Singapore Exchange Ltd

SGX:S68

Earnings Call Transcript 2023-Q2

[Dominic Lim, Head, IR]

Good morning, ladies and gentlemen. Welcome to SGX Group's First Half FY 2023 Results Briefing. Today's agenda will be as follows: First, we'll start off with an update on our financial performance by our CFO, Mr. Ng Yao Loong; followed by a business update by our CEO, Mr. Loh Boon Chye. We'll then end off with a question-and-answer session. I will be quite grateful if you identify yourself before asking your question.

So now let me hand over to Yao Loong for the financial performance update. Yao Loong, please.

[Ng Yao Loong, CFO]

A very good morning, and thank you for joining us this morning as we present our first half FY '23 results. So on a headline basis, our group revenue increased $50 million or 10% year-on-year. It was a resilient operating performance in a rather challenging economic environment. Our derivatives franchise was the key growth driver, which I will talk about a little bit more later.

Headline expenses also grew 10% year-on-year or $25 million. And if we exclude MaxxTrader, revenue on a like-for-like basis would have grown 7%, expenses at a lower rate of 6%. And we acquired MaxxTrader in January of 2022, and so it wasn't in the first half FY '22 results.

Group earnings on a headline basis, up 30% to $285 million. There are several noncash items, which I will again talk about later. If we adjust some of these items out, the earnings would have increased 7% to $237 million.

Now let me run through the details of our financial performance. So Derivatives, if I aggregate the revenue, across the different asset classes, it grew 28% or $52 million. So derivatives, as a whole, contributed 44% to our group revenues, includes both trading and clearing and also the associated treasury income. The outperformance of this segment reflects the value that global investors place on SGX as a platform for Asian access and portfolio risk management. The growth was broad-based across all asset classes, equities, currencies and commodities, and we saw growth also from higher volumes and average fee increases.

The DDAV, or the daily average volume, rose 10% year-on-year to over 1 million contracts. I see that the momentum has carried on to the new year in January, where DDAV rose 18% month-on-month and 6% year-on-year. Average fees increased 5% year-on-year to $1.58 due to the higher fees from our key equity contracts. And if I look back over a 5-year period since the first half FY 2018, this number have increased at a CAGR of about 4% over that period.

Treasury income also benefited from a growth in the open interest and the uptick in interest rates. And in January, we saw further increase in open interest, up 11% on a month-on-month basis.

While not surprising, like many other cash markets, our securities, trading and capital raising activities slowed. We saw lower growth in fixed income listing, IPOs, cash equities trading and post-trade activities. We have been disclosing adjusted earnings to facilitate investors' understanding of our numbers. As a recap, these adjusted numbers gives a better representation of our underlying performance. And this chart or slide shows the reconciliation between the reported, the GAAP numbers and the adjusted earnings. So you can see the difference is largely due to the noncash items in the red box as follows.

First, we had a fair value gain of $27 million from our investment in a private equity fund managed by 7RIDGE. This is a fund that is invested solely in the trading software provider Trading Technologies. This investment was made almost a year ago, December 2021, and the fair value adjustment reflects the strong operating performance of TT, or Trading Technologies. This adjustment, or the mark-to-market, flows through our P&L given its accounting classification.

Next is a $10 million recognition of our stake in Climate Impact X, or CIX, which we received as a result of our contribution. As a market operator, we contributed towards the development of the auction matching platform and also advisory work on how to operate the marketplace. And just to recap, CIX is a global carbon exchange and marketplace for voluntary carbon credits. It was established jointly by SGX, DBS, Standard Chartered and Temasek.

And then finally, we wrote back $15 million of the earn-out revenue relating to the acquisition of MaxxTrader as the calendar year 2022 revenue did not meet the qualifying threshold. And the earn-out is a mechanism precisely designed to protect us as the acquirer from overpaying and to help bridge the price differences between the buyer and seller at the point of acquisition. And what this means is that we do not have to pay the $15 million in cash to the seller, and there's actually no impact to the carrying value of MaxxTrader on our books.

So back to something that's a little bit more familiar our segment reporting, FICC, equities and DCI. Our FICC business, fixed income, currencies and commodities, grew 35% year-on-year, driven by our FX business, both from the exchange traded and OTC space and the commodities business. And if we exclude MaxxTrader, FICC revenue will still be up 25%.

In the FX space, exchange traded currency volumes grew strongly, 48%, from higher activity in our flagship CNH and INR contracts.

As for our OTC FX business, the headline ADV, or average daily volume, was up 34% to $68 billion, largely also due to the consolidation of MaxxTrader. And so if we look on a half-on-half basis, which is second half of FY '22 versus first half of FY '23, those 2 periods will include MaxxTrader. ADV was slightly lower at about 3%, but this decline wasn't unexpected.

