Rama Pillai’s Path to Electronic Trading Showed He is a Good Student

Rama Pillai - The Path to Electronic Trading
John Lothian

John Lothian

Executive Chairman and CEO

Veteran SGX Managing Director Interviewed by Robert Lothian During Week of FIA Asia 2023

Rama Pillai enjoyed being a student and earned three separate degrees before deciding to come to Singapore to accept a position with SIMEX in 1991. Studying the floor-to-screen migration of other exchanges and spearheading a proactive migration plan for SGX showed that Pillai was a good student.

The seven-year-old SIMEX made Pillai employee number 118 when he joined a three-person sales team that also handled marketing and business development. Reflecting on this experience, he remarked, “It was just the three of us covering the world.”

Pillai enthusiastically embraced the challenge, capitalizing on the international nature of the business to swiftly gain insights into global finance and forge strong relationships across the industry.

When Pillai joined SIMEX, open outcry trading dominated, and it stood as the pioneering financial futures marketplace in Asia. A crucial part of SIMEX’s origin story in 1984 involved partnering with the Chicago Mercantile Exchange to create the “mutual offset system,” which facilitated cross-border clearing.

Pillai said SIMEX collaborated with the CME to establish operations in Singapore to be able to offer trading in Eurodollar and foreign currency futures, which were cleared through the mutual offset system.

To help develop SIMEX’s business at the time, Pillai traveled extensively. He remembers a couple of years when he spent more days out of Singapore than in it.

He emphasized that in the futures and options industry, individuals maintain strong relationships, and many stay within the industry even as they transition between different roles within their respective organizations.

In 1999, there was a collective recognition among exchange leaders and regulators in Singapore that merging SIMEX with the Stock Exchange of Singapore would create a more robust entity than the exchanges had been individually.

It was quite easy to do, but also quite complex, Pillai said. He noted the disparities in the ages of the exchanges, the cultures of the organizations, and the focus of the stock exchange on retail and Asian-centric clientele. Fortunately, both exchanges operated under the same regulator. However, Pillai acknowledged that there were valuable lessons to be learned on both sides of the merger.

The merger culminated in the creation of the Singapore Exchange in 1999, and shortly thereafter, in 2000, the exchange listed itself on its own platform.

Pillai emphasized that the defining moment for the Singapore Exchange (“SGX”) was its willingness and ability to transition from an open outcry marketplace to an electronic trading one. This transformation enabled SGX to significantly broaden its distribution capabilities.

Pillai explained that electronic trading was initially introduced in 2001, with SGX upgrading its platforms in 2004. Despite these advancements, the majority of liquidity remained on the trading floor. Recognizing the need to expedite the transition to electronic trading, the exchange made a strategic decision to facilitate this migration.

SGX aimed to accelerate the migration process beyond its natural pace by studying how other exchanges, such as LIFFE, SFE, and CME, had successfully managed similar transitions. The exchange then identified professionals capable of instructing SGX traders in electronic trading techniques. Among the instructors recruited was Dan Gramza from Chicago, who had effectively transitioned from floor trading to electronic trading.

Drawing inspiration from the CME’s experience, SGX introduced handheld devices that enabled floor traders to participate in electronic trading while remaining in the trading pit, Pillai said.

Pillai also mentioned that SGX set up screens on the trading floor specifically for electronic traders, allowing them to view market data. These screens were strategically positioned in a corner of the trading floor, ensuring proximity to the pits so that traders could quickly return if needed while still being able to hear market updates.

Gramza conducted classes during the evenings and clinics during the daytime, providing traders with opportunities to engage with him, Pillai said.

Pillai highlighted the success of the migration plan, which began in 2003 and concluded in 2006 with the closure of the last trading pit. While other exchanges witnessed an 85% attrition rate of their trading floor communities after transitioning to electronic trading, SGX’s experience was the opposite. The exchange retained 85% of its floor trading community by providing support and assistance to guide the transition, Pillai emphasized.

While Pillai was not alone in that trader migration effort at SGX, he spearheaded the effort and it remains one of the things he is most proud of, he said.

Before initiating the migration effort, Pillai recounted being directed by the president of the exchange to visit the trading floor after market hours and address the traders, explaining the rationale behind the transition. Pillai anticipated spending approximately 30 to 45 minutes engaging with the floor community, which comprised around 1000 individuals, including exchange officials.

Pillai recounted engaging in a robust discussion with 300 traders, a dialogue that extended over two and a half hours. From his interactions on the trading floor, he gleaned the importance of credibility, where one’s word served as one’s bond. Pillai articulated the narrative behind the exchange’s transition to electronic trading with credibility and authenticity, he said. He emphasized how this shift would help disseminate products to a broader audience, ultimately resulting in increased order flow for members.

Pillai reflected that at the outset of the discussion, approximately 85% of the traders were opposed to the transition. However, after engaging in the 2.5-hour dialogue, he managed to sway around 65% of the traders to support the initiative.

Pillai emphasized that transitioning to electronic trading was a game changer for the exchange, as it enabled SGX to break free from reliance solely on a group of local traders. By embracing electronic trading, SGX could now attract trading and clearing members from beyond Singapore, expanding its reach and diversifying its participant base.

Pillai’s experience also included marketing and selling SGX futures in the U.S. market. Beginning in 1991, he made biannual trips to the U.S. to fulfill his professional obligations. However, his involvement escalated in 2001 when he relocated to the U.S. to assume the role of deputy head at SGX America Ltd.

For a span of two and a half years, Pillai and his wife resided in Manhattan, relishing the experience. He said that having a presence in Manhattan was advantageous for the exchange, allowing SGX to reaffirm its commitment to the local community.

Pillai has also worked on the securities side of SGX, as he was involved with the listings business of the exchange. He enjoyed working with the individual companies rather than an esoteric index like the Nikkei 225, he said.

He was also involved in the launch of FIA Asia. Pillai spoke about the growth of the industry during his career. When he began, 99% of the global futures trade was based in North America. Now about 50% of the global futures trade comes from the Asia Pacific region, he said.

With the backing of his CEO and the exchange, Pillai played a pivotal role in the establishment of the Asian branch of FIA. He remains steadfast in his support for the organization, recognizing its crucial role in fostering industry growth and advancement in the region.

(Interview by Robert Lothian, Story by John Lothian, Story edited Sarah Rudolph, Video Edited by Patrick Lothian)

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