Singapore Exchange Ltd (SGX) will launch a second futures contract based on an Indian stock index and options likely to be based on the Straits Times Index in the second half of 2005, an SGX official said on May 31. The moves mark a push by Southeast Asia's largest bourse to increase revenues from sources other than stock trading, which is highly volatile, and to add to a derivatives business that has grown with electronic trading.
SGX is trying to attract more trading of warrants, Linus Koh, head of its products and services group, told Reuters in an interview, noting a doubling in such trade in the latest quarter.
"We are going to be launching the Nifty contract by October this year. By the end of the year, we will be launching index options probably based on the STI," Koh said.
This will be SGX's second launch of a contract based on India's S&P CNX Nifty index of 50 stocks. The SGX launched a Nifty contract in 2000 but it has hardly been traded in the past few years. Koh said the new contract will have a different model.
"Previously, it depended on an order-driven model. We are now working on an active, market-maker model," said Koh, adding SGX will appoint three to five market makers who will provide liquidity for the product.
Koh said warrants make up three to five percent of average daily securities traded by value in Singapore, which ranks sixth among exchanges where warrants are traded. The exchange said warrant trading volume in the quarter ending in March more than doubled from the prior quarter, to S$2.30 billion.
Warrants give rights to buy or sell an underlying security at a set price over a certain period. They are mainly targeted at retail investors. The Hong Kong Exchanges and Clearing Limited is the largest market for warrants, which account for about 15 percent of daily traded value, Koh said.
Deutsche Bank, the biggest issuer of warrants in Singapore, said last week it expects warrant volume to nearly double this year to 8-9 percent of stock market turnover.
SGX, which derives about half of its revenues from stock market trading activity compared with about 15 percent from derivatives trading, launched a S$16 million ($9.6 million) electronic trading platform last August that also handles derivatives products.
Tracy Yu, a Hong Kong-based analyst at Lehman Brothers, expects SGX's earnings for the quarter ending June 30 to show a 3 percent rise from the previous quarter, partly due to higher derivatives revenues.
SGX shares trade at 18.20 times prospective 2005 earnings, compared with 18.50 times for the Hong Kong Exchange and 22 times for the Australian Stock Exchange But SGX offers a dividend yield of 10 percent compared with 6 percent for ASX and 4.7 percent for the Hong Kong bourse.
SGX shares have gained about 6.5 percent since the start of the year and closed at $1.90 on Tuesday.
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