Loh Boon Chye took the reins as CEO of Singapore Exchanges (SGX) in July. A former SGX board member and Bank of America Merrill Lynch’s deputy president and head of global markets in Asia Pacific, he said there is much opportunity for the exchange to grow, and perhaps even benefit from the competition that has moved in around him from ICE and others. Boon Chye spoke at SGX’s headquarters with JLN Editor-in-Chief Jim Kharouf about his management style, the game plan for the exchange going forward and just where SGX fits in the global market landscape.
Q: You took the CEO position in July at SGX. How did you go about setting your priorities as a CEO and for SGX?
A: My philosophy is, you have to listen first, then you have to engage, observe, take feedback. I know some CEOs like to come out with a grand plan after 90 days, but frankly with any new CEO in any organization, how much can you know in 90 days? No doubt I had the benefit of being on the board, but that is different than being in management. So I took the time to listen, engage and interact, not just internally but externally with stakeholders.
In October, at our (quarterly) results, I outlined three priorities: improve liquidity of our securities market, expand our business mix in fixed income and currencies and grow market data in our index business. And with that, we announced a slight reorganization in line with those priorities. I think the sharper focus will make a difference. The team has always looked at growing into a multi-asset exchange. We have to have our own value proposition and that’s what we’ve been doing to sharpen that focus.
Q: For those in our industry who don’t know you, how would you describe your management style?
A: At the risk of oversimplification, I believe in accountability. It’s not just what I expect from my team and my colleagues but what my team and my colleagues should expect of me. That means engagement, interaction, hearing people out and then hopefully reaching a consensus even though you have to decide.
Q: That’s a balance that has to be set – between an entrepreneurial spirit and being accountable.
A: Top down tends to dampen entrepreneurial spirit and innovation. And bottom up can sometimes be chaotic. But accountability both ways is my way of trying to bring that together.
Q: I’d like to focus on SGX’s derivatives business first. SGX has been successful introducing regional indexes and attracting volume. What does the landscape look like for your index futures products, and where do you see opportunity?
A: As of today, while the A50, Nikkei, Nifty 50 and Taiwan cover almost 80 percent of Asia’s GDP, there is a gap around Korea. We have completed our build-out of the ASEAN 5 index futures this year. So I think the equity index space is broadly covered.
But in terms of currencies we want to extend more liquidity to the Indian Rupee/CNH. And we’re looking to build more around the iron ore space, and an LNG benchmark. And at some point, based on how our fixed income platform is doing, [launched on December 9], we may propose a fixed income index. That’s the different product horizontal.
The downward country vertical, we try to think along the whole risk management, investment product chain. China is one where you can do it by ETP [exchange trading product], by our CNH currency pair, index and you can look at freight. And it’s not quite complete. With India, we only have the Nifty, iron ore and currency but we may think about sector indices, perhaps options and futures on certain stocks.
The multi-asset exchange is an important one because Singapore has been ranked for the past nine years as the best place to do business globally. We have to be part of that in the ecosystem. So the positioning of the exchange, as an international and multi-asset class exchange makes a lot of sense.
Q: You have ICE and Eurex nearing launch in Singapore, and CME is there as well – what does the competitive environment look like to you in the futures space?
A: The initial perception or reaction may be one of increased competition. But you can find competition everywhere. For ICE and Eurex and others to be here, they clearly see a value proposition and demand for their products And they could be bringing in clients that we do not see today. That could be beneficial to us as well.
Look at the Nikkei 225. That was started by us in 1986, so we had 100 percent of the market share. Today, we don’t have that because of the migration back to the home exchange. But our volumes are much larger than they were.
And with access through our data centers in Hong Kong, Tokyo, Australia, London and now with CME in Chicago, that allows more effective and efficient access to the markets and narrows gaps in prices.
I think exchanges have evolved in their willingness to partner up, sharing their technology, even trying to cross list products – that makes a lot of sense.
Q: SGX is also about to implement a new trading platform from Nasdaq. Can you tell us about it and what it will bring to your customers?
A: The last 18 months, we’ve embarked on four projects. One just went live, our bond trading platform. Second, we’re freshening up our trading system, which will come on line sometime next year. And then we’re upgrading our cash depository system. And we’re rolling out our OTC registration system that will allow a smoother and more effective flow for OTC derivatives, particularly commodities.
Q: On the equities side of the business, I’ve read your top priority is to renew confidence in the market, after some technical problems and the penny stock crash in three equities. How are you going about doing that?
A: Improving liquidity is a priority for us. We recognize the lack of big IPOs and we’re working on it. So what does Singapore bring to an IPO? The way we look at it is this: Given that 40 percent of our companies that are listed on our exchange today come from outside Singapore, we’re more international than any other exchange in Asia. With that, what are our core sector strengths? Historically, we’ve been very strong in the mining, oil, gas and maritime space. Those are challenged by the economic hit to the region right now.
Our market maker liquidity program has been relatively successful in some of the top stocks. We recognize we can’t stop there and are moving into many more stocks.
Q: Also on the securities side, you announced an education partnership with the CBOE. Why did you decide to do that?
A: The equity index space has always been on futures. So options is kind of a second risk management tool. It requires a good understanding. Obviously, CBOE has been in this for the past 40 plus years and are an expert.
And CBOE has the VIX methodology, which could be very applicable to this part of the world.
Q: Ultimately, you have to grow both sides of the business. What are your thoughts about the future of SGX and its place in global financial markets?
A: We have a backdrop where growth hasn’t really picked up globally. And there is slowing emerging markets growth. That said, in relative terms, the region is growing better than the rest of the world. That brings activity, debt financing, investment, which brings hedging. The way we’re positioned, as I said, is as an international exchange. So we see our derivatives as a gateway to anywhere in the region.
Q: Are you looking for other ways to bring in more flow from the US market?
A: Absolutely. One of the questions we’re watching is, at what point does China get included in any of the major indices? Recognizing the long-only index funds, with China included, will drum up more business. Just like 20 years ago, whenever you looked at the region, you looked at Japan. Now, potentially it’s China.