The Singapore Exchange (SGX) is the largest US dollar clearinghouse in Asia, and it is the largest RMB clearing house in the world outside of China. The work of SGX in 2022 is to maintain its position of fluency in dollars, euros, sterling and RMB, making sure access is open to participants from around the world, said Michael Syn, senior managing director and head of equities at SGX.
Syn joined John Lothian News at FIA Boca 2022, where he discussed lessons good and bad from the Covid pandemic, the complex march of internationalization in Asia, and how the migration from Hong Kong is affecting Singapore. The backdrop for our discussion was his delight to be back at Boca.
“It’s fantastic. It’s been three years, you know,” Syn said. “The resort’s all shiny. … It’s genuinely refreshing to have people to re-engage with face to face. I mean, it was great doing things over Zoom, but I’m glad I’m [meeting] in this time zone, physically, rather than 3 a.m. in my morning in Singapore.”
Syn said the pandemic brought lessons that will affect SGX’s operations in the future. He sees today as a time of analysis, looking at what has worked and what has not related to remote work. “I think we’ve had sufficient time over the past few years to figure out – now that the novelty factors have worn off – what things were really genuinely new, good to be learned from, and what things maybe need to be unwound.”
Syn sees two large areas of positives and negatives arising from remote work. It’s been a positive for building software and creating new systems. But it’s been a negative for reacting to competition and orchestrating business.
From the pandemic, Syn sees lessons from agile methodology used in technology development, but he says these processes do not work as well for more complex systems like those for markets or businesses. The main problem is one of orchestrating operations when you are all not sitting together.
To his first point, Syn said WebEx and Zoom were designed for things like university lectures, with one person broadcasting and everyone else receiving. But that’s not how business orchestration works. “What we’ve found after two years of back-to-back meetings, is that a lot of the value of working virtually has diminished,” he said. “I’ve seen habits forming, which are bad habits. I’ve seen people just listening in, which is a digital way of presenteeism. ‘I was there, I attended six meetings.’ Yeah, but was that valuable?”
To his second point, he said in a complex organization you have to deal with control functions and people managing risk and auditing. “When you’re working digitally what happens is that control and business start separating. I’ve seen auditors come in saying since I can’t be there to talk through the audit issue, ‘Here are five things. Send me all your documents. And I’ll come back to you in six months’ time.’ So it makes their job easier, but value is lost.”
To address these issues, the challenge is to develop a technology hybrid of on site and virtual. “How do we actually get seven people in one room [on site and] three people at home – and still work?”
SGX has been anticipating internationalization of markets for some time, but for the past two years the scenario has shifted. “Unfortunately, speaking now in March 2022, it looks as if there’s been some amount of economic disintegration – China and the West, Russia and the West.” As a result, Syn said, “that means we’re heading into a dip where participation by international investors into Asian derivatives … there’s a different narrative to that. It’s not as simple as we need to invest, we need to trade because growth is there. That story is still there. I think there’s more fear about whose infrastructure we use. Are we using US dollars? Which clearer am I going through?”
“Our journey here is to make sure people understand that SGX is open for business. If you want to trade A shares, in US dollars, in a neutral and well-recognized jurisdiction, you know where to go – that’s Singapore,” Syn said. “There’s going to be room eventually for two, three, four different ways of accessing Asian risk premium but they’re going to be more fragmented, I feel, as the market grows.”
Given the challenges of immense deleveraging and price volatility the likes of which have not been seen since 2008, SGX’s goal is to maintain market health.
“The near-term impact is to maintain the health of our ecosystem, especially since we offer risk management products,” Syn said. “We need to make sure the market’s open. There’s trade certainty. There’s clearing certainty. I think that as we head forward – economic disintegration or balkanization or fragmentation — it means that we have a lot more work to do to make sure we solve the customers’ needs in terms of regulatory access, payments access, US dollar access.”
The migration of people out of Hong Kong is not a positive in the near term, Syn said. If all Asian capital markets are to internationalize, all the economic centers must thrive.
“I would say that this is almost inevitable when we see the size of the Chinese market getting so large that it’s almost its own universe. … We do believe that there will be segmentation of expertise between people who trade in capital markets in China versus India, versus, say, Southeast Asia,” Syn said. “And of course, the ambition for Singapore, as it always has been, is to offer access for US and European customers to all three of these owners,” Syn said.