FIA Asia Derivatives Conference

Asian Financial Markets Become More

Mainstream
10 August 2005
Singapore Exchange

Linus Koh
Executive Vice President
Head of Products & 1
Services
Singapore Exchange
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
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Contracts (Billions)

4
Equity Indices
3
2
Interest Rate
1 Individual Equities
Equity Indices (ex-KOSPI)
0
1999 2000 2001 2002 2003 2004

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)

 …and has kept pace with OTC markets

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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.
2004 Top Contract Million
Rank contracts
1 Korea Futures Exchange (KRX) Kospi 200* 2,586.8
2 Eurex Euro-Bund Futures 1,065.6
3 Chicago Mercantile Exchange (CME) Eurodollar Futures 805.3
4 Euronext.liffe Euribor Futures 790.4
5 Chicago Board of Trade (CBOT) T-Note Futures 600.0
6 Chicago Board Options Exchange (CBOE) Equity Options 361.1
7 International Securities Exchange (ISE) Equity Options 360.9
8 Bolsa de Valores de Sao Paulo (Bovespa) Equity Options 235.3
9 Mercado Mexicano de Derivados (MexDer) TIIE 28 Futures 210.4
10 American Stock Exchange (AMEX) Equity Options 202.7
Total 7,218.5
Source: FIA
* The KOSPI 200 contracts, transferred from KSE to KOFEX in 1/04, are of a low notional value and retail dominated

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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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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

Rank Rank
Country C
17 China101 Unite
Source: Central Intelligence Agency
Date of Information: 2004 est.

 …disproportionately increasing endogenous interest in commodities, and inbound

participation in equities

25 Singapore
120 Swe
 Increasingly sophisticated investors
 Rising education levels & increasing standards of living
 High degree of speculation among retail investors

26 Hong121
 Developing infrastructure for technology and telecommunications

Kong
Aust
 Korea: World-class telecommunications infrastructure with highest broadband
penetration

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The emerging global competitive landscape

 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

 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
Demutualisation Incorporation / Listing