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10 August 2005 FIA Asia Derivatives Conference Asian Financial Markets Become More Mainstream Singapore Exchange Linus Koh Executive Vice President Head of Products & Services Singapore Exchange Limited Equity Indices Interest Rate Individual Equities Equity Indices (ex-KOSPI)

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10 August 2005

FIA Asia Derivatives Conference

Asian Financial Markets Become More Mainstream

Singapore Exchange

Linus Koh

Executive Vice President

Head of Products & Services

Singapore Exchange Limited


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Equity Indices

Interest Rate

Individual Equities

Equity Indices (ex-KOSPI)

Source: FIA

Ag. Commodities: Soyabean futures (Dalian, Tokyo Grain Ex), Corn futures (CBOT)

Energy Products: Crude oil & unleaded gas futures (NYMEX)

Non-Precious Metals: Copper futures (Shanghai Futures Exchange)

Foreign Currency / Index: EuroFX (CME)

Precious Metals: Gold & silver futures (NYMEX)

Since 1999, the global market for exchange traded derivatives has more than tripled from 2.4b to 8.9b contracts

  • Growth has been driven primarily by financial derivatives

  • …and has kept pace with OTC markets


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Source: FIA

* The KOSPI 200 contracts, transferred from KSE to KOFEX in 1/04, are of a low notional value and retail dominated

In 2004, the top 10 derivatives exchanges accounted for 74% of the total volume for exchange traded derivatives

  • Since 1999, Eurex, Euronext.liffe, CME, CBOT and CBOE have been among the top 10 derivatives exchanges with growth greatly due to their financial derivatives contracts. Korea is the only Asian Exchange in the top 10.


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Asian exchanges continue growing, but are not quite mainstream yet

  • In 2004 (as in 2003), Asia / Pacific captured the largest share of the global market for exchange traded derivatives, driven primarily by KRX’s Kospi 200 options & futures.

Source: FIA


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Source: Central Intelligence Agency mainstream yet

Date of Information: 2004 est.

All factors point to this being the decade for derivatives growth in Asia

  • Strong economic growth

    • Average Asia Pacific GDP growth of 6-7% forecast to outpace that of the OECD

  • …disproportionately increasing endogenous interest in commodities, and inbound participation in equities

  • Increasingly sophisticated investors

    • Rising education levels & increasing standards of living

    • High degree of speculation among retail investors

  • Developing infrastructure for technology and telecommunications

    • Korea: World-class telecommunications infrastructure with highest broadband penetration


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    The emerging global competitive landscape mainstream yet

    • Electronic trading has shifted the competitive landscape for exchanges

      • Migration to electronic trading has allowed for

        • greater geographic reach via remote direct trading access (e.g. CME, NYMEX),

        • new business opportunities as systems solution providers (e.g. OMX, Euronext), &

        • extension of services into order routing and back office operations

      • This has provided exchanges with an opportunity to increase profit margins,

      • However, it has also lowered barriers to entry for competition & intensified price competition based on greater cost efficiencies


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    The emerging global competitive landscape mainstream yet

    • Electronic trading has shifted the competitive landscape for exchanges

    • Many exchanges are now also motivated by shareholder requirements

      • new exchanges have established themselves as corporate entities whilst existing exchanges have demutualized and/or listed


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    The emerging global competitive landscape mainstream yet

    • Electronic trading has shifted the competitive landscape for exchanges

    • Many exchanges are now also motivated by shareholder requirements

    • Customers have also begun looking for integrated offerings across markets

      • commoditization of execution services

      • growing demand for bundled clearing services, asset class and market integration, new trading and market data tools


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    US mainstream yet

    CME attempted to acquire ISE

    Options Exchanges

    Futures Exchanges

    ISE

    AMEX

    CBOE

    PHLX

    BOX

    PCX

    CME

    CBOT

    CBOE Futures

    OneChicago

    PBOT

    NYMEX

    NYBOT

    CBOE opened a futures exchange subsidiary

    PHLX reviving PBOT to list equity index futures

    Europe

    Euronext.

    liffe

    Eurex

    Derivatives Trading

    100%

    50%

    Euronext

    Deutsche Bourse

    Cash Trading

    25%

    100%

    3.6%*

    LCH.

    Clearnet

    Clearstream Clearing

    Clearing

    10%

    100%

    Euroclear

    Clearstream Settlement

    Settlement

    * Deemed interest may be higher

    The emerging global competitive landscape

    • Electronic trading has shifted the competitive landscape for exchanges

    • Many exchanges are now also motivated by shareholder requirements

    • Customers have also begun looking for integrated offerings across markets

    • As a result, competition among exchanges has intensified. Many exchanges are:

      • aggressively expanding into other markets, and

      • concurrently using price as a competitive lever.

    • In response,

      • some European Exchanges are moving to offering fully integrated services,

      • while some US Exchanges are bridging the gap between futures & options,

    • other exchanges are using M&A as a general growth strategy


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    …presents a number of challenges to Asian Exchanges mainstream yet

    • Global competition entering Asia

      • CME established first Asian telecommunications hub in Singapore

      • CBOT exploring telecommunications hub in Japan

    • Difficulty of cross-border integration / co-operation

      • Regulatory barriers e.g. capital controls, restricted licenses

      • Incompatible technology & market infrastructure

      • Lack of investor familiarity with regional markets

    • Concerns about retail market speculation

      • Slowdown of Kospi futures and options trading following steps to curb retail speculation by raising initial deposit requirements

    • Asian Exchanges could respond by:

      • expanding their suite of derivatives products to meet complementary onshore/offshore demand,

      • further lowering regulatory and infrastructure barriers, and

      • developing alliances.


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    Update on SGX Developments mainstream yet

    • In December 2003, we commissioned OMX to develop an integrated trading engine for our securities and derivatives market. SGX launched Quest-DT in August 2004.

    • We are progressively launching existing floor traded products electronically.

    • We have offered margin efficiency to customers as a means of enhancing their capital efficiency through enabling margin offsets in the form of inter-commodity spreads across different equity-based contracts including Nikkei 225, MSCI Taiwan & MSCI Singapore.

    • We are developing & implementing an over-the-counter (“OTC”) clearing facility for energy derivatives and forward freight agreements in 1Q 2006.


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    e-TW mainstream yet

    e-JGB

    SGX Quest

    e-NK

    Growth of SGX Electronic Market

    • Total electronic trading volume grew 330% in the 1st half of 2005

    • Achieved an average daily volume (Jan-Jun 05) of 53,400 contracts


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    FIA Asia Derivatives Conference mainstream yet

    Asian Financial Markets Become More Mainstream

    Singapore Exchange


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