Best FX clearing house – Singapore Exchange

SGX’s fully integrated clearing operation scoops Best FX clearing house award

The Singapore Exchange (SGX) is Asia’s first financial and commodity derivatives market in which clearing, settlements and trading operations are fully integrated into the value chain. These seamless capabilities, together with ongoing innovation in each of them, has enabled SGX to continue to expand its foreign exchange franchise by bridging the over-the-counter (OTC) and listed markets. 

“Central to this is the FlexC FX Futures product – the first of its kind – which brings the flexibility of OTC FX with the capital efficiencies and surety of centrally cleared futures,” says KC Lam, head of FX and rates at SGX in Singapore. “In today’s complex trading environment, market participants encounter multiple capital requirements, such as uncleared margin rules [UMR], and global regulatory changes have led to increased centralised clearing of OTC derivatives and market participants seeking greater capital efficiencies.”

UMR generally apply to all financial firms and systemically important non-financial entities. In this context, FlexC FX Futures was SGX’s first solution to help clients manage UMR, and is an example of its innovative approach to include the reliability of its market-leading central counterparty position to the existing bilateral credit relationships of market participants. More specifically, FlexC FX Futures enables participants to execute futures with a customised maturity of up to 100 calendar days in nine currency pairs, which better caters to the needs of those needing precise tenors. SGX FlexC FX Futures also offers a one-day margin period of risk, compared with five days for cleared derivatives, and 10 days for uncleared derivatives.

The flexibility of the FlexC FX Futures product was enhanced with the 2020 completion of its acquisition of leading cloud-based FX trading platform for institutional investors, BidFX, followed by the more recent announcement of its acquisition of MaxxTrader. The integration of BidFX has allowed SGX to extend its reach beyond FX futures and into the global FX OTC market as part of its multi-asset strategy to build FX into another core pillar of growth. The facility to trade Asian FX futures alongside the OTC products offered on BidFX’s platform has also enabled SGX to bring together the two pools of reinforcing liquidity in the FX futures and OTC markets. 

“The synergies between SGX and BidFX have resulted in the ability to support international FX participants all the way through the trading process – from pre-trade data and analytics, through trade execution and, ultimately, to post-trade clearing,” says Lam. 

In this context, from its establishment in 2017, BidFX increased its average daily trading volumes, at a compounded annual growth rate of 57%, to reach USD31 billion in May 2020. It continues to attract new clients, with more than 100 of the world’s largest banks, hedge funds and asset managers currently connected to its platform. The announcement of the acquisition of MaxxTrader around a year later has paved the way for SGX to build an integrated and scalable FX platform that is set to become Asia’s largest one-stop venue for international FX OTC and futures participants, with an truly integrated trading, clearing and settlement process. 

Vital in SGX’s clearing house model is its location in Singapore. “We are well placed geographically, with Singapore being the largest traded FX market in Asia, and with strong rules and regulations that govern the financial markets here, equivalent to those jurisdictions in the US and the Europe/UK,” says Lam. “In addition to these market-specific rules and regulations, Singapore is regarded as a very stable market with high legal and regulatory standards that give investors complete confidence, and provide SGX with a clear competitive advantage over many exchanges.” 

Within this legal and regulatory framework, SGX provides clients with a fair, orderly, transparent and safe market environment and infrastructure, as evidenced throughout the uncertain and volatile period at the height of the Covid-19 pandemic in 2020 and since. In the first three months of 2021, SGX recorded the highest single-day volume in INR futures, with 160,359 contracts on February 26, as well as the highest monthly overall volume in March, with 1.64 million contracts. This underlines SGX’s guiding view that its market and products need to be always accessible for day-to-day price formation, risk and wealth management, including in times of crisis. 

SGX also recorded the highest single-day open interest record of USD3.7 billion for INR futures on June 24, and USD10.7 billion for CNH futures on June 10. “Singapore is a trusted, neutral and internationally recognised jurisdiction for global players, and our market infrastructure is regarded by global regulators and industry players as a flight-to-quality venue during market stress,” says Lam. “We have seen market volatility during the US presidential election period and also the market crash fuelled by Covid-19 in March 2020, but we have always stood by the belief that market stress is temporary, but resilience and trust in an orderly and high-quality market will stand the test of time,” he concludes. 

These factors were highlighted by the judges of the Best FX clearing house award: “SGX offers derivatives products that allow market participants to hedge investments against volatility across multiple client front-end systems, and the ease of this access is a clear differentiator for them.” They added: “Having innovative products like FlexC Futures give clients the option to move from traditionally OTC FX trading to listed FX products to reduce stress on their financial books.” 

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