Singapore Exchange Ltd

SGX:S68

Earnings Call Transcript 2019-Q3

[Lay Chew Chng, executive]

Hi, good evening to everyone here and to those on the webcast. Thank you very much for taking time to attend our Third Quarter Fiscal Year 2019 Results Briefing. As usual, I'll start off with a presentation on the financial results, and then Boon Chye, our CEO, will present a business update.

Let me begin with some of the key financial highlights. SGX delivered a strong set of results in our third fiscal quarter. Our net profit was $100 million comparable with the same quarter a year ago. Top line revenue rose 3% to $229 million.

The past quarter saw continued volatility in Asian equities markets from lingering trade tensions between the U.S. and China. In commodities, iron ore prices were volatile from supply disruptions in Brazil as well as Australia. As the leading Asian risk management venue, SGX benefited from this volatility and the ensuing need for risk management solutions.

Our Derivatives business saw higher customer demand for our contracts which led to a third consecutive quarter of record revenue and volume.

During the quarter, equity investors adopted a cautious stance. Traded value in our equities market fell 31% to $62 billion. The decline was in line with our regional and global peers.

Expenses increased 6% to $111 million and earnings per share was 9.37 -- $0.093 per share, sufficient to cover the quarterly dividend of $0.075 cents.

This next slide shows the quarterly trend for revenue, expenses, operating profit and net profit over the past 5 quarters. Top line revenue shows a positive trend and net profit has grown over the past 4 quarters. Compared to the second quarter, revenue increased by 2% and net profit was up 3%.

Next, we show the year-to-date 9-month trend for revenue, expenses, operating profit and net profit. As you can see, the revenue, operating profit and net profit for the same period, 9 months, over the last 3 years shows a positive growing trend. Revenue increased 5% from a year ago while expenses grew 6%, as we executed our strategic priorities. Net profit increased 3% for the same period compared to a year ago.

This waterfall chart shows our quarterly revenue movement year-on-year. Boon Chye will review each of our 3 businesses in more detail later. As mentioned earlier, our top line revenue grew 3% to $229 million. Our Derivatives business achieved record revenue of $119 million, up 32% from a year ago. It accounted for 52% of our total revenues.

The results were driven by the following: Our total traded volume grew 12% to a record 60 million contracts. And the blended average fee per contract was $1.11, up 5% from a year ago due to a change in mix of products traded and our ability to pull back some rebates.

Collateral management, licensed membership and other revenue increased mainly due to higher collateral management income. This is largely due to higher open interest and margin balances from increased demand for our risk management solutions.

Our Equities and Fixed Income business earned revenues of $84 million, a decline of 22% from a year ago. So this business now accounts for 37% of our total revenues.

Securities Trading and Clearing revenue declined 30% to $43 million. This corresponds to the 30% decline in our SDAV and total traded value. Note that the SDAV in the third quarter of last year was $1.45 billion compared to the $1.02 billion that we have seen this past quarter. And last year was the highest SDAV for the quarter since fourth quarter fiscal year 2013.

Average clearing fee declined from 2.71 to 2.67 basis points due to increased activity from our market makers.

Post Trade Services revenue declined 17% to $21 million mainly due to the downward repricing of our delivery versus payment guaranteed fee from April of last year. I think this has been mentioned in previous quarters. There was also lower volume of subsequent settlement instructions in line with the decline in our traded volumes.

Our Market Data and Connectivity business registered a 9% growth in revenue to $26 million. The increase was mainly due to higher reported data usage and continued growth of our colocation business.

Next, we move on to expenses. So this graph shows the movement of our quarterly expenses year-on-year. Expenses increased 6% to $111 million mainly due to higher staff cost and technology expenses. Staff costs increased by 4% mainly due to an increase in head count and annual merit increment. Our average head count increased by 33 to 822 with increases across different units in both the support as well as frontline functions. We continue to pace and are selective in our hiring process.

Technology expenses increased by 7%. This was mainly due to increase in cost from the implementation of new projects such as the new PTS project that was launched in December of 2018. We also incurred expenses to improve our information security.

Other expenses increased by $2 million to $8 million and this is partly due to a one-off accounting adjustment in the same quarter last year which reduced marketing expenses.