This was due to BidFX' focused efforts in migrating their customers to a new FX trading platform and getting the customers used to the new system. And this migration is necessary to lay the foundation for growing our OTC FX business. This has since been completed, the migration. And both entities, BidFX, MaxxTrader, are now focused on acquiring new clients across our key geographies, and we see momentum coming back in January.

We continue to be the largest player in the offshore iron ore futures market. The DAV for iron ore rose almost 50% to a 6-month high of about 130,000 contracts. We broadened our market participants, including having more screen trading. Sorry.

Moving on to equities. Equity Derivatives revenue, up 21% or $30 million, mainly due to higher trading and clearing revenue and also treasury income. Fees was higher due to our Nifty 50 and FTSE contracts. Daily average volume was up 1% to about 720,000 contracts. Revenue for cash equities, 10% lower or $20 million down. Not surprising, as I said. Activity level, measured in terms of SDAV, was down 7% to about $1.1 billion. We saw lower trading activity in the small and mid-cap segments.

In terms of fee, the average clearing fee was down by 3% to about 2.53 basis points. We saw a higher proportion of value traded from our market makers.

Revenue from DCI was flat, mainly due to lower revenue from our Index business. This was offset by higher connectivity revenue from a higher -- or increase in subscription of our co-location services.

Expenses on a headline basis increased 10%, but as I say, if we exclude MaxxTrader, it's lower at 6%. So the cost increase, largely, not a surprise. Staff costs went up 7% or $8 million from a salary adjustments. We also had a headcount increase as we brought in MaxxTrader, about 100 staff from MaxxTrader. So this led to a 12% increase in average headcount over the period.

Technology expenses also up 17% or $6 million from the consolidation of MaxxTrader and higher cost of utilities.

Processing and royalties rose 12%, which -- not surprised because we've got higher volumes across our key contracts such as iron ore. Expenses went up 9% or $7 million. We saw a resumption of traveling expenses. We saw greater marketing activities and also the consolidation of MaxxTrader.

Our first half EBITDA margins was comparable at about 58.5% to a year ago. So at the core, the securities and derivatives this platform level, we saw improved margins. But the overall group margins remain comparable as our new business pillars like OTC FX have lower margins compared to the core business.

Financial strength remains, I would say, very healthy, which is very important in an environment where interest rates are a lot higher. Absolute debt levels have come off as we repaid our bank loans. Leverage ratio declined from about 1.4x a year ago, down to 1.1x. Interest coverage ratio remained strong at more than 100x.

The Board of Directors has declared an interim quarterly dividend of $0.08 per share, bringing total dividend for half year to $0.16 per share. We will make as part of our regular assessments on the dividend levels towards the end of the financial year, where we would have a full financial year performance and also better visibility on the next financial year.

So with that, I will now hand over to our CEO, Mr. Loh Boon Chye, who will deliver his business update.

[Loh Boon Chye, CEO]

Good morning, everyone, and once again, thank you for joining us for the first half FY '23 results briefing. As Yao Loong had shared, we delivered a resilient and robust performance in the first half of FY '23. And you can see that our multi-asset strategy provided participants with a diverse portfolio of risk management tools in a very challenging macro environment.

Our multi-asset platform also provided the revenue diversification in an inflationary and cautious economic backdrop with the strong performance in the derivatives business across equity, commodities and FX, and no doubt, a softer cash market business performance as the rising interest rate environment and uncertainty weigh on sentiments globally.

Our derivatives platform, as you heard earlier, registered higher volumes, and that's across all asset classes, equities, currency and commodities. And the daily average volume increased 10% year-over-year to now over 1 million contracts, clearly demonstrating the strength of our multi-asset platform and the relevance of our portfolio risk management solutions for global investors. In this regard, very glad and excited the SGX was named Global Exchange of the Year at the FOW International Awards 2022, capping a year of many accolades from major media propagations covering different asset classes across the international derivatives industry.

Notably, we registered record volumes across the various asset classes in equities, clearly, a venue of choice by the institutional clients as demonstrated in the growth across the different contracts. For the calendar year itself, 2022, our flagship, China, India and Singapore contracts, saw record volumes, both in the Asian and non-Asian trading hours. Most notably, the SGX FTSE China A50 Index Futures exceeded 100 million contracts for the calendar year itself, calendar year 2022. It clearly provides global investors liquidity availability round the clock via a trusted and efficient venue.

In FX, or foreign exchange, there were also record volumes for the month of November itself, with a total notional of over USD 200 million traded in the flagship CNH Futures contract. In the INR FX Futures contract, volume traded exceeded 42 billion. And even in the Korean won contract, which we have been incubating for a while now, we saw volume across $3 billion.

