Cai Jin

Making the SGX agile and sharp again

CEO Loh Boon Chye's ability to listen and adapt should serve the bourse well in this Monkey Year

One attribute of his that new Singapore Exchange (SGX) boss Loh Boon Chye likes to emphasise is his willingness to listen, engage and adapt - as he puts it - so he can tackle the various challenges confronting the bourse operator.

This may explain why instead of choosing a glamorous project to round off his first six months in the hot seat at the SGX, he chose instead to host a dialogue session with the theme of how to navigate the path to future growth in the stock market.

This rather reflective approach is in stark contrast to that of his predecessor Magnus Bocker, whose first big move on taking up the post six years ago was to launch an ambitious $250 million plan to invest in what was then said to be the world's fastest trading engine.

As Mr Loh observes, the challenges that come with his job have arrived "fast and furious", but while they are tough, he feels they are not insurmountable.

The measures that he unveiled at the dialogue reflected his philosophy - and were in response to feedback from the market.

Gone is the almost unrelenting pace of change which had riled brokers no end. Instead, Mr Loh promises that the market will get a gap of at least six to 12 months between the introduction and implementation of major initiatives to allow time for adjustment.

Singapore Exchange boss Loh Boon Chye says the challenges that come with his job have arrived "fast and furious", but while they are tough, he feels they are not insurmountable.
Singapore Exchange boss Loh Boon Chye says the challenges that come with his job have arrived "fast and furious", but while they are tough, he feels they are not insurmountable. ST FILE PHOTO

Better still, the much-feared introduction of collateralised trading will be pushed back all the way to 2018. This will provide much-needed relief to remisiers - self-employed brokers - worried for their livelihood as their clients are used to getting three days' credit on stock purchases.

Penny stocks have also been given a reprieve. The SGX just last week changed the methodology used to determine if a listed firm meets the criteria of having a minimum trading price of 20 cents. This is on top of extending the deadline to September from next month for them to comply with the rule.

No stone has been left unturned. Even the need for quarterly reporting and the quest for dual class shares are up for review. These initiatives will no doubt win kudos for the SGX from the investment community and smooth the ruffled feathers of remisiers who were so upset with Mr Bocker that some even started an online petition to have him removed.

But this may turn out to be the easiest part of the many tasks awaiting Mr Loh.

Ahead lies the big challenge of how to put the buzz back into the stock market and arrest the decline in stock turnover which is causing despair among remisiers and investors.

Against this backdrop, he will also have to balance the interests of the many different market players with their varying and, at times, conflicting priorities, as he has observed.

So, it is just as well that the steady pair of hands Mr Loh brings to steering the good ship SGX will be put to good use navigating it through the turbulent times ahead - as exemplified by the recent wild swings in the benchmark Straits Times Index.

Not that he has to re-invent the wheel in order to draw retail investors back into the market. In recent years, a great many new CDP accounts have been opened - a big proportion of them by younger investors. (A Central Depository account is needed by someone who wants to invest in SGX-listed shares.)

This suggests it is not so much that investors have no interest in the local market, but rather that they are simply waiting for an opportunity to pounce on bargain purchases. Plummeting share prices in recent times have turned Singapore blue chips into attractive value plays, so investors may well be tempted to jump into the market.

Most people would readily deploy their hard-earned nest-egg to work harder to produce a better return - especially with the relative safety of investing in good-value blue chips.

As Mr Loh embarks on what amounts to something of a repair job, certainly in terms of market perceptions, history may be on his side. Despite the challenges, the seeds of success are already embedded within the SGX.

Older readers will recall the uphill struggle faced by Mr Loh's predecessor once removed, Mr Hsieh Fu Hua, in breathing life back into the market over a decade ago, after it had been hit by a series of financial calamities - the 1997-98 Asian financial crisis, followed by the bursting of the dotcom bubble in 2001 and the Sars crisis of 2003.

A new vision emerged from the tough challenges as the SGX was forced to replace Malaysian-listed counters whose trading here was discontinued after Kuala Lumpur imposed capital controls in 1998 to combat the Asian financial crisis.

In response, the SGX turned itself into the Asian Gateway, attracting companies from far and wide - China, Indonesia, United States and even Israel - to list here.

A big market was set up in real estate investment trusts (Reits), whose mouth-watering yields make them a draw for yield-hungry investors, turning Singapore into Asia's leading Reit centre.

Two other products which made their appearance around the same time - exchange traded funds (ETFs) and covered warrants - had also shown great promise, if not meeting with the same enthusiastic response from investors.

In the case of covered warrants, annual turnover had almost trebled from $10.6 billion in 2005 to $28.2 billion in 2007. But last year, total warrant turnover was languishing at just $3.82 billion - as a combination of tighter regulations and the risk aversion after the global financial crisis dampened investors' appetite for them.

Interest in ETFs has shown signs of revival, with turnover last year rising by 23.8 per cent to $2.91 billion from 2014's $2.35 billion. But this is still a pale shadow of the frenzied activity in 2011 when turnover hit $8.75 billion.

Considering that both of these products have won widespread appeal among investors elsewhere, it may come as a surprise that appetite for them has somewhat waned here.

Simply working on the right strategy to beef up interest in ETFs and covered warrants would be one sensible way to bring back the buzz to the stock market - and that is not to mention relooking other products such as extended settlement contracts, which may appeal to a younger generation of investors.

Geomancers have suggested that the Year of the Fire Monkey, which starts today, will be full of surprises. But the Chinese phrase for crisis "weiji" stresses that with danger comes opportunity to be grasped.

As the monkey is witty, nimble and flexible, it is also a good time to take stock and successfully surmount the challenges we face.

In this light, Mr Loh's emphasis on bringing a sharper focus to what the SGX is doing will stand him in good stead. We wish him and the market Gong Xi Fa Cai.

A version of this article appeared in the print edition of The Straits Times on February 08, 2016, with the headline 'Making the SGX agile and sharp again'. Print Edition | Subscribe