Singapore Exchange (SGX) has opened a derivatives trading office in Hong Kong as it seeks to capitalize on China’s increasingly accessible capital market through stock connect programs.
Singapore Exchange Derivatives Trading Ltd. was launched on Monday, building on SGX’s flagship FTSE China A50 Index Futures which tripled its average daily trading volume in January.
The index got a boost from Shanghai-Hong Kong Stock Connect, a cross-border equities trading scheme started in November.
“The last financial year for us ended in June. The A50 futures were trading about 100,000 contracts a day. When stock connect started in November, we were doing 200,000,” SGX executive vice president Chew Sutat said.
In January, the index hit a record 600,000 contracts in a single day amid market volatility, he said.
Chew said the success of the Hong Kong-Shanghai stock trading program means China is becoming more accessible to the rest of the world.
“We will be able to provide more services to customers,” he said.
“The growth in interest for A50 futures has been across all our customer groups… the higher interest comes as a lot of actual A-share products have been created globally because of new access to China.”
The SGX-traded A50 futures index tracks the 50 largest A shares by market capitalization and is calculated in US dollars.
It gives overseas investors direct exposure to the Chinese equity market and allows them to hedge against risk when trading A shares.
The Shanghai and Hong Kong stock exchanges were linked in November last year, allowing foreign investors access to China’s capital market.
Hong Kong is linking up with neighboring Shenzhen in a similar program expected to be in place in the second half.
Chew said the new Hong Kong office will offer key commodity futures such as gold and iron ore contracts in 80 percent of Asian markets, helping Asian commodities investors manage their global risks more efficiently.
“If you look at the international commodity markets, a lot of them are in the western time zone. The benchmark pricing is there. At the same time, you have [commodity markets] in Asia, China and India with very close domestic markets that you can’t equalize. There are imperfections,” he said.
“It may be harder for us to create a new product… but we continue to organically build products and services that are relevant in this time zone.”
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