Citi has added third-party clearing for brokers on the Singapore Stock Exchange (SGX) to its suite of securities and fund services available in the city-state.
The bank is one of the first financial institutions to offer third-party clearing on an exchange in Singapore following the city's June decision to allow banks to offer securities clearing services. Prior to the regulatory change, SGX member brokers were required to provide both trading and clearing.
"We've been waiting for Singapore to open up," says Paul Egan, managing director and Asia-Pacific regional head of intermediaries at Citi. The bank already provides third-party custody and clearing in Australia, Hong Kong and Japan, and sees the expansion of services to Singapore as part of its global strategy.
Third-party clearing is a cost saving option for brokerage houses. Typically, when a broker, such as Credit Suisse or Morgan Stanley, joins a stock exchange it is required to set-up trading and clearing activities. Outsourcing clearing to a third-party provider allows the firm to cut costs by removing their internal clearing operations.
Knight Securities uses Citi's clearing services in Hong Kong and the bank expects its first client in Japan will go live in the first quarter of next year.
"Third-party clearing attracts new members to an exchange," says Egan. "It's where the world's [exchanges] are moving." He explains that by allowing brokers to outsource clearing -- thus reducing costs -- it enhances the competitiveness of an exchange.
Many exchanges in Asia-Pacific currently do not allow clearing to be outsourced. "Asian markets can be very restrictive and regulated," says Egan. "We're helping to change that." Citi has been working with Malaysia's government and Securities Commission to allow third-party clearing and is currently lobbying the South Korean and Taiwanese regulators to open-up.
He hopes Malaysia will liberalise the sector in 2010 but says the other two markets are moving slower.