The index business of the Singapore exchange is seeking to capitalise on demand for independent calculation of indices

Two years on since SGX launched its index business, SGX Index Edge, to offer custom indices for asset managers in Asia, the Singapore exchange is entering the European market with a strong emphasis on structured products. SRP spoke to Simon Karaban, head of index services at SGX, about the exchange’s plans to expand its geographical coverage and the challenges to enter a very competitive region were index providers such as Stoxx, FTSE Russell, Euronext and Solactive dominate the market for underlyings around single index and index baskets.

The focus over the last couple of years has been on building SGX’s shelf of products and indices in close collaboration with investment banks and product manufacturers in the Asia-Pacific region which has led to the successful deployment of a number of thematic indices and a further build-up of our futures-based strategies, with approximately US$500m in notional linked to SGX-developed indices.

“The initial focus has been on expanding the adoption of our strategies in Asia-Pacific but the aim is to grow our index business globally,” said Karaban. “We have invested heavily on our technology platform, called Helios, which we see as a pivotal element of the development of our index range and will change the way we work with investment banks.”

The Helios solution is being developed in the cloud and being deployed on Amazon Web Services (AWS) which means that the processing power of SGX’s capabilities have improved significantly enabling the exchange to aggregate multiple sources of information efficiently.

“The initial expansion in Apac has been a success and we want to replicate that in Europe,” said Karaban. “We’re very keen to offer our indices and services to investment banks covering Europe as we think there is scope for us as we have a very compelling proposition as an exchange-based index solutions provider.”

In Asia Pacific, SGX core market, the exchange has already tapped into different investor channels and goes beyond investment banks and exchange traded funds (ETFs) as SGX indices are being used also by private banks, asset managers, institutional investors, pension funds, etc., according to Karaban.

“Given that in Europe we’re starting afresh in many respects we are going to focus on investment banks and structured products providers because we think that this is a more natural market for us to target in the initial phase where our calculation services and indices can bring value to end investors and help manufacturers diversify their offerings,” he said.

The domination of a handful of index providers actually reflects a lack of choice for customers, according to Karaban. “When you look at most world indices you see that they are all concentrated on the big providers and we still hear on a recurring basis that a lot of these vendors and providers have capacity constraints and struggle to deliver the standards the industry expects,” said Karaban, adding that the exchange’s technology and the ability to react to shift quickly to market demand, respond to specific requests in a fast and efficient manner, and provide a reliable service, will give SGX an edge an the market. “We are entering the European market as an independent and neutral party which will also enable us to establish research partnerships with multiple vendors.”

SGX is “very well positioned” to promote Asian underlyings among European investors and certainly there is an interest in Europe to participate in the Asian markets because investors can get higher yields compared to other regions such as Europe and the US, according to Karaban.

“For yield hungry investors, in Europe in particular, where many investors are dealing with negative rates, having access to Asian underlyings could provide them with opportunities to hedge and/or leverage their portfolios without compromising on the quality of the assets they deploy,” said Karaban. “However, we don’t want to be seen as an Asia-Pacific specialist only but rather as global solutions provider because our access to data and R&D is global.”

Regulation has undoubtedly opened up opportunities for independent index providers because they can use their calculation capabilities to fill the gap left by investment banks retreating from this space or seeking calculation and admin services for their proprietary indices, according to Karaban.

“We believe investment banks will continue to develop their own indices and use independent calculating agents to comply with regulation and demonstrate that there is no conflict of interest and that there are the necessary controls in place,” said Karaban. “As a regulated entity SGX is well placed to capitalise on this shift in the market and our culture of compliance, which is somewhat akin to a bank environment, might also give us an edge compared to other providers in the market.”

SGX is recruiting an index management team which will focus on serving the needs of its clients and increasing the profile of SGX Index Edge in Europe, according to Karaban. “We are planning to engage with market players and promote our business via dedicated market conferences and seminars,” Karaban said. “London is the obvious place to start as most structured products issuers and manufacturers have their headquarters in London. However, there a number of European markets such as France, Switzerland, and other developed markets in Northern Europe, were we think our indices will also resonate with investors seeking to expand and diversify their portfolios.”

Brand positioning and client outreach for the business remain the main challenges for SGX, according to Karaban. “But the feedback we’re getting is very positive and makes us think our indices will be of interest to investors in Europe,” said Karaban.

The main SGX indices used in Asia’s structured products market include the SGX Iron Ore Futures (1x) TR Index, and SGX Iron Ore Futures Inverse (1x) TR Index, as well as the Singapore Exchange (SGX) itself which feature in 45 tranche-based products marketed in Singapore, South Korea, Taiwan and Malaysia.

Related stories:
Machine learning and AI on the horizon, SGX

SGX targets structured products providers and asset managers with ESG series

SGX launches thematic indices, aims at leveraging calculating capabilities with SP providers