They say the new-look STI, which debuts on Thursday, will result in a boost in the number of products linked to the index, such as index warrants and exchange-traded funds (ETFs). These products track movements of the STI, and derive their value from the index.

The revamped STI will feature 30 component stocks, down from the current 47.

Analysts say the slimmer STI will be more appealing to international fund managers, who typically buy most of the index's underlying stocks.

With fewer stocks to hedge, derivatives issuers will find it easier to come up with a suite of products for investors, such as structured warrants, that derive their underlying values from the benchmark index.

Sias Research investment analyst Alan Lok said: 'The new STI has a good representation of various industries and makes it easier for fund managers to track.'

The streamlined STI makes it similar to its more globalised counterpart, the Morgan Stanley Capital International (MSCI) Singapore index, which is also a value-weighted index comprising 36 stocks. It is used as a performance benchmark of the Singapore market.

But while MSCI Singapore is a broader index representative of small, medium and large capitalised companies, the new STI consists of heavy caps and blue chips, said Mr Lok.

As at August last year, the smallest stock on the new STI was Noble Group, which had a market value of $4.3 billion. MSCI Singapore's smallest component, in comparison, was Haw Par, with $1.6 billion.

The Straits Times understands that a number of foreign banks have expressed keen interest in launching related products. More ETF issuers are also expected to come on board.

There is currently just one ETF listed on the Singapore Exchange, the StreetTracks STI Index Fund launched by State Street Global Advisors in 2002, which allows investors to participate in the movements of the STI.

'Technically, everything seems to be heading in the right direction,' said BNP Paribas' director of retail listed product sales for Singapore and Hong Kong, Mr Simon Yung.

'The new STI will facilitate the launching of a liquid futures market, which is important for hedging. This in turn will facilitate much better pricing efficiency in STI warrants.'

The first push to improve market efficiency and pricing began with the narrowing of the minimum bid size last month.

'We're already seeing better pricing efficiency on the warrants market. We believe the STI will become more efficient but it takes time for the market to adapt to these changes,' said Mr Yung.

BNP Paribas plans to double the number of STI index warrants it launches 'once we feel there is a liquid futures market', he added. It now launches 10 warrants on the STI a month on average.

Total warrant turnover almost doubled to hit $28.2 billion last year, with STI warrants accounting for 14.6 per cent of market value.

Mr Yung expects this to increase to at least 50 per cent when a liquid futures market is established.