In the commodity space, DAV was up close to 40% as we strengthen our position as a global price discovery center for key commodities. We can expect our commodity suite to continue to garner interest as a macroeconomic proxy for market cycles, enabling market participants to manage their risk and investments as the economic landscape evolves and optimism rise surrounding China's reopening.

Now let me share with you the growth journey of our iron ore contract. You heard quite a bit over the last few halves in terms of us talking about financialization of the iron ore contract. We talk about screen trading. What you see on the screen here, I think, perfectly represents our commitment and approach to building a trusted and vibrant ecosystem for our clients globally.

As a recap, we launched our iron ore contract almost 15 years ago. Today, the SGX iron ore market is a very vibrant trading venue and a focal point for liquidity in a commodity that has gained significance as a macroeconomic proxy through market cycles. This success clearly is not alone by SGX. It's really a collective effort of an ecosystem coming together from producers, traders, consumers, brokers and clearing members.

To advance the market, we have introduced over the years, market microstructure changes, including adjustment, [indiscernible] size of the contract and adding new functionalities, which cater to more diverse trading strategies. In the last few years, we have expanded the ecosystem, which is what we'll be talking about financialization of iron ore, we've expanded the ecosystem to reach more financial market participants such as asset managers and hedge funds. So the outcome has been an increasing proportion of screen trading and growing interest in trading iron ore outside of Asia as represented by the higher proportion of trading in the non-Asian hours.

So for the whole of calendar year '22, screen trading accounted about 37% of the total trading activity. Volume in the T+1 session accounted for 19% of the screen volume in calendar year '22, and that was up from 12% in calendar year '21. And in the first half of financial year '23, screen trading accounted for 42% of the total trading activity, as you can see from the slide.

So the total iron ore derivatives volume crossed 3 billion tonnes, and that is equivalent to roughly a DAV of close to 100,000 contracts a year. And indeed, for calendar year '22, that was a record. So what does 3 billion tonnes of iron ore being traded kind of represents. So for context, 3 billion tonnes of iron ore is equivalent to building around 37,000 Sydney Harbor bridges, and that's the size and scale of our iron ore market today.

We are at the start of our journey to grow and entrench our key commodities, not only iron ore, but also freight as macroeconomic proxies. We are continuing to grow the ecosystem. And as liquidity deepens, drive further adoption of our contracts in benchmark indices that could potentially lead to the issuance of structured products for investors.

For FX, we are truly the most liquid venue globally for Asian currency derivatives. On CNH and INR FX futures, it is clearly amongst the most liquid FX futures contracts globally. Building on this, we are now growing the OTC FX pillar. Let me share with you the progress in growing this pillar.

To recap in context, when we define OTC FX pillar, that comprises BidFX, MaxxTrader and our own SGX currency note. The combined OTC FX pillar contributes about 6% of the group's revenue. And in the first half of FY '23, the ADV reached close to $70 billion. You heard from Yao Loong, there was a very slight decline half-over-half, and that's because we migrated clients to a new platform, new access, and there was a clear focus on migration of the client. But pleased to report that for January, where we just released our market stats this morning, the average daily volume has reached now USD 80 billion.

We continue to enhance our client and product ecosystem for both BidFX and MaxxTrader by onboarding new clients and expanding our geographical reach across Asia Pacific and Europe. We also transitioned, as you heard, the clients to this new web-based BidCentral platform. This platform is unique and interesting because it does provide our clients with an enhanced customer experience, workflow and obviously, new functionality. And in September of 2022, to complement the overall FX OTC pillar, we launched SGX currency note with the trading of NDFs, non-deliverable forwards. And this now completes the build-out of the SGX FX OTC infrastructure.

CurrencyNode were built on the strength of BidFX and MaxxTrader. You will combine both the buy side and sell side onto one platform, and clients can access multiple sources of OTC FX liquidity anonymously through a single venue. It adopts a central prime brokerage model where the central prime broker bridges participants without the need for them to have direct credit lines with each other.

With relative strength in Asian economies, we continue to enhance mutual market connectivity to deepen access to Asia's leading economies and broaden our ecosystem, clearly making good progress on our mutual market connectivity and the various initiatives. In the coming months, we will commence the full-scale operations of the NSE IFSC-SGX Connect. And that is for the Nifty 50 contract, which will bring us closer to combining the growing domestic liquidity in India in GIFT and the international liquidity that SGX brings to this combined trading on the GIFT venue.

Secondly, you have seen that the SGX Group and Shenzhen Stock Exchange welcome 3 participating ETFs under our ETF product link that was launched in the first half of FY '23. And the listing of those ETFs happened in December 2022, clearly deepening the financial collaboration between China and Singapore, and we look forward to continuing to grow the ETF product link.

