SGX, HKEX set to face off over Chinese stock futures

Singapore's role as a regional equity derivatives trading centre may be curtailed after it lost a major index-licensing deal to Hong Kong.

The next battlefront between the two Asian financial hubs will be in China stock futures.

Rivalry in the hedging tool for mainland equities sets up a skirmish between the cities, which have competed as centres for a range of finance businesses ranging from share listings to wealth management, analysts say.

The Singapore Exchange (SGX) is now the only overseas platform where investors can trade Chinese A-share futures, and the product accounts for about half of the bourse's equity derivatives volume.

That may be short-lived as Hong Kong Exchanges and Clearing (HKEX) last year said it was working on a similar hedging tool for mainland stocks with MSCI, which is still pending regulatory approval.

"The launch would end Singapore Exchange's monopoly on offshore derivatives based on China's A shares," said Mr Bruce Pang, head of macro research at China Renaissance Securities.

The stakes are high for SGX as equity-derivatives sales alone account for 36 per cent of its total revenue for the quarter to March.

Meanwhile, the exchange is facing other challenges, such as a slowdown in listings and India's decision to move trading onshore for some futures contracts from Singapore.

"China is a major part of SGX's portfolio, and as China internationalises, Singapore's role in serving global trade between China and the rest of the world becomes even more relevant," said a spokesman from the bourse.

MSCI last month said it will move licensing for derivative products on a host of gauges to Hong Kong from Singapore.

Hong Kong will soon start selling 37 futures and options contracts based on MSCI's Asian and emerging-market equity measures, with launches for Taiwan, China and India futures slated for as early as next month.

Analysts see SGX developing its own Asia-focused products and collaborating with FTSE Group and other index providers to make up for the loss in revenue.

"Its strategy is likely to head towards self-developed products like single stock futures and smart beta indexes, which give higher margins, plus SGX will have more control over them," said KGI Securities (Singapore) analyst Joel Ng.

The exchange has followed through with its plan to initiate futures trading on individual Singapore-listed stocks this month, and recently acquired a 93 per cent stake in Scientific Beta, an index provider that specialises in factor-based strategies. MSCI and FTSE declined to comment.

"Hong Kong is servicing the Chinese market and Singapore is more about South-east Asia," said Morningstar analyst Michael Wu.

"There's growth in both locations."

BLOOMBERG