SGX launches index business to tap 'passive shift'

Singapore Exchange unveiled SGX Index Edge to target Asian product issuers and investors seeking customised indices amid what it sees as growing momentum for passive exposure.
SGX launches index business to tap 'passive shift'

The Singapore Exchange (SGX) announced the launch of a new indexing business yesterday as it looks to tap demand for index-linked investment in the region, its head of business development, Simon Karaban, told AsianInvestor.

The product – SGX Index Edge – is targeted at Asian product issuers and investors looking for customised index solutions. With high barriers to entry for those without the infrastructure, SGX is confident it has the support services that will appeal to a wide range of issuers.

In a statement, SGX said its branded indices would provide transparency and profile SGX's securities and derivatives markets to investors.

SGX index business head Karaban described the move as a natural extension of the exchange’s existing business, explaining that running an index business required the same inputs as running a securities exchange.

“Passive investment is starting to gather momentum and in response to that we decided to enter more proactively,” he said.

Karaban sees opportunities for a wide range of index-linked product trading on SGX, such as sector, thematic and strategy-based ETFs as investors move away from tracking broad indices.

SGX soft launched its Access Asia series of 60 futures-based indices last October – based on futures contracts traded on SGX.

Karaban said take-up for that series of indices came “mainly from exchange-traded-note issuers in Korea looking to launch inverse and leveraged products”.

Futures trading volume on the SGX increased 84% year-on-year to August 2015, driven by a 127% rise in trading of FTSE China A50 index futures. A number of other index futures – such as Nikkei 225, MSCI India, MSCI Thailand and Straits Times Index – also saw substantial growth.

“A lot of issuers of exchange-listed, over-the-counter and structured products require customisation,” said Karaban, although he acknowledged that providing customisation was costly.

“There are high barriers to entry within the index space,” he said, citing infrastructure, technology, data and people as well as the expense of adopting the benchmarking principles of the International Organisation of Securities Commissions (Iosco).

Tinku Gupta, head of market data and connectivity at SGX, added: “Offering index services to diversify the market data business helps us in attracting new institutional channels that are increasingly turning towards index-linked investment solutions for their investors.”

Singapore is gearing up for the launch of Intercontinental Exchange (ICE) Futures and ICE Clear Singapore on November 17. That launch was pushed back from a planned roll-out in March.

Last month, Germany’s Deutsche Boerse pushed back plans for the launch of a Singapore-based derivatives exchange, Eurex Asia, by 18 months to the second quarter of 2017.

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