Besides cash equities, we are also deepening our access to China across other asset classes. So for example, in fixed income, we entered into a strategic cooperation agreement with China Central Depository & Clearing, CCDC, to promote SGX as the offshore bond listing venue of choice for are bonds that are cleared by CCDC and can be subscribed by investors in China's free trade zone and also by the offshore investors. To date, 12 of such Pro bonds have been listed on SGX.

And in Southeast Asia, which is clearly a vibrant and growing region, we're making progress in the SET, Stock Exchange of Thailand, the SET-SGX depository receipt linkage, and target to launch it by the end of this financial year. Under this linkage, investors in Thailand and Singapore will be able to participate in the other market by a DR, or depository receipt, through their local broker and in their domestic currency. Such linkages will enable us to continue to broaden our product shelf.

In the cash equity product shelf, this allow investors, for example, while ETFs to help and facilitate portfolio allocation and also in our DLCs, which has now been listed for a while, enable them to really navigate and manage a volatile market environment. So in ETFs itself, we did see inflows in the first half of FY '23, and we look towards broadening that shelf further in the months ahead. Also saw good turnover in the DLC, which actually the volume in DLC doubled as market participants use this instrument to gain exposure to China-related indices and stocks.

We are not stopping here. We are further strengthening our commodities business. So in September of 2022, we added 2 variants of the cobalt and 2 lithium contracts to add to our virtual electric car complex. We have also launched the Shanghai Steel Rebar Futures to complete the virtual steel mill and to complement our iron ore contracts. Later this month, we'll be launching the container derivatives, building on our position as the largest dry Forward Freight Agreement, or FFA, clearing venue.

Last but not least, we will continue to broaden the ecosystem in sustainability. We have launched initiatives to enable companies, issuers to showcase their sustainability practices through the launch of ESGenome portal as well as the SGX sustainable fixed income mark. These are 2 separate initiatives that will enable investors to better understand the sustainability efforts of companies. We have also entered into an agreement with MSCI to license the recently launched MSCI Climate Action indices for listed futures contract.

So looking ahead, the reopening of China's border could potentially boost global GDP this year. Also, the inflationary outlook of the environment remains uncertain and could provide opportunities for higher portfolio risk management and market access activities by our derivatives platform. For the cash equities, near-term uncertainty may continue to persist as inflation, and interest rate risk concerns may impact growth and corporate earnings.

We remain very focused on extending our mutual market connectivity initiatives. And as I said earlier, in the coming months, we will commence the full-scale trading of the NSE IFSC-SGX GIFT Connect. Our guidance for the FY 2023 expenses remain unchanged. And barring any unforeseen risks, we expect full year expense growth to be at the lower end of our guidance. And our capital expenditure guidance for the year remains unchanged at $70 million to $75 million.

So looking forward, to building on this resilient and robust first half '23 performance, and importantly, helping our clients navigate the evolving environment while delivering value to our shareholders and stakeholders.

With that, I conclude my presentation, and we'll move into the Q&A segment. Thank you.

[Dominic Lim, Head, IR]

Anyone here with the first question? Yes, Nick?

[Nicholas Lord, Morgan Stanley]

Yes. And congratulations on the results. It's Nick Lord from Morgan Stanley. Two questions. One sort of about the numbers and one a little bit more strategic. Just in terms of the numbers. I've just looked at the Q1, but I couldn't remember what the full or the half year was. But am I right in thinking the derivatives contract per fee came down in Q2 versus Q1? I just -- I think that was the case. And if that was the case, could you just tell us -- talk a little bit about some of the moves, Q-on-Q and that derivative fee?

And then on the longer term, and it was a very interesting slide, I thought on iron ore on the screen slaving -- screen trading and the financialization of that market. You spoke a lot about freight and you spoke about your EV sort of infrastructure. Are there any other sort of big commodity can trade? I mean, in particular, you used to do LNG? Are there any sort of thoughts as to how you might be able to move back into some of those other commodities over time?

[Ng Yao Loong, CFO]

Yes. So if I recap the numbers, I'm trying to remember, I think Q1, we were talking about just above $1.60, and now we are talking about over half $1.58. So I think that's why you look at $1.60. Yes. So I think, average fee is due to a combination of proportion of contracts depending on where each of them have a different fee structure and fee level as well.

So I would say that the decline, you can look at one of the reasons would be commodities, which now plays a larger impact. Financialization, while it helps drive up DAV, does actually have a downward pressure on fees as we get more participants and financial participants on screen trading, which is critical to building the iron ore franchise. So I think you will see that there has been an impact from a Q-on-Q basis. But I would like to bring it back to what I started as well. Look at it over a period of time, over a 5-year period, average fees have gone up 4% on average CAGR.

