TT® Connects with Matt Judge, European Head of Sales, SGX Group
Singapore Exchange (SGX Group) is experiencing a stellar year for derivatives trading with its recent September average daily trading volumes up 35% year-on-year and liquidity growing strongly across a wide range of asset classes. Ahead of FIA Asia in Singapore this week, we spoke with Matt Judge, European Head of Sales at the exchange about the trends that he is seeing in the market and how SGX Group is providing the global trading community with opportunities to trade hard-to-access markets in Asia.
What are the key trends you see currently in SGX?
Over the past few months, our derivatives markets have drawn significant trading activity. Investors have been particularly active, seeking to manage their exposures or capitalize on events in the Chinese market. As a result, in October, we recorded unprecedented volumes and open interest across several products, including our FTSE China A50 Index futures, which saw record daily average volumes of US$11 billion.
Our FTSE Taiwan Index futures have also seen strong volume growth this year on the back of global interest in the semiconductor sector. In particular, the T+1 session volumes account for one-third of total FTSE Taiwan Index futures, a reflection of the continued liquidity during Europe and U.S. hours.
Another standout this year has been the successful transition of the SGX Nifty contracts to GIFT Nifty in India’s GIFT City, which was completed last year. We are now seeing strong volumes and open interest from our international clients across all segments in this product. For October, daily average volumes reached US$4.5 billion with open interest at US$11 billion.
Additionally, trading in our FTSE Vietnam futures reached record daily average volumes in recent months, and liquidity continues to grow. The futures recently obtained CFTC approval, enabling U.S. persons to trade the product. The contract remains the top offshore Vietnam futures globally based on volume and open interest.
A key focus for SGX in recent years has been on commodities, freight and foreign exchange (FX). How are these products performing?
Our commodities franchise continues to perform well and reach record volumes. A key development we have seen this year is the move to more screen trading in our iron ore futures. Screen trading now accounts for around 70% of total volumes, which is a remarkable achievement. As a result of that, more U.S.-based systematic hedge funds are coming into the market.
In FX, we again have seen growth across client segments, particularly in our USD/CNH and INR/USD futures, which have hit multiple records this year. Our USD/CNH FX futures reached a notional high of US$17.4 billion in September on the back of China’s stimulus package.
Notably, whilst much of the investor focus historically has been on CNH and INR, we are seeing more and more activity in our Korean Won and Thai Baht futures, and I expect them to continue to grow in adoption. In fact, last month, our KRW/USD FX futures set new records, with active participation during U.S. and European hours pushing T+1 volumes to about 40% of total traded volumes.
The growth in FX is driven by multiple factors; besides the macro interest rate and geopolitical environment, regulatory developments such as SA-CCR and the Uncleared Margin Rules have made trading in OTC markets more expensive for many firms, and hence, more market participants are moving to on-exchange clearing as a means to enhance capital efficiencies.
Freight continues to play a big part in our commodities franchise, serving as a barometer to global commodity trade. Whilst the market is still 100% traded via negotiated large trades, we’ve seen an increasing number of clients from the CTA community coming to the market from both Europe and the U.S. That’s been an interesting trend as up until only a few years ago, you’d only really see the commodity trading houses and some of the banks trading freight. Now, we are definitely seeing a shift to more hedge funds and CTAs globally looking to get into freight.
What is driving adoption of freight trading from hedge funds?
A lot of funds have seen it as a way of trading inflation. But freight forms part of the wider trends among certain hedge funds to get into products and asset classes in which there is not the same level of market efficiency and liquidity as the big futures and options markets. Freight also exhibits a low correlation with other asset classes, thus presenting a unique opportunity for diversification. Similarly for our petrochemicals products, we have seen a surge in client interest over the past six months.
Is that trend also driving interest in your rubber futures? How is liquidity in that product developing?
Liquidity is definitely growing in our rubber futures. Over the last three years, we have gone from around 8,000 lots a day in the 2021 to 2023 period to over 19,000 today. With global rubber prices hitting a record 7.5 year high in September due to improving fundamentals, we see higher demand for rubber futures globally. Rubber is also a physically delivered product, whereas everything else we have is cash settled, which brings different players to the market.
The rubber and iron ore contracts are good examples of your strategy to offer simplified access to hard-to-reach parts of the Asian market. How is that strategy evolving?
We have evolved from being just the “Gateway to Asia” to really simplifying Asia, which is driving global growth. We are bringing to life “Asia, Simplified” for our clients in an increasingly demanding market environment, whether that is through our geographical coverage or multi-asset offering. We are adding to that core offering contracts that reflect exposures in Asia but are difficult to access for international trading firms in their home markets. Our global client base comes to SGX – a reliable exchange and trusted clearinghouse in a AAA-rated country – to achieve multiple avenues of growth.
So what is coming next for SGX?
We just launched our Aggregate Exposure Report, which is like the CFTC Commitments of Traders report and is something our client base has been requesting for some time as our commodity products mature. This weekly report increases market transparency on exposure changes across various participant segments for iron ore, freight and rubber products.
In addition, we are now focused on growing our options market while at the same time launching targeted products around our core strengths. One recent example is our new derivatives linked to Japan and Singapore’s overnight interest rate benchmarks to capitalize on the evolving interest rate environment.
Our recent slew of derivatives exchange awards wins from Asia Risk, GlobalCapital, FOW, Euromoney and Energy Risk Asia are testament to our increasing relevance and outsized influence in the marketplace. This motivates us to continually develop innovative and impactful solutions for our customers.