 "Bank Nifty is a possibility on SGX if there is investor interest: Magnus Böcker & M Ramaswami")
Indian issuers have raised a cumulative $60 billion in bonds on the Singapore Exchange (SGX), making this country the third-largest issuer of SGX-listed bonds. It is the first exchange globally to set up shop in India. Magnus Böcker, its chief executive officer, and M Ramaswami, president, tell Puneet Wadhwa they're impressed by the speed of policy changes here, while highlighting the need for an improved bond market in India. Edited excerpts:
What is the mix of trading on the Singapore Exchange (SGX)? How much of this is from within Singapore and how much from developed markets like the US and Europe? How have the volumes been?
Magnus: One-third of our business is the stock exchange business, one-third is the futures business and the rest is the other business, relating to market data. We have seen over the past few years that there has been a strong growth in the futures business, of nearly 20 per cent (yearly). Geography-wise, there has been a strong growth in the Indian and the Chinese market- related products and the Association of Southeast Asian Nations (Asean) products. What has come lately now is the commodity segment, especially iron ore.
What about emerging markets like India? How does it fit into your overall plans and what does the road ahead look like?
Magnus: We are a gateway for investments and facilitate trades in and out of India. A lot of people who want to manage the risk and exposure to India do it on our exchange, using the Nifty. The opening of our India office reaffirms SGX’s long-standing commitment to the country. We will continue to strengthen our partnership with the National Stock Exchange (NSE) as we grow the Nifty franchise internationally.
As a stakeholder in BSE, we will support the exchange by bringing efficiency with new initiatives and initial public offers. At the same time, our India office will enable us to better support Indian enterprises seeking to raise capital. India is one of the world’s fastest growing economies, with significant funding needs to support its growth and development.
Does SGX plan to offer more indices than the Nifty?
Magnus: There are two parts to this. We are very happy with the collaboration with the NSE and are proud of what we have built together. When I listen to most of my investors, their need is not always about the new index. They are always looking for a new product. So, the possibility of trading Nifty Futures and Nifty Options on SGX would probably be their request. It is natural for us to talk to NSE about that. This is a higher priority than the other indices. However, I cannot resist looking with some interest to the Bank Nifty right now. That can be a possibility if there is more interest among our investors.
How much importance would you give to worrisome events like trading glitches in India? Do you think there is scope for improvement? If so, can you highlight where and what can improve?
Magnus: I think all markets need to continuously improve and Indian markets are no different. If you look deeper into issues, I believe we need to improve the bond market, trading of rupee onshore, which again is a positive sign. The policy makers are also changing the rules for some of the direct investment products like business and investment trusts – I think that is a healthy sign. We are impressed by the speed of the changes that are coming through. A lot has been said in the recent Union Budget and I believe that it augurs well for the future.
Do you think investors are moving to SGX due to regulatory issues and trading cost advantage vis-a-vis other geographies?
Magnus: I think investors move across different trading platforms for a host of reasons. I think why most investors use Singapore as a hub is that they do not use it only for one product but for many. They are familiar with the rules and regulations and technology and, most important, they trust the system. We are counter-party to the clearing house and are prepared to put in a lot of money at risk to port investors. So, there are a lot of factors that come into play on why people use SGX as a hub. I would put trust above all factors, as to why investors prefer to trade here.
We have a new government in place. What is your reaction to the announcements pertaining to the capital markets? What more can be done to increase penetration and draw more retail participation?
Ramaswami: I think any policy certainty always helps progress and as long as we are clear on the policy front, one can expect the capital market to grow. The needs in India are huge and there is every reason for the market to grow.
Singapore is one of the fastest growing and the biggest real estate investment trust (REIT) market. What is your interpretation regarding the announcements pertaining to REITS in the recent Budget? How soon do you think SGX will see an India-related or India-centric REIT on its platform, given the renewed focus given on this issue in the recent Budget?