[Unidentified Company Representative]

Yes. Maybe yes, can you -- yes, Nick. So on the new contract itself, I think when we look at the complex, clearly, a big part of the DDAV is iron ore. We think that we are hitting a new phase of adoption, financialization as we have seen on the screen percentage and volume. Given that, I would say that we are now potentially on a more sustained path. Clearly, in the near term, if you look at quarter-on-quarter, it's next quarter to be higher and lower, it's all subjected to market supply and demand. But I would say that iron ore is likely to continue to be an important driver, followed by freight.

Now while we want to focus on growing the key contracts, adoption, financialization through our global network, it's also important that we continue to look out for a very interesting future growth areas that we want to invest, so that we have a next batch of cobalt product that's coming up.

So you mentioned, I think EV is something that we are investing, it's still at a relatively nascent state because, as you know, global cobalt itself is still relatively small. At the same time, I think you mentioned LNG. I think you might have seen in the news that we have also announced our plan to launch the Container Index on the 20th of Jan. I think those are very interesting buildup of our overall freight complex because then it means that we have dry bulk today where we are a market leader, we have LNG, but more importantly, I think, on -- especially on the container part, and we know that container is around 3, 4x the size of dry bulk. It's still, again, early stage. We do not think that there's going to be a very impactful near-term impact on revenue. But just from a medium-term perspective, I think those are the new contracts that we want to invest in.

[Loh Boon Chye, CEO]

Nick, maybe just also to extent that I think for us, it is important to build on the strength and position that we have. So clearly, we are a very important and liquid venue for iron ore today. So lots to build up on that. And by that, what do I mean? You heard us talk about, for years now, financialization of the iron ore contract, getting screen trading, getting other players coming in. And I hope we can continue to see that proportion increasing.

The next is really to try and get the contract, the benchmark, the pricing out the way into key indices globally. And when you get into that, what that means is structured products could be issued by banks, by sell-side for investors to participate with a view around the macroeconomic outlook. So that's clearly important. And along with that, we will also then extend when we talk a lot about it, our virtual steel mill, right, other contracts around it. But you build from the strength of what you have in iron ore.

And then the second way to think about it is, then you want to create a cluster. And it's not by accident that we acquired the Baltic exchange 6 years ago. So today, we talk about the overall transport and commodity and freight is in there, and you heard, Beng Hong said, we're going to launch now container, having been in a good position on the dry bulk freight. And that's the way we see in terms of creating markets where liquidity begets liquidity.

I know the other big commodities we can talk about, [indiscernible] is clearly one, or is clearly one, but I think we also have to understand the kind of the kind of cluster the -- strength the core platform that we have, building on strength, I think, give us a better chance of succeeding.

[Nicholas Lord, Morgan Stanley]

Can I just ask one follow-up on that just for my understanding. The fact -- I mean, you said it's taken years to get financialization of iron ore. Now that you've got financialization of iron ore happening, does it mean that the lead time to financialize other products now becomes shorter because people are used to trading -- the financial clients are used to trading maybe? Would that be a fair statement?

[Loh Boon Chye, CEO]

Well, so obviously, not everyone trades commodities. So obviously, for iron ore, we started off with the OTC market, the clear product, but we have the inherent strength of multi-asset. So capital efficiency, financial players are in our platform. In the stem from that, you build from introducing what iron ore really means as a proxy in trading. And that's how we created the liquidity, build coverage globally. We get our [indiscernible] going.

So I think it's on a good path. And yes, I think your question also talks about you would not want to extend that into one of the big commodities. Yes, those are opportunities on the horizon. But I think building on the core strength and then drawing in more and more participants and client coverage across geography is clearly a focus that SGX Group, as a whole, will do.

[Unidentified Company Representative]

Okay. Maybe just to add a bit to Boon Chye's point, we are already a global financial access hub. So the same financial client likely would also be trading A50, Nifty and the rest of product right, for the longest time. I think that more -- an important part around the financialization of iron ore, to some extent, is that the more that you can get a new player, financial clients to look at your commodity suite, and when we are -- and you might be aware that we have also launched rebar, right? And then we have the other part that is our virtual steel mill, it also helps clients to also gain attention to look at the basis.

So to some extent, I think it helps the related product. So if I'm trading iron ore, I think that that's a correlation to bulk. If I'm already doing this, why not we look at dry bulk? Which is why I think we have also seen more financial players in the FX space, to some extent. So it's true, but there are clients that are known to us and access us today.

