The leaders of three of the major Asian exchanges spoke separately in keynote addresses on the first day of FIA Asia Expo-V. They talked about the rapid change in the financial industry over the past few years, the opportunities for growth in the region, and what’s on the table for their exchanges in the near future. What follows is a summary of their individual remarks.
Nicolas Aguzin, CEO of HKEX
Although the global backdrop has presented many challenges over the past couple of years, Nicolas Aguzin, the CEO of Hong Kong Exchanges and Clearing Limited (HKEX) said that international capital markets have thrived and that Asia in particular is playing an increasing role in global markets.
Asia contributed an estimated 41% of global growth in 2021 and the forecast was raised to 50% by 2026, Aguzin said, adding “Asia’s equity market has grown both in size and vibrancy.”
According to World Federation of Exchanges (WFE) statistics, the total market cap of public equity markets in Asia grew by 40% year on year to close to $40 trillion U.S. at the end of the first half of 2021, Aguzin said. Equity markets trading volume in Asia grew 33%, compared with flat growth in North America.
“It’s evident that there is growth in the region not only in cash equity markets, but there is momentum growing in the derivatives markets, too,” Aguzin said. “The turnover in stock options alone rose 80% in Asia in the first half of 2021.”
He said Asia has vast untapped capital, and that along with other strong fundamentals are “contributing to what I refer to as the Big Bang of Finance, and China is perhaps the greatest driving force behind this tectonic shift.” By 2030, he said, it is estimated that China’s markets will grow from $33 trillion to more than $100 trillion U.S., “roughly equivalent to the combined developed world’s equity market capitalization today.”
Capital flows between China and elsewhere will mean investors will increasingly be looking to manage their China risk exposure, Aguzin added, meaning more sophisticated derivatives products will become significant.
Volume tripled in the HKEX’s Hang Seng Tech Index futures this past year, Aguzin said, and this year HKEX launched the MSCI A 50, the first A share futures contract constructed on Stock Connect. The contract provides international investors with a unique risk management tool for Asia, he said.
Moriyuki Iwanaga, President & CEO, OSE-JPX
Managing the great changes that have taken place over the past several years is both challenging and rewarding, Moriyuki Iwanaga, President and CEO of OSE-JPX, said. The rapid evolution of the financial industry has caused OSE-JPX to redefine its services and focus on innovation, he added.
Among these changes are the new generation of investors making the retail space hugely popular, and the boom in micro products and in financial literacy, he said, adding, “It is refreshing that people are obtaining a level of financial literacy to take their financial well being into their own hands.”
In this environment, JPX will continue to safeguard the efficient transfer of risk, he added.
Iwanaga said the new prime minister of Japan, Fumio Kishida, pledged in his second cabinet to “make every effort to realize the policy of a new form of capitalism” to unleash a virtuous cycle of growth. JPX aligns itself with those values and hopes to foster the growth of the Japanese economy by embarking on new initiatives, Iwanaga said. These include a major overhaul of the cash market segment, with a market restructuring in April 2022, and sustainability, meaning companies will be required to disclose information based on climate-related factors, he said.
OSE-JPX is also keen to participate in carbon credit trading, and the power futures market has been enjoying steady growth, doubling since its inception, Iwanaga said.
The exchange plans to expand trading opportunities and its goal is to provide a market for investors to trade at any point in time, he added. The exchange launched a new platform, J-Gate 3.0, in September, based on Nasdaq OMX technology, “which is widely used by many global exchanges,” Iwanaga said.
“We believe by opting for this best-of-breed technology we released barriers to market entry,” he added.
The exchange is studying what new asset classes it can bring in to expand its derivatives markets. It has also extended trading hours and is now open 21 hours. “Thanks to active Japanese retail and global investors, our night session is very heavily traded,” he said.
Osaka Exchange and Tokyo Commodity Exchange have announced they will launch derivatives Holiday trading rules, which will enable trading on current non-business days specified by the exchanges, around September 2022 as well, he added, which will “provide more trading opportunities to domestic retail and overseas traders.”
Japan’s government encourages flow from savings to investment, Iwanaga added, and is involved in various efforts to increase financial literacy, which have been successful so far.
“Our ETF market expanded five-fold,” Iwanaga said, “and is contributing to the growth of our derivatives markets.”
Loh Boon Chye, Chief Executive Officer, Singapore Exchange
“The global derivatives space remains the linchpin of the world economy,” said Loh Boon Chye, CEO of the Singapore Exchange. But it is a “challenging” business and regulatory landscape, he added.
Resilience will continue to be tested by Covid-19, he said, but Chye said he is optimistic that progress will continue, and “delighted” with the FIA’s plan to hold its Boca Raton conference in person next year.
The markets have already been transformed in fundamental ways, he said. Covid has reshaped the way the exchange interacts with customers. There are supply chain challenges.
But it is “not just about being able to operate markets with everyone working from home. That’s a given, with resilience entrenched in our DNA,” he said. The exchange also needs to deepen the liquidity scale and further advance Singapore’s standing as a financial center.
After the COP26 conference in Glasgow, he said, there is much to do to meet global climate challenges. In Glasgow, Chye said he was encouraged to see the private sector stepping up with 450 institutions signing the Glasgow alliance to contribute $130 trillion of their capital to hit net zero emissions targets by 2050. But “the clock is ticking” and steering a path to net zero will require cooperation, he added.
Chye also said the climate transition should be fair, taking into consideration the varying socioeconomic needs of individual countries and accounting for the complexities of the transition. It should also be transparent with data and disclosures, he said.
Chye also said he hopes SGX can help to demystify the dynamics of the Asian region.
SGX pioneered the SGX FTSE China A50 Index futures, he said, “which remain the benchmark of hyper liquid global futures.”
SGX recently opened a Gift City office in India, and there is growing investment in “hidden gems” in Asia such as Indonesia and Vietnam.
The exchange hopes to serve as an efficient single point of access, Chye said, enabling participants to manage risk comprehensively.
“As the fight with Covid 19 has shown us, today’s challenges cannot just be addressed by one country or even a single approach,” he added. “We need to be constantly calibrated.”