Magnus: As I said earlier, and reiterate whenever I do meet people here as well, there is nothing more important for us as an outside market to provide than as many products as possible. There is a great opportunity for the Indian market to have REITS and business trusts. I am very pleased the recent Budget laid focus on this and can see REITS coming in quite quickly. If that becomes a success here, there is no doubt that the success will be taken to other markets as well, including the SGX.
Singapore/SGX can never be successful in Indian REITS unless they are first successful here in India. There is a strong belief that we can be successful without having a strong Indian market but I don’t believe it.
Could you elaborate on the commodities segment?
Ramaswami: Our interest is primarily in cross-border commodities. Most of the commodities we support today are hard ones, such as iron ore and coal. So, these essentially are trade-related between Australia, China, Indonesia and now India as well. We act as a price discovery centre.
Do you see an increased participation from Indian shores in coal trading, given the recent emphasis on the commodity and the overall supply situation?
Ramaswami: As I said earlier, price discovery is the function we play, beside removal of risk between counter-parties. So, you need both these functions. Everytime trade grows, even in a country like India, one needs risk to be removed from the system and a way to discover price. For us, agri-commodity is not the focus area right now. We have contracts in rubber and coffee but not on grains.
Another focus area in the Union Budget was infrastructure. How does SGX plan to tap this avenue?
Ramaswami: We are one of the largest bond listing venues in Asia and I think more and more infrastructure will have to be funded by bonds. If you look at bank financing for infrastructure, most banks face pressure on their balance sheets due to this funding. So, I don’t think banks will do long–term infrastructure financing, a stress on the balance sheet, which is offset by short-term consumer deposits. Therefore, bond rates will play an increasing role. Therefore, automatically, we’ll have a bigger role to play here.
As regards infrastructure, the Reserve Bank of India did rejig the cash reserve ratio and the statutory liquidity ratio guidelines for banks, and given leeway regarding priority sector lending targets for funds raised through bonds for extending credit to these sectors. Your comments?
Ramaswami: It does augur well for the bond issuance. However, most of those will be local currency-denominated. Though we do plan to develop rupee bonds, the ones we intend to focus on right now are G3 currency-listed (dollar, euro, and Japanese yen) bonds.
What is the mix of trading on the Singapore Exchange (SGX)? How much of this is from within Singapore and how much from developed markets like the US and Europe? How have the volumes been?
Magnus: One-third of our business is the stock exchange business, one-third is the futures business and the rest is the other business, relating to market data. We have seen over the past few years that there has been a strong growth in the futures business, of nearly 20 per cent (yearly). Geography-wise, there has been a strong growth in the Indian and the Chinese market- related products and the Association of Southeast Asian Nations (Asean) products. What has come lately now is the commodity segment, especially iron ore.
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Ramaswami: Commodities has been a strong area for us and we stand between Australia on the one hand, and China, Indonesia and India on the other. All this flows through Singapore and we do settlement of such trades/ contracts.
What about emerging markets like India? How does it fit into your overall plans and what does the road ahead look like?
Magnus: We are a gateway for investments and facilitate trades in and out of India. A lot of people who want to manage the risk and exposure to India do it on our exchange, using the Nifty. The opening of our India office reaffirms SGX’s long-standing commitment to the country. We will continue to strengthen our partnership with the National Stock Exchange (NSE) as we grow the Nifty franchise internationally.
As a stakeholder in BSE, we will support the exchange by bringing efficiency with new initiatives and initial public offers. At the same time, our India office will enable us to better support Indian enterprises seeking to raise capital. India is one of the world’s fastest growing economies, with significant funding needs to support its growth and development.
Does SGX plan to offer more indices than the Nifty?
Magnus: There are two parts to this. We are very happy with the collaboration with the NSE and are proud of what we have built together. When I listen to most of my investors, their need is not always about the new index. They are always looking for a new product. So, the possibility of trading Nifty Futures and Nifty Options on SGX would probably be their request. It is natural for us to talk to NSE about that. This is a higher priority than the other indices. However, I cannot resist looking with some interest to the Bank Nifty right now. That can be a possibility if there is more interest among our investors.