[Dominic Lim, Head, IR]

As a follow-up to that question on financialization, one came in from Goldman Sachs. Very strong commodity. But how much can screen trading grow further in iron ore? And what's the mature level for comparison?

[Unidentified Company Representative]

Yes. I would say that when we embark on the financialization strategy, we are not really thinking about the screen percentage, per se. But really, to what extent is the screen deep enough, right, where there's sufficient visibility for people who are -- do not access market through brokers, but directly through a screen. At what point do we think it's a trigger point that people are comfortable to access?

We have gone through many layers of -- over the years to get some indication. I think if you recall, 24 months ago, we were on screen. Volume is closer to a 10,000 mark. Today, we are consistently at the 45,000 mark, right? So at 45,000 screen volume over the last 6 months consistently, I think that we have crossed the threshold for a large segment of financial client to be considered accessible, right, and tradeable.

So I would say that one is that Boon Chye has showed the number 42%. We are happy to say that actually in the last 2 months, we are actually closer to 50%, right? So we are around 48%, 49%. So that level continues to go up as the percentage of financial participant on screen continue to grow. If we look at the very developed products out there, that number is closer to, let's say, 75%, 80%, 90%. But we would say that the voice market will continue, especially within the commodity space and important component of the overall ecosystem. It doesn't mean that actually, the voice market is shrinking, right, as we financialize or we have screened. What we have actually seen is that the voice market continues to grow, right? At the same time, the screen continues to grow, right? So we do not think that is expense of one or the other. But the number, I would say that for a very developed product is not -- is seldom 100%. It's closer to 70% to 90% mark.

[Loh Boon Chye, CEO]

I think that's from Gurpreet from Goldman. Yes. So Gurpreet, I know you'd like to try and compare. I mean, look, I'm not going to point you to -- I mean, there are many others that can compare screen over physical like or whatever. And also, I do not want to pay in a picture that I show you that it's going to be upward sloping. I think what's important really is when participants belief and adopt screen trading, it makes lots of difference. You may see half-on-half, on a quarter that screen percentage may change, but what's important is the adoption, and we want obviously to see that growing over medium to long term.

Why is that important? Because for the financial players, it now trades and I know, they were in equity derivatives. They were in FX derivatives. And now they have one more contract to trade, which means I'm more likely to retain them on my platform. And then if they have other offices around the globe, it's much more easier for us to be cross-selling. And that's, I think, the important point. And they are going to get some variation, but I think the adoption, I think, speaks of a more important broader ecosystem that SGX can offer to our clients and participants. Next question, Harsh.

[Harsh Modi, JPMorgan Chase & Co.]

Harsh from JPMorgan. A couple of questions. First on dividend. It looks like you had fantastic numbers and fantastic visibility, the entire multiple sources of revenues, multi-asset platform, all the numbers you showed across different asset classes. So that provides a lot of visibility to your revenues. Despite higher base, your operating margin is still pretty steady, 58.5%. So why not pay out more? Why stay at $0.16 or, whatever, $0.08 per quarter?

[Loh Boon Chye, CEO]

Well, I mean, Harsh, we've been saying [indiscernible] The system revenue [indiscernible] of medium-term growth for the business. But I think what is important, we want to reward our shareholders. And if you look at how we've moved this journey in the last 5 years, clearly, balancing between investing for growth, building all those pillars. And as you already pointed out, in an environment like that, yes, it's a platform that offers participants different solutions, but it's a description of revenue, and now we can see the different pillars. And from that, projecting how we want to grow organically, M&A opportunity and then rewarding shareholders. So those are things that we will clearly be focused on.

[Harsh Modi, JPMorgan Chase & Co.]

Right. If I could just understand a couple of things, better, Boon Chye. One is in terms of payout ratio, we have -- we used to be 19s a couple of years, went to 18s, now we are closer to 17s. Is that how you look at it? Or do you look at it in absolute dollar terms that you are less retaining $100 per year or $150, whatever? Or is it more on the debt-to-EBITDA level? So what are the considerations that get into your payout discussion? And let's say, as I think Yao Loong pointed out, there seems to be some guidance that full year you may consider increasing your dividend. So any guidance on how you think about the process would be useful.

[Loh Boon Chye, CEO]

Yes. So I think if you look back maybe as far as 10, 15 years ago, as you look at our dividend policy, we clearly had a policy of paying the last -- before the change was $0.20, higher $0.20 a share or 80% of net profits, and then we moved it to absolute. And I think what is important is we want to grow the business. And I know there is a segment -- dividends are important to investors. I think there's a segment of also the investing of analyst community that continues to look at the payout ratio.