This next slide shows the waterfall chart for our 9-month year-to-date revenue movement on a year-on-year basis. So year-to-date revenue, $662 million, up 5%. Our Derivatives business recorded 30% higher revenue of $330 million as traded volumes grew 18% to 174 million contracts. Equities and Fixed Income business generated revenues of $256 million, it's a decline of 16% from a year ago. And the business accounts for 39% of our total revenue.

Within the Equities and Fixed Income business, Securities Trading and Clearing revenue declined 18% to $135 million and SDAV was $1.02 billion compared to $1.25 billion a year ago.

Our Market Data and Connectivity business registered a 6% increase on year-on-year to $77 million, and this was due to continued growth in our colocation business.

Year-to-date expenses, as I mentioned earlier, up 6%. And essentially, the increases in staff and technology expenses. The reasons for those are similar to those that I have just mentioned for the third quarter.

I just want to highlight professional fees increased $6 million to $11 million and this is essentially due to one-off expenses for consultancy and legal fees related to corporate initiatives such as market studies as well as investments that we have made during the course of this year.

Other expenses rose $4 million. This is due to across a number of expense categories from marketing, traveling, regulatory as well as market data charges.

This is my final slide, and it shows the trend of our key financial performance indicators for the past 5 quarters. Operating profit margin, 52%. That's above the 50% that we always like to maintain. ROE, 37%. Just like to inform you that the Board of Directors has declared a quarterly dividend of $0.075 cents per share, an increase of $0.025 cents from a year ago.

Thank you very much. I'll pass on now to Boon Chye.

[Boon Chye Loh, executive]

Thank you, Chng. You have all seen the results now for our third quarter. Let me share more about the business context of these results against the macro trends that we're seeing in the financial markets, and also our continuing efforts in executing our strategic priorities.

So the 4 trends that we're seeing that are relevant in the macro environment that we operate in are as follows: First, Asia continues to lead global growth. In fact, the IMF forecast for emerging and developing Asia for '19 and 2020 is at 6%. That's almost double the global growth.

Secondly, this continued internationalization of the Asian markets. Recently, MSCI has announced that it will increase the weight of China A-shares in MSCI indices. Estimates suggest that the higher weightage could potentially drop to USD 125 billion of funds into the Chinese A-share market this year.

And then the third trend that we've seen for a few years now, the growth of passive investing. But the consequence of that is the demand for the equity index products on exchanges. And based on industry estimates, passive investing in Asia Pac is expected to grow by more than 10% annually in the next few years to up to $5 trillion by the year 2025.

Fourth, the regulatory impact on financial markets has allowed for greater centralized clearing of OTC derivatives. And market participants are seeking for greater capital efficiency. A majority of respondents to a recent BRS report also have the view that non-centrally clear margin requirements which is gradually coming into force will be a driver of central clearing.

With the backdrop of such operating environment, we will continue to extend our proposition to build a multi SL exchange, grow our international presence and widen partnerships and networks with key market infrastructure and participants in the financial markets.

I will now review the respective business lines. You've seen the numbers from Chng earlier. Derivatives revenue reached another quarterly high, $119 million, up 32%. Market Data and Connectivity, up 9% from an increased demand for connected services. And in each of the business subsegment, let me now show you the Derivatives segment. A record quarter not just in revenues but also volume. Total number of contracts traded was up to a total of 60 million, 12% increase year-on-year. We also saw a very strong performance in our FX suite. Volume was up 48%. And similarly, a very strong growth in commodities which grew 30% year-over-year.

The growth in volumes really reflect the value of the suite of products that we offer, a very comprehensive access into Asian markets across different asset classes. The measure that we always look at to is open interest. You can see on the right-hand side of the slide, open interest was up 22%. And the increase of the open interest of almost 1 million contracts year-over-year from 4.8 million to 5.8 million you see on the slide was largely contributed by our net total return futures which really represents passive investing flows, the point I was talking about earlier; and thereby, also participants really seeking for capital efficiency and the increases also due to our A50 futures.

Now let me talk about the equity derivatives segment of the overall Derivatives business. On that, volumes was up 8% year-over-year driven by the A50 reflecting growing demand for access to the China market. And against the trend of passive investing, we also saw growth in our MSCI net total return product suite. The open interest for the particular product category now stands at $27 billion, and that's up 9x from 1 and 3 quarter years ago. And that was when we first started the NTR product. And as I said, global passive investing is seeing more and more adoption of such contracts for people to express exposure or investment into Asia.

