Standard Chartered Bank will provide clearing and settlement to the new Singapore Mercantile Exchange (SMX) when it goes live in the fourth quarter.
The bank will be the first bank to provide electronic funds transfer and settlement processing to the exchange's members. It will also provide banking services to SMX employees.
All settlement will be in US dollars, but additional currencies will be added based on member demand.
"This appointment as clearing bank for Singapore Mercantile Exchange reflects our position as a leading clearing bank for exchanges in Singapore," says Jiten Arora, South Asia regional head of transaction banking at Standard Chartered Bank. "We have developed special capabilities to provide extended processing hours and timely reporting to the Singapore Mercantile Exchange and their clearing members."
The bank has worked with SMX since its February inception helping to map out its clearing and settlement infrastructure. Standard Chartered will extend its hours from 9am to 3am Singapore-time in order to cover Asia-Pacific and the US. In addition, the bank has acted as a consultant on commodities trading.
Negotiations for the mandate were conducted from April to July, with SMX officially appointing Standard Chartered its first banking partner last week. According to sources, the three month negotiation period is an "internal record" for the bank.
SMX is a new commodities derivatives exchange aimed at filling the gap in Asia between equity and single-product commodity exchanges. It is owned by India-based Financial Technologies, a financial services group that also owns the Dubai Gold and Commodities Exchange and various Indian markets including the Mumbai Commodities Exchange.
Currently in the testing and regulatory approval phase, SMX hopes to begin trading sometime after October 15. Once operational, products on the exchange will include agricultural stuffs, energy and base and precious metals.
Traders in Singapore are wary of the exchange's ambitious opening timeline with many taking a wait-and-see attitude to the post-October 15 start date.
"A lot of benchmarks are unaddressed in Asia," says Thomas McMahon, chief executive of SMX. "If you look at metals markets, the majority of production is here but prices are disconnected from market exchange. We see an opportunity here."
McMahon explains that by using the term "mercantile" the exchange sees itself as a market for a broad-base of products. This differs from the Malaysia bourse and the agricultural futures exchange of Thailand that specialise in palm oil and rice respectively. By creating such a broad based exchange, SMX hopes to increase trading transparency and risk mitigation for commodities derivatives products in Asia.
A potential competitor is the Dubai Mercantile Exchange but McMahon dismisses it as energy focused.
When selecting Standard Chartered as its first clearing and settlement bank, McMahon cites its "seamless" reach across borders in Asia. This correlates well with SMX's plans to become a pan-Asia exchange.
"For example, Standard Chartered's India, Singapore and Hong Kong product offerings are very similar," he says. "We [also] aim to be borderless."
Sumit Aggarwal, Standard Chartered's head of transaction banking in Singapore, reiterates the bank's strong regional proposition, saying: "In Asia, our nearest foreign bank competitor has only half as many branches as we do. [SMX] is tapping the breadth of our presence and capability to provide specialised solutions."
But the bank will not remain SMX's only clearing and settlement partner.
"Standard Chartered is just one of a number of banks we will eventually have on board," says McMahon. "As we reach into different regional markets, we're going to look for entities with good, strong local connectivity."
The exchange is currently in talks with three additional banks to provide clearing and settlement services. SMX declined to name the institutions but says it plans to bring on a mix of local and global banking players.
Clearing and settlement provided will be conducted through Standard Chartered's Straight2Bank wholesale e-banking platform. The system will work with SMX's straight-through processing (STP) solution from India's Financial Technologies.
The exchange plans to achieve STP from day one though McMahon admits that "all exchanges are STP+1" for settlement.
"Customers will know where they are in their positions at the end of each day," he says.
Standard Chartered is not new to servicing stock exchanges. The bank has been providing clearing and settlement services for various exchanges since the late 1990s starting with the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE). Today, in addition to the BSE and NSE, it has mandates with the Jakarta Stock Exchange through its Permata Bank subsidiary, Nasdaq Dubai and Singapore's other two exchanges -- the Singapore Exchange and the Singapore Commodity Exchange.
When SMX does launch, whether in the fourth quarter or later, it aims to have at least 29 clearing and trading members. It is currently in talks with these entities.