The reason I point to 10 years ago or how we have shifted, we have shifted from the high of $0.20 or 80% of net profit to absolute dividend, and we want to grow the absolute dividend payable to shareholders. And if you look back, we haven't really moved or changed or lower or rather lower our dividend in that regard. And I think total shareholder returns are important. The market should do what it does with the share price. But we want to make sure that we create value and then we pay our shareholders.

[Harsh Modi, JPMorgan Chase & Co.]

Okay. Finally, on the inorganic opportunities as you think about them. You have already delevered a bit from 1.4 to 1.1. Can you just remind given that interest rates have changed meaningfully since we last spoke? What is the new normal in terms of comfort zone, if you have to lever up? That's one. And what dollar amount effective we are looking at in terms of total size? And next, let's say, 6 months or in calendar '23, should we expect a meaningful deployment of capital for inorganic purposes? And any guidance around what kind of stuff you're looking at?

[Ng Yao Loong, CFO]

Yes, I will take the first part. So with -- just a reminder, we are AA2-rated entity. So when we look at what the rating agencies operate on, I mean there's a few metrics and clearly, gross debt-to-EBITDA line that they draw, not a red line, but kind of a guidance is around 2x. Consistently, we've kind of managed within that number, actually way below that number. So now we are about 1.1x combination of lower absolute debt levels and rising EBITDA.

So as we look at the sizing of our opportunities, I think in the next 6 months, clearly, the focus is on organic execution, OTC FX. We have put in place the pieces with the ECN. So it's about driving that growth. We clearly need to balance some of that with rewarding shareholders. But we will take a view on all these opportunities. We will size it up. But I think if you look at it, being a AA2-rated clearinghouse is an important value proposition to our customers.

[Loh Boon Chye, CEO]

Harsh, I think hard to really point out what are the big M&A. But what I would say is to Nick's question earlier on our commodities and iron ore, it's important for us to think about building on the strength. So some big demanding may come about. We obviously scan the horizon quite a lot, and we think through that. But at this call to what we do, I think building on those strengths. One area that I talk about is really transplant commodities. It could be in other areas like FX. But if you can build on the FX pillar, transport commodities, and if we add to that, those are really, I think, within what we've been able to invest by cash flow, some leverage. And if the big thematic will come up, we'll then look at it and what it means for SGX, for our stakeholders.

[Dominic Lim, Head, IR]

Okay. There's a question from Maybank. Last year, you made some fairly positive statements about pickup listings in the next couple of years.

[Loh Boon Chye, CEO]

Say again, the?

[Dominic Lim, Head, IR]

You made positive statements on listings in the next couple of years, particularly in new segments. Can you give us an update on the outlook?

[Unidentified Company Representative]

Well, I guess we come off quite an extraordinary year in terms of capital markets activities, where we've effectively seen the market, the IPO market globally at very low activity levels. That's unusual. And we also know that markets don't remain shut forever. So if I look at where we were a year ago, I would actually say I'm more optimistic today. Now I'm the sales guy, so you would expect that. But what are we seeing? And frankly, I don't really see this reopening in all earnest in the next 3, 4 months.

There is still some uncertainty in the market, but we see some bright spots, some early activity in capital markets in China at the start of this year. Probably towards the end of this upcoming results season, we may see some activity from other parts of the world. But a lot of this is linked to the macro outlook. The consensus is for Q2 to see a stabilizing rate environment. Very important for IPO activity. So I do expect on the back of that, the markets to come back, I would say, towards the second half of this year.

In the end of the day, company still needs capital to grow, and shareholders still need liquidity. We also see across this region, a huge amount of companies that are now large enough, mature enough to start thinking about their public market journey. A lot of these are in the newer economy sectors. They fit the sweet spot of what we can offer. We also see that Asia capital is becoming more relevant for Asia underlying assets with the focus that investors have increased on the region here for macro reasons, the inflows that we've seen as a result of that. So I remain optimistic for the medium to longer-term outlook here. I think there's a huge opportunity ahead, but still cautious for the next couple of quarters.

[Andrea Choong, CIMB Research]

Andrea from CGS-CIMB. Just 2 questions from me. Firstly, on your treasury income, do you think you could give us the group revenue figure, excluding the treasury income, just to get a better comparable figure with previous quarters? And also, how should we think about this treasury income potentially where it can end up, barring any pause or cut in your Fed rate in this first half of the calendar year, are we likely to see this going back up towards the 2020 figure? Or perhaps even exceeding that?

[Ng Yao Loong, CFO]

Two parts to your question. So the treasury income for first half is so I think you can do the math. Guidance for the whole year, I think it depends on a few factors where rates will be how active our derivative markets, the OI that will have an impact on the amount of collateral that we have. So I will not hazard a guidance at this point in time. But having a look at some of the reports that are out there, I must say, you guys don't need any guidance from me. You guys are pretty good at estimating the treasury income outlook as well. So look, there are many factors. So at this point in time, sharing with you what the first half numbers and think second half, we will see what happens.