To add to that, in the quarter, we increased the number of NTR contracts by 4. And that brings it to a total of 23, a very comprehensive access for investors who are looking to invest into Asia.

The next asset class is FX. Foreign exchange is strong. And indeed, record FX listed futures volumes, it grew 48% year-over-year as I said. CNH and INR, 2 of our key contracts, the volume remains very high amidst macro developments. Market share in CNH currently stands at 70% and the market share for INR currently stands at 47%. And in particular, we have also seen a very significant trading interest in the so-called T+1 session, non-Asian hours, that now represents 20% of the overall FX volume. It has grown up nicely in the last few quarters, clearly part of the efforts of having some of our overseas offices that were set up in the last 2 years.

And also, in response to the trend of regulatory impact, we're seeing benefits of a combination of FX futures and OTC FX being offered on the same platform. And in that, you probably have seen the announcement that we made, having a strategic investment that was made in the quarter in BidFX which offers a liquidity aggregation platform that supports FX spot, swaps, forwards for G10 and Asian currencies. And clearly, the Asian currencies will coexist with our Asian FX listed futures. And in the coming months, we'll be offering our suite of listed Asian FX futures alongside OTC FX products on the BidFX platform, bringing together both pools of liquidity, which in the world where regulatory impact demands best execution, I think the alternative of the FX listed futures will offer also an alternative for the best executed price for people looking to trade the FX.

The third asset class is commodities. Iron ore volume increased 30% year-over-year on the back of price volatility arising from supply constraints in the iron ore market. We talked a lot about the steel value chain in the last few quarters. I think you now see that coming through because in the freight derivatives, our strong market share and the targeted marketing, plus obviously, the volatility of iron ore, saw our volume surge over 70% in the quarter and remain the largest clearing venue for freight derivatives. And we'll continue to launch new products that offer a comprehensive suite of products for our clients.

Also, to cement our position as the leading commodities exchange and also to boost volumes in our benchmark rubber futures, we'll be introducing a new TSR20 rubber options in the coming months.

Now the next business segment is the Equities and Fixed Income. Five equity listing for the quarter comparable year-over-year. We also welcome 3 issuer managers, 2 of which are full Catalist sponsors. And in total, we have now 47 accredited issuer managers and 16 -- of which 16 of them are Catalist full sponsors. For the quarter, we saw 276 bond listings.

And in the trading and clearing of equities, market activity did decline in line with many markets globally as investors adopted a cautious stance. To continue on product development, we expanded the suite of Daily Leverage Certificates, DLC, by the launching the second bench of single stock DLCs in February. Now we have a total of 62 DLCs comprising 40 on single stocks and 22 on indices.

We also relaunched StockFacts, a free online stock screener for the SGX-listed companies. And that provides key information for investors and also assists them in looking at stocks that meet their investment criteria.

In Post Trade, now that we've been operating that for a quarter and the ecosystem is now used to the new Post Trade processes, we're now turning our attention to build on what the platform can offer. We'll be revamping the securities borrowing and lending program and we'll be adding foreign exchange services to the platform. And clients and participants can look forward to these initiatives coming in place in the coming year.

A steady growing business in MDC, this was up 9%. As Chng said, a combination of growth in colocation and trading connections, importantly from increased trading activity that we saw in the derivatives market.

So now let me round up by sharing some thoughts, looking ahead in the next few months. So one, we continue to see growing interest in Asia led by China's internationalization. So growth clearly for Asia Pacific will continue to outpace the rest of the world. And indeed, China is projected to grow at more than 6% in the next 2 to 3 years. And over the next 5 years, projected growth for the region is still likely to be double that of what we see globally.

And as we have done with our suite of multi-asset to access China, we'll continue to extend our multi-asset offerings in order to meet the needs of clients. So in that regard, we'll be introducing the Nikkei 225 implied equity repo in Asia, the first that offers exposure to the repo rate in the largest Asia financing market. We will also expand the NTR suite further as we see the trend of passive investing continuing. And then, as I said earlier, in the commodity space, we'll be adding rubber options in the coming months.

