Shares of bourse operator Singapore Exchange (SGX) suffered their steepest daily fall in 17 years yesterday after MSCI Inc said it would move licensing for derivatives products on a host of gauges to Hong Kong from Singapore next year.
Hong Kong Exchanges and Clearing (HKEX) will host trade in the contracts, which are tied to MSCI Inc's indexes and licensed from New York-based global index publisher MSCI.
The SGX estimates a potential 10 to 15 per cent hit to its 12-month net profit as a result.
Its shares closed at $8.75, down 11.6 per cent, the biggest drop since 2003.
"What we saw in HKEX was a larger customer base, particularly the access to Chinese institutional and retail investors," MSCI chief executive Henry Fernandez said in a conference call yesterday.
"We also saw the ability to have a large market for index options that HKEX has developed."
The move deals a blow to the SGX, which has been suffering from a slowdown in listings.
In a telephone interview yesterday, the Hong Kong stock exchange's chief executive Charles Li called the MSCI agreement "absolutely a vote of confidence".
The new accord, subject to regulatory approvals, follows a Hong Kong bourse announcement last year about the launch of futures contracts on the MSCI China A Index.
The SGX said yesterday that it will discontinue its MSCI equity index futures and options contracts, save for those under MSCI Singapore, when their licence agreements expire next February.
But it will keep its partnership with MSCI on MSCI Singapore Index products, with both parties working to extend the partnership "well beyond 2021".
SGX chief executive Loh Boon Chye said the bourse operator is working with the "relevant stakeholders in managing their open interest" as it "gradually discontinues" the bulk of its MSCI equity index futures and options contracts.
Sales of products in other asset classes may help cover lost revenue, he added.
While the move could have a near-term impact on the SGX's equities derivatives open interest, its multi-asset portfolio shelf has reached "a critical mass", he said.
The SGX said it would continue to broaden and deepen coverage of Asia by developing more derivatives products on its own or in collaboration with partners.
It currently supports trading of equity derivatives based on MSCI gauges for Australia, China, India, Indonesia and Taiwan, among others. It also has an agreement with FTSE International for the sale of China A50 Index futures.