How much importance would you give to worrisome events like trading glitches in India? Do you think there is scope for improvement? If so, can you highlight where and what can improve?
Magnus: I think all markets need to continuously improve and Indian markets are no different. If you look deeper into issues, I believe we need to improve the bond market, trading of rupee onshore, which again is a positive sign. The policy makers are also changing the rules for some of the direct investment products like business and investment trusts – I think that is a healthy sign. We are impressed by the speed of the changes that are coming through. A lot has been said in the recent Union Budget and I believe that it augurs well for the future.
Do you think investors are moving to SGX due to regulatory issues and trading cost advantage vis-a-vis other geographies?
Magnus: I think investors move across different trading platforms for a host of reasons. I think why most investors use Singapore as a hub is that they do not use it only for one product but for many. They are familiar with the rules and regulations and technology and, most important, they trust the system. We are counter-party to the clearing house and are prepared to put in a lot of money at risk to port investors. So, there are a lot of factors that come into play on why people use SGX as a hub. I would put trust above all factors, as to why investors prefer to trade here.
We have a new government in place. What is your reaction to the announcements pertaining to the capital markets? What more can be done to increase penetration and draw more retail participation?
Ramaswami: I think any policy certainty always helps progress and as long as we are clear on the policy front, one can expect the capital market to grow. The needs in India are huge and there is every reason for the market to grow.
Singapore is one of the fastest growing and the biggest real estate investment trust (REIT) market. What is your interpretation regarding the announcements pertaining to REITS in the recent Budget? How soon do you think SGX will see an India-related or India-centric REIT on its platform, given the renewed focus given on this issue in the recent Budget?
Magnus: As I said earlier, and reiterate whenever I do meet people here as well, there is nothing more important for us as an outside market to provide than as many products as possible. There is a great opportunity for the Indian market to have REITS and business trusts. I am very pleased the recent Budget laid focus on this and can see REITS coming in quite quickly. If that becomes a success here, there is no doubt that the success will be taken to other markets as well, including the SGX.
Singapore/SGX can never be successful in Indian REITS unless they are first successful here in India. There is a strong belief that we can be successful without having a strong Indian market but I don’t believe it.
Could you elaborate on the commodities segment?
Ramaswami: Our interest is primarily in cross-border commodities. Most of the commodities we support today are hard ones, such as iron ore and coal. So, these essentially are trade-related between Australia, China, Indonesia and now India as well. We act as a price discovery centre.
Do you see an increased participation from Indian shores in coal trading, given the recent emphasis on the commodity and the overall supply situation?
Ramaswami: As I said earlier, price discovery is the function we play, beside removal of risk between counter-parties. So, you need both these functions. Everytime trade grows, even in a country like India, one needs risk to be removed from the system and a way to discover price. For us, agri-commodity is not the focus area right now. We have contracts in rubber and coffee but not on grains.
Another focus area in the Union Budget was infrastructure. How does SGX plan to tap this avenue?
Ramaswami: We are one of the largest bond listing venues in Asia and I think more and more infrastructure will have to be funded by bonds. If you look at bank financing for infrastructure, most banks face pressure on their balance sheets due to this funding. So, I don’t think banks will do long–term infrastructure financing, a stress on the balance sheet, which is offset by short-term consumer deposits. Therefore, bond rates will play an increasing role. Therefore, automatically, we’ll have a bigger role to play here.
As regards infrastructure, the Reserve Bank of India did rejig the cash reserve ratio and the statutory liquidity ratio guidelines for banks, and given leeway regarding priority sector lending targets for funds raised through bonds for extending credit to these sectors. Your comments?
Ramaswami: It does augur well for the bond issuance. However, most of those will be local currency-denominated. Though we do plan to develop rupee bonds, the ones we intend to focus on right now are G3 currency-listed (dollar, euro, and Japanese yen) bonds.