On the Securities business, we expect trading activity to pick up as we enter a low interest rate environment. Some segments, particularly REITs and bond listings, would benefit from such macro environment. We'll also deepen securities offering in the DLC across other geography. In terms of single stocks, right now in Singapore and Hong Kong, we'll extend it to other geographies in Asia.

And in terms of IPO, seeing interest in fund raising restarting after a quiet market in the last quarter given the volatility that we had seen. We see 3 to 4 main board IPOs in the next few months if current conditions proceed.

Just in terms of expense guidance, unchanged for the full financial year: OpEx at $445 million to $455 million for the year; and CapEx between $60 million and $65 million.

So with that, I conclude the presentation and invite my colleagues together with me to take the Q&A.

[Lay Chew Chng, executive]

Nick, one second.

[Nicholas Lord, analyst]

I wonder if we could talk about what I guess is a big issue for your stock which is a potential launch of a competitor product for the A50 in Hong Kong. And I've seen the comments that you've made in the paper about you think the entire market expands, and therefore, there are offsets. But I wonder if you could share with us the sort of thinking you're having in terms of your analysis as to how much market share you might lose, the extent to which the market might grow. And therefore, some indication as to what could happen to your A50 volumes.

[Boon Chye Loh, executive]

Well, if you look at the quarter that just passed and our third quarter, you have the announcement of the inclusion. And investors typically will adopt 1 or 2 stands, right. You prepositions or you increase your weighting as they come in the next 3 phases.

And then two, if you look at some of the recent developments in terms of continued relaxation in the Chinese market, we have volumes obviously increasing in a big way. And if you then compare the offshore and onshore markets in a bigger volume that we saw, our market share dropped. And we have seen the other quarters where the overall market was smaller, our market share grew. But importantly, our absolute volume traded increased. And in the quarter itself, A50 was at 475 million contracts. So with the introduction of a new contract, MSCI, I think you will allow the investors who are using the connect accessing into China and other means of hedging, and when you have another means of hedging, it's likely to draw even more investors into the market itself. So we do see potentially a bigger market. And frankly, how that grows, we all can form our own analysis. And we're optimistic of a bigger market overall and we're well-positioned not just in terms of A50 but overall our China suite. And more importantly, the different asset classes that we offer and also across different geography.

[Nicholas Lord, analyst]

But in terms of -- I mean if we just look at your A50, I mean, your A50 contract is, by a long way, the biggest part of your China suite, yes? I mean do you think that you -- with another offshore contract on offer, do you think you can maintain A50 volumes where they are currently or would you expect to see a material fall in A50 volumes?

[Boon Chye Loh, executive]

We would expect absolute volume not to be impacted. Market share could change. It really depends on how many more players comes and how big the market will grow. And overall, if you are an exchange or any financial service provider that offers investment access into Asia, you cannot have a China -- you cannot not have a China strategy. And with that, you must have a China suite of products.

[Rikin Shah, analyst]

Rikin Shah from Credit Suisse. I have a question on the Derivatives revenue. It does seem like in addition to the strong volumes, the clearing fees have also gone up. So -- and it could probably be due to lower rebates that you would have offered. So my question is which contracts have seen a rollback of the rebates and discounts? And number two, would that be sustainable if it's from China A50 contract, would that be sustainable with Hong Kong Exchange launch of the new product? Would you not want to lower the rebates -- also increase the rebates and lower the fees to maintain your market share?

[Hsien-Min Syn, executive]

So to both questions, I should say that 4 years ago, these questions also turned up, in this case when fees per contract came down and 4 years ago when this question of when is Hong Kong going to launch the A-share product. So I would say now what we did say then, which is the net outcome of what we achieve in fee per contract is driven by a handful of things. Importantly, product mix, but also importantly, how much of this is driven by end clients. So the biggest driver probably of the fee per contract mix for us this time around is the increase in open interest, right? So these are full fee omnibus end clients who are taking more overnight positions in A50, and that's the best sort of business that we can get, and that generally contributes to quite healthy fee per contract.