[Dominic Lim, Head, IR]

Any other last question? Yes.

[Tabitha Foo, DBS Bank]

I'm Tabitha from DBS Bank. So I only have one question. Are you able to share specific updates for Scientific Beta and BidFX in terms of the client acquisition targets, talent retention? And how are the financial performance against your projections? Are we able to get a sense of the revenue and net profit for first half '23 or FY '22?

[Unidentified Company Representative]

Okay. There are multiple areas that you're asking on Scientific Beta. In terms of talent, we have been expanding the number of people we have in multiple geographies, whether it's in the U.S. And we have announced as well, we opened an office in Australia. We are very positive about the prospects there. We are continuing to hire new talent in Europe. So this is exciting times for Scientific Beta.

In terms of revenue, clearly, the equities pull back globally has affected all index providers. So if you look at across the industry, anybody with asset-based fee, such as ours as well, would have seen some potentially up to double-digit decline percentage-wise. So we did see a pullback in some of the revenue for the first half. We are obviously positive about the fact that equities market will not be down forever, and we will continue to see growth in the future. The world is also clearly increasingly interested in more strategies or indices in climate and in smart beta as well.

So we just announced some mandate that we won in Europe for some of our climate indices. Clearly, we do not announce that frequently. We only announce it when the pension fund or our clients are comfortable with it. In this case, we are very happy to have been able to share the news with the industry on the progress and growth of the business. So we are very confident that the index business continues to be a very exciting opportunity for the group.

[Unidentified Company Representative]

So on the -- yes, on the BidFX side, I would say that we continue to be excited and glad that we have made this investment. On the people side, I think despite what you have heard on the news around all the movement in technology staff last year, when we look at the top senior executive, the COO is actually here. JP is sitting there. He's one down, and 2 down. We are fortunate that we have been able to retain the staff.

I think on the revenue perspective, I think while Boon Chye and Yao Loong briefly mentioned that the revenue growth has slowed down, but we are optimistic. And now given that we have actually made a major migration to a new trading platform for clients, it will be off HTML5, delivered through Google Edge Node to ensure that clients, who are trying to sign up to the platform now will be -- the process will be even easier, because you don't have the usual local in-store requirement, just a bit of details around that.

So with that itself, I would say that we are back to the growth trajectory. We would -- we are planning to continue to invest. We are bullish around foreign exchange as a growing asset class. We continue to be bullish around Asian FX that we have a significant market share and the synergy that we have around futures OTC and complemented by technology.

So I would say that we are -- I think we are over from a BidFX perspective, the more challenging part that imagine they are trying to change Office 365 from every single client and getting them to reinstall and use it. And then you've come find the icon and don't even know where to click for certain functions. I think we are -- we have successfully migrated the clients to the new platform. It's a lighter platform. You will put us in a better place to grow, because it'll be easier for clients to access the platform.

[Dominic Lim, Head, IR]

There's another question from Goldman Sachs, Gurpreet. He wants a little bit more information on NSE Gift. Particularly when is it happening? Are we keeping our clearing fees and clients? And how is the client responds?

[Unidentified Company Representative]

Yes, Mike will take that.

[Mike Syn, Head, Equities & Senior MD]

So we did go out in November, addressing the market at large, talking about full-scale operation of the Connect happening by the middle or slightly after the middle of this calendar year. I'd say we've been carrying our community with us all the way through this journey of this project. Of course, we've had to. There's been widespread consultations. There's 2 regulators involved. There's 2 market infrastructures involved. It's a fairly complex and fairly unique project.

I would say that we have been very blessed in some ways with the recent, quite heightened interest in sort of the addressable investment in risk management pool, which India's capital markets represent. I think when we began this journey, there may have been some skepticism. Is India interesting enough, big enough to be worth a Connect? I think that's off the table now. People know it's big, it's interesting, volatile, returns are idiosyncratic. So clients are really quite interested in making sure that as and when we're ready, they come with us. And the pressure we're actually facing is, can you give us access to more things?

So to your question about fees, our first and most important priority is to make sure that existing products are well reset with liquidity. It helps a great deal that the clearing house remains the same. But to remind everyone, that is the construct of the Connect, that before and after the go live of the Connect, you are still facing SGX-DC clearinghouse. So our first and most important priority is to make sure that liquidity is properly set -- reset. And then after that, there's a much larger addressable market, and India will develop in derivatives the way you've seen all other markets.

[Dominic Lim, Head, IR]

Any last question from anyone online or in person? Okay. In that, thank you very much. I appreciate your presence and participation. Have a good day.