New SGX CEO must accommodate all stakeholders
When a sample of brokers, investors and newsroom colleagues were asked for their opinions on what the next chief executive officer of the Singapore Exchange (SGX) should do, these were their varied responses - he or she should dismantle the existing self-regulatory commercial model, raise the quality bar for listing, bring back the lunch break, attract more big name IPOs, ban computerised, algorithmic as well as high-frequency trading, try not to over-regulate the market, introduce more interesting products that investors want to trade and ensure that investigations into possible wrongdoings are completed promptly so that investors aren’t kept in the dark for years on end.
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R Sivanithy
26 February 2015
When a sample of brokers, investors and newsroom colleagues were asked for their opinions on what the next chief executive officer of the Singapore Exchange (SGX) should do, these were their varied responses - he or she should dismantle the existing self-regulatory commercial model, raise the quality bar for listing, bring back the lunch break, attract more big name IPOs, ban computerised, algorithmic as well as high-frequency trading, try not to over-regulate the market, introduce more interesting products that investors want to trade and ensure that investigations into possible wrongdoings are completed promptly so that investors aren’t kept in the dark for years on end.
However, out of 15 people approached, only one person mentioned that the new boss should also be able to think strategically and have the eye and necessary diplomatic skills to strike business collaborations and linkups with other exchanges.
More relevantly, only one other person said he or she should continue growing SGX’s very profitable derivatives business, the foundations of which have been laid by outgoing CEO Magnus Bocker.
This admittedly crude illustration highlights the biggest challenge that will face the new CEO. When it comes to the SGX, which was formed by the merger of the Singapore International Monetary Exchange (Simex) and the Stock Exchange of Singapore (SES) 15 years ago, very few people outside of the exchange think of the Simex side of the business; instead, almost everyone focuses on the SES’s portion.
To be honest, this is not surprising. The growth and contribution from derivatives are only statistics in the minds of the investing public, largely invisible and out of their reckoning because this segment is the preserve of sophisticated institutions. How many people, for instance, think of iron ore, rubber or China A50 contracts when they think of SGX?
From the viewpoint of an SGX shareholder though, it is the derivatives side which is arguably more important given the recent decline in contribution from the stock market - for Q2 2015 ended Dec 31, 2014, only 26 per cent of SGX’s revenue came from securities whilst 39 per cent came from derivatives.
The problem, however, that will confront the incoming chief is that even if the stock market now contributes proportionately less to the exchange’s bottom line, it is vastly more visible since it is the primary capital-raising platform for the local corporate sector and the repository of the savings of many retail investors.
Moreover, the equity market is of paramount importance since - in theory at least - it provides the economy’s link with the future by allocating scarce resources to their best possible uses.
Because of this visibility, equities garner the greater share of the public’s attention. In this connection, persistent complaints about an archaic dual-role model and the prolonged absence of vibrancy, liquidity, quality of offerings and retail investor presence have been widely publicised and it explains why when asked about the task ahead for SGX’s next CEO, the focus of the majority of respondents would be on how to improve the equity business and not the derivative.
What the issue boils down to is this: the next SGX chief must find a way to bridge the gap between the demands of the exchange’s shareholders and the demands of its stakeholders.
Shareholders would be more than happy with the company’s profitability and dividend payouts over the years - even given the diminished contribution from the stock market - and would demand that SGX maintain its growth in the mainly institutional-driven derivatives business. The exchange is today a cash-rich, fundamentally solid company, having been transformed into a major Asian derivatives player under Mr Bocker’s guidance.
R Sivanithy
26 February 2015
When a sample of brokers, investors and newsroom colleagues were asked for their opinions on what the next chief executive officer of the Singapore Exchange (SGX) should do, these were their varied responses - he or she should dismantle the existing self-regulatory commercial model, raise the quality bar for listing, bring back the lunch break, attract more big name IPOs, ban computerised, algorithmic as well as high-frequency trading, try not to over-regulate the market, introduce more interesting products that investors want to trade and ensure that investigations into possible wrongdoings are completed promptly so that investors aren’t kept in the dark for years on end.
However, out of 15 people approached, only one person mentioned that the new boss should also be able to think strategically and have the eye and necessary diplomatic skills to strike business collaborations and linkups with other exchanges.
More relevantly, only one other person said he or she should continue growing SGX’s very profitable derivatives business, the foundations of which have been laid by outgoing CEO Magnus Bocker.
This admittedly crude illustration highlights the biggest challenge that will face the new CEO. When it comes to the SGX, which was formed by the merger of the Singapore International Monetary Exchange (Simex) and the Stock Exchange of Singapore (SES) 15 years ago, very few people outside of the exchange think of the Simex side of the business; instead, almost everyone focuses on the SES’s portion.
To be honest, this is not surprising. The growth and contribution from derivatives are only statistics in the minds of the investing public, largely invisible and out of their reckoning because this segment is the preserve of sophisticated institutions. How many people, for instance, think of iron ore, rubber or China A50 contracts when they think of SGX?
From the viewpoint of an SGX shareholder though, it is the derivatives side which is arguably more important given the recent decline in contribution from the stock market - for Q2 2015 ended Dec 31, 2014, only 26 per cent of SGX’s revenue came from securities whilst 39 per cent came from derivatives.
The problem, however, that will confront the incoming chief is that even if the stock market now contributes proportionately less to the exchange’s bottom line, it is vastly more visible since it is the primary capital-raising platform for the local corporate sector and the repository of the savings of many retail investors.
Moreover, the equity market is of paramount importance since - in theory at least - it provides the economy’s link with the future by allocating scarce resources to their best possible uses.
Because of this visibility, equities garner the greater share of the public’s attention. In this connection, persistent complaints about an archaic dual-role model and the prolonged absence of vibrancy, liquidity, quality of offerings and retail investor presence have been widely publicised and it explains why when asked about the task ahead for SGX’s next CEO, the focus of the majority of respondents would be on how to improve the equity business and not the derivative.
What the issue boils down to is this: the next SGX chief must find a way to bridge the gap between the demands of the exchange’s shareholders and the demands of its stakeholders.
Shareholders would be more than happy with the company’s profitability and dividend payouts over the years - even given the diminished contribution from the stock market - and would demand that SGX maintain its growth in the mainly institutional-driven derivatives business. The exchange is today a cash-rich, fundamentally solid company, having been transformed into a major Asian derivatives player under Mr Bocker’s guidance.