore derivatives clearing because SGX is well
established in the Asia region," said Jamie Pearce, head of SSY
Futures in Singapore.
Pearce said a similar success for a planned hot-rolled coil
steel contact will hinge on Chinese participation.
"The reason iron ore swaps is a success is because there is
good participation from the Chinese. The HRC's success relies on
whether it gets participation from the Chinese, otherwise it
will likely remain a marginal market."
There are already liquid steel futures on the Shanghai
Futures Exchange. While these and iron ore are not easily
accessible to those outside the country, creating an opportunity
for a player like SGX, China is looking to open up its markets.
SGX is trying to carve out a niche for itself in commodities
that do not put it in direct competition with established
contracts, but that could become increasingly difficult as other
exchanges look to a region that is providing the bulk of growth
in physical commodities trade.
Atlanta-based Intercontinental Exchange Group, which
runs the Brent oil futures benchmark, is buying the Singapore
Mercantile Exchange, while top U.S. futures market operator CME
Group is looking at its upcoming European exchange as a
proxy for an Asian exchange.
The Hong Kong and Exchanges Clearing Ltd bought
the London Metal Exchange in 2012 to expand beyond equities, and
scored its first victory when SGX last week canned a competing
LME mini metals contract that had failed to attract much volume.
A unit of Deutsche Boerse said last week it
bought a 52 percent stake in Cleartrade Exchange, the
Singapore-based commodity derivatives bourse.
SLOWING SHARE TRADING
A penny stock scandal in Singapore that saw three stocks
crash spectacularly, after huge run-ups had turned them briefly
into billion-dollar firms, has knocked securities daily average
value to its lowest in five years in the three months to
To reduce volatility, SGX said it will bring in circuit
breakers for its securities market from Feb. 24.
The bourse is struggling to boost trading volume and attract
high-profile listings, while Hong Kong is poised to win a slew
of big-money IPOs this year.
SGX has also been hampered by a lack of depth in equity
markets across Southeast Asia, with large companies not keen to
list beyond their home markets.