New FX trading engines power growth for banks in Singapore

Influx of banks setting up electronic matching engines drives trading volumes in city-state

Singapore-skyline

Banks and multi-dealer platforms that have set up foreign exchange pricing engines on Singapore’s flagship SG1 data centre server are benefitting from an increase in the number of trades executed electronically, which is boosting the city-state’s position as a leading FX hub.

According to the Singapore Foreign Exchange Market Committee’s latest round of turnover data, from October 2021, total monthly turnover rose by almost 50% over the previous year to more than $15.6 trillion. Average daily turnover volumes rose over the same period, with spot transactions up 36% to $166.1 billion, outright forwards increasing by 95% to $132.2 billion, and FX swaps rising by 54% to $438.5 billion.

The country’s central bank and regulator, the Monetary Authority of Singapore, launched its Foreign Exchange E-trading Ecosystem initiative in 2018. To entice banks and multi-dealer platforms to set up pricing and trading engines in Singapore, MAS offered incentives that led more than 20 liquidity providers, liquidity takers, trading platforms and fintech companies to take part.

James Hassett, global co-head of emerging markets and G10 linear FX and head of flow macro trading Asia at Barclays Singapore, relocated from London to Singapore in 2020 as part of a broader strategic shift by the UK bank. Although the move was not specifically tied to MAS’s e-trading initiative, he says the ability to do business in Singapore and in Asia’s time zones was an important consideration. He adds that since Barclays’ pricing engine went live in mid-2021, the bank has seen an improvement in the quality of execution for its clients in the region, as well as better pricing and lower latency.

“We haven’t had this pricing engine out of Singapore before,” he says. “We used to price out of London and Tokyo but, thanks to MAS’s interest, we put in some extra investment in developing this functionality in Singapore, so it’s very important for us to grow out in the region.”

 

Barclays is not the only bank to report a boost in its local operations since launching its platform within SG1. Stuart Staley, the global co-head of FX at Citi, says there has been steady growth in the bank’s market connections and in its key regional clients connecting to pricing and consuming liquidity from its SG1 pricing engines since it began using the platform in late 2019.

“The benefits have been two-fold,” he says. “Due to the [better] performance [in] pricing and connectivity, we’ve seen an increase in volumes from existing clients who transferred connections to SG1. The development has also meant we are able to price new clients here in the region, which may not have been possible from other pricing locations. Overall performance of models within the region has been promising and the pipeline of additional clients and venues scheduled to come online in 2022 looks set to assure continued growth.”

BNY Mellon set up dedicated FX custody and options trading desks in Singapore and relocated its short-term interest rate trading business from Hong Kong to the city-state in 2019. It built its FX pricing and trading engines at SG1 in June of the following year. Yvonne Thom, the bank’s head of FX sales and trading, Asia-Pacific, says it has seen significant FX volumes in Singapore across more than 70 deliverable currencies, including in most of the restricted Asia-Pacific markets (such as South Korea, Malaysia, Indonesia, the Philippines, Taiwan, India and China). She puts this down to the uncorrelated liquidity that comes with executing daily flows for clients of its large custody franchise.

The growth has not been limited to banks. Trent Beacroft, chief executive of Euronext Markets Singapore, says the exchange has reported continued growth in its volumes following the launch of its matching engines in 2019. Euronext, which is a recognised market operator under MAS regulation, offers the same currency pairs in Singapore as in its other global matching engines, including for major and emerging markets. It also offers spot trading and NDF pricing.

“Not only have we seen an influx of banks,” says Beacroft, “but also the development of non-banks, financial institutions and asset managers all looking to take advantage of the low latency pricing in the Asia-Pacific time zone.”

Closing the gap

The growing importance of SG1 for Asia-Pacific’s capital markets has led to an increasing number of banks, trading platforms and venue operators moving to Singapore to facilitate clients trading in the region’s time zones. Ashvin Parkash, global head of e-FX distribution at Nomura, says that although most market participants are not expected to move out of Tokyo, a majority are looking at Singapore as their fourth centre of FX trading.

There has also been a migration of investment banking staff from Hong Kong, in part because of concerns about the Chinese authorities’ handling of lockdowns, travel bans and other political issues.

Yet Singapore still has some way to go before it becomes a viable challenger to London as the world’s leading FX centre. Jonathan Woodward, head of FX for Asia-Pacific capital markets at the London Stock Exchange Group, believes the UK capital – which lies within and adjacent to the two time zones with the greatest liquidity – will maintain its dominance for the foreseeable future. However, he adds that Asia – with a population of 4.5 billion, fast-growing GDP and the expansion of its wealth and asset management scene – also offers opportunities.

“Asia’s continued expansion over the next 10 years is really the growth story for the world,” he says. “We will see Asia catch up with America with regard to the amount of flow that is done on the FX market, and I think Singapore has positioned itself extremely well to take advantage of that.”

Citi’s Staley says that if Singapore were to challenge the dominance of London and New York, a natural progression for the country would be the formation of a primary market for price generation, even though the city-state has been the primary FX centre in Asia for a considerable period. “This would be particularly logical during the core Asia trading periods,” he says, “as well as, of course, in many Asian currencies, for which Singapore is already the largest global trading centre.”

Editing by Daniel Blackburn

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