I think the framing of some of the questions for instance, Nick, that you'd mentioned, tries to simplify it as a substitution effect. But as was before 2015, when I think the onshore volumes were something like 100 to 200 to 300x greater than SGX and we had some of the volumes, the truth is this is part of a gradual but sort of monotonic series of policy measures and the CSRC has been very specific in what it's trying to achieve. It said firstly that it believes that market order is back. A lot of the speculative, I guess, animal spirits have calmed down. Therefore, they are ready to liberalize or return to internationalization and it's a 2-step process. One is onshore. They've already started making those moves, they increased position limits as you know from 10 to 20 to 500. And you've seen the onshore volumes year-on-year go up 2x, 3x. The second step is then to say if my onshore futures exchange in the stock markets have more turnover, better price formation, more IPOs, I will also then contemplate internationalizing this derivatives market, which is what's happening in Hong Kong and possibly, who knows, other products, ETFs, all sorts of things.

So we think that with the underlying total market of Asia, price formation of turnover increasing by this much that you'd be very lucky to have an established product that's 10, 11 years old with track record with history with clearing, and that's what we have. More importantly, we've got the waterfront covered in some ways. We've got A-shares, which is very tight, very specific, a tracker. We've got MSCI China, right? We've got emerging markets Asia which is even -- which is the superset of MSCI China. We've got the key commodities which are internationalizing, which is iron ore, coking coal, freight, rubber. We've got the currency itself, which remember, CNH, the H in CNH is the Hong Kong RMB. I think investors are very much prepared to go to a platform that offers them the waterfront, even if the underlyings are Hong Kong underlying.

So I think the summary of this is that the idiosyncratic growth of what's happening in China in the A-share market is good across the waterfront for anyone who seeks to offer that access and that includes Hong Kong and it includes ourselves.

[Rikin Shah, analyst]

I'm sorry, on the question of any discounts or rebates that would roll back, were there any specific contracts that saw that?

[Hsien-Min Syn, executive]

So what generally happens is we have a rack rate, as you know, for contracts. We do offer service fees to market makers to provide liquidity. And in an environment where there are lots more real money clients coming along, those aren't market makers. So the proportion of clients who are subject to these service fees is much less, and the proportion of clients who pay full fees is much more, and that's where you're seeing the tilt.

[Boon Chye Loh, executive]

And we adjust, if we do, contract by contract periodically we need to. But the main driver, as Mike was saying, we saw the $1 million increase in open interest, right? So those are new additional flows, contributed by net total return and then A50 which is increased volumes. Yes, Nick?

[Nicholas Lord, analyst]

Sorry, just prompted another couple of questions. Can you maybe -- so just you said that actually, the increase in the derivative fee was due to -- I think primarily you said it was due to the open interest in the A50. So my question is...

[Boon Chye Loh, executive]

Net total return.

[Nicholas Lord, analyst]

Net total return. I mean obviously, you have a massive increase in iron ore contracts as a percentage Q-on-Q. I think it was up probably 50% or 60% Q-on-Q, I can't quite remember, did maths but -- and that's your highest margin contract. So did iron ore, the shift in the contribution from iron ore have any impact at all on that? So if you could split between the open interest and the iron ore impact, if you like?

And then secondly, just coming back to the question on -- I think on competitive response. I mean obviously, we saw CME have a go at your iron ore contract 4 or 5 years ago and you had to respond by lowering your fees to 0, and you saw off the threat. You maintained a 97% market share, et cetera, et cetera. How do you think you would be required to respond or what do you think the competitive dynamics of the market might be to respond to Hong Kong Exchange's pricing on the A50 contract? Will it be a similar -- will it require a similar sort of response?

[Hsien-Min Syn, executive]

I think it's very hard to comment on what Hong Kong would seek to do. I would generally say that they are a premium priced gateway infrastructure. We are a premium priced gateway infrastructure, right? That's how we choose to serve our clients. I think you've also seen from our response over the cycles where we have Japan products, we have currency products, we have all sorts of products where you could say that there are complementary or substitute products and in general, we don't seek to compete to buy volume through fees. We seek to offer a premium clearing service, risk management service. And I think we're prepared to do what it takes to meet the clients' needs, but that also includes not letting the balance of our ecosystem go beyond a certain point to purely speculatively liquidity. We do seek to serve real money clients. And I think if you look at the profile of usage when volatility goes up, when open interest goes up, it's been a successful strategy. Meaning the end clients like our mix, they're willing to pay for it. And that's what drives our returns, right? So it doesn't necessitate fee wars. It doesn't necessitate fee competition.

[Boon Chye Loh, executive]

Also, more importantly, it's not just about fee. It's also about cross margining, your capital efficiency that you can get out of a margining. And a very large percentage of our clients, straight multiple products. And depending on what they trade, you've got to quantify the savings they have in margin efficiency just purely from a reduction in fee.

[Nicholas Lord, analyst]

Sorry, do you have the split between the iron ore impact...

[Hsien-Min Syn, executive]

I think we can say that the overall increase in fee for contract, of course, there's a tremendous bump from iron ore except that it, in terms of number of lots, 70,000 a day, it's 8%, 9%. So yes, it does add to the aggregate of the fee contract, number of things, FFAs as well, yes.

[Nicholas Lord, analyst]

Was it industry companies or is it hard to break down?

[Hsien-Min Syn, executive]

Hard to break down. We don't typically break those things down, yes.

[Boon Chye Loh, executive]

Any question from the webcast?

[Dominic Lim, executive]

There's a question from Gurpreet from Goldman Sachs. We saw a lot of trading volume on the A50. Would you be able to attribute it to the MSCI's decision to raise the inclusion factor for A-shares? Or is it the actual owning of underlying A-shares itself that drove the volumes growth. Which one was the bigger driver?

[Hsien-Min Syn, executive]

It's hard to give a linear attribution. I would say a number of things happened. The headline number is how much turnover increased in the onshore market, and that's just because position limits got liberalized. And of course, there was much more news flow in the A-share market. So a 3x increase in the CSI 300 futures, whereas it was a 1.3x increase in our futures. This kind of positive correlation tends to happen, meaning if there's turnover activity onshore, there's price information, there's news flow, then obviously, our clients, who tend to be offshore to offshore, also might wish to exchange risk. I think the news flow that came along with the inclusion was also helpful except that I would say that this wasn't anything sudden, right? It was well-telegraphed, the MSCI consultation's well-telegraphed. I think the timing of it was fairly well-telegraphed. I think all it did, the official announcement, was to give comfort that the direction of travel for internationalization, the agreements that must have gone on between MSCI and CSRC, these things were now to be counted on and relied on. And therefore, people could actually take their positions in A50 and that's what led to the increase in open interest.

[Boon Chye Loh, executive]

Second question?

[Dominic Lim, executive]

Question from DBS, Ruiwen from DBS. As a percentage of the current A50 futures customers, how many of them would be trading in other asset classes as well? Would you be able to disclose that? And the second part of this second question is, would you be able to share a lot more about the China strategy that we have going forward, the medium to long term?

[Hsien-Min Syn, executive]

We operate an omnibus model, meaning our end client users, particularly the institutional users, are clients of our clients, our direct clients being the banks. So I would say that the vast majority of institutional grade clearing members who are bank backed sell the full range of what we do, they clear the full range of what we do, that's the best way to do business, right? So the overlap is very big. So we were to pick Morgan Stanley, Morgan Stanley clears everything, FX, commodities and almost all of our equities. What was the second question?

[Dominic Lim, executive]

China strategy for medium to long term.

[Hsien-Min Syn, executive]

We serve -- we're a hard currency institutional infrastructure. So any institutional investor or trader who operates in hard currency and needs to replicate price, needs to clear a China underlying, we try and serve that. One of the most interesting developments in the past 12 to 18 months has been in commodities. So when we talk about hard currency clearing commodities and we talk about institutions, it's actually a slightly different pool of people. They tend to be not financial investors. So what we've seen is that as China seeks internationalizing commodities, it's a subtly different strategy, right? So the #1 driver of what they're doing is to say commodity futures are there to serve the real economy. And one of the things that the Chinese exchanges need is international informed physical traders to interact with their marketplace.

We've seen probably 3 or 4 Chinese securities companies set up shop in Singapore, specifically to serve that commodity ecosystem. We've seen 2 Chinese exchanges receive regulatory recognition by MAS as recognized exchanges and they need that recognition because the Shells, the BPs of Singapore will not interact with the Chinese marketplace without that regulatory recognition.

So this corridor as we call it, it's very specific to commodities and FX and possibly freight. And it's a corridor that we seek to farm quite actively because we see a quite active pipeline of these Chinese securities companies, FCMs we call them, setting up in Singapore. Their first purpose is to try and get international customers to trade into China. But while they're here, they also get a membership with Singapore Exchange and they also bring their onshore Chinese customers to interact with our marketplace. So this is a very interesting development that is in its early stages. We admitted [ Nangwa ] futures late last year and we expect that there will be more names like that popping up in the coming year.

[Boon Chye Loh, executive]

Any other questions?

[Unknown Analyst]

Sorry, I'd like to ask if you could expand on the commodities point. Would you add contracts for example in LNG or in oil given the success of the Shanghai oil contract?

[Hsien-Min Syn, executive]

We've been quite focused in what we might be relevant in as a subset of what Singapore might be relevant in, right? So Singapore, obviously, is a large dry bulk shipping chartering oil center, so that tends to marry quite well with the early contracts which are being internationalized. So you've seen Shanghai internationalize crude oil, you've seen DCE do iron ore and you've seen [ Samso ] do PTA which is petrochemical and plastic. So those are the obvious things we're going to work on. Oil, I have to say is not a strength of ours, right? That's a franchise that belongs to the very large American exchanges. I think we're focused more on the future. We understand that rubber is probably going to be one of the next contracts to be internationalized.

So there's a series of commodities where there's a policy priority that says both for security of supply as well as for internationalization, these are the ones that the [ CSRCN ] its exchanges would seek to internationalize and we would seek to cover our waterfront with almost all of them, but realistically, we're not doing oil, we're not doing molecules, yes.

[Dominic Lim, executive]

There's a question from CIMB. Would you be able to give an update on the Nifty situation? And what would be the ideal resolution that SGX would work towards?

[Boon Chye Loh, executive]

Well, we have a good situation, good because both exchanges, the NSE and SGX, have agreed on a proposition that both believes will serve and continue to serve the wider market. And that proposal is with both regulators.

[Dominic Lim, executive]

Also from CIMB. You mentioned earlier that there is returning interest in capital raising. Would you be able to elaborate what kind of capital raising activities will go on?

[Boon Chye Loh, executive]

Sorry, can you say it again?

[Dominic Lim, executive]

So earlier you mentioned about there's return interest in capital raising...

[Unknown Executive]

No, I think recently with the interest rate signals from the Fed, a more benign interest rate environment. And that plays very much to our strengths where we are a global lead market sensor. In the last couple of days, you have seen 2 transactions launched in the primary market, both collectively, cumulatively raising about more than USD 1 billion. And we expect to see this trend continue positively.

In the secondary market as well, the REITs have been a good contributor. Whilst they are 10% of our total market capitalization to date, we also see them contributing in terms of turnover more than that because of the follow-on offerings that are so regular in this market. So this is one area of strength. Likewise, in the fixed income area, we see more bond offerings including public bond offerings from some of our blue-chip companies in Singapore also tapping the markets successfully.

[Unknown Analyst]

Boon Chye, you mentioned in terms of NSE, there's a proposal both exchanges are sort of -- can you give some highlights on what the proposal is and what is its status? Has it gone to the MAS or any details on this?

[Boon Chye Loh, executive]

I would say it has gone to both regulators. Not in a position to divulge details but both exchanges are in agreement, agreeing on a proposal.

[Unknown Analyst]

But what are the both exchanges agreeing on?

[Boon Chye Loh, executive]

You'll see it when you see it.

[Unknown Analyst]

Any time line for this?

[Boon Chye Loh, executive]

I will not speculate on a time line. But it's indeed, as I said, a good position. NSE and SGX have agreed on a way forward that both exchanges can continue to serve the wider marketplace.

Any other questions? Yes?

[Unknown Analyst]

Just wanted to get an update on the fixed income bond probe, like from like when we would see some progress or the fixed income secondary trading clearing revenue start to becoming more meaningful for the overall business?

[Unknown Executive]

Well, we continue to grow and develop that. We are happy with more and more participants coming on board and regular transactions and we certainly hope to shift currently our model where we are building out the business. And then with many of these new businesses, we offer a period of free trading to build that up. We expect to go into the next financial year potentially changing that.

[Boon Chye Loh, executive]

Any other last question?

Okay. In that, thank you, all. Appreciate your presence and participation. See you on the next quarter.

[Dominic Lim, executive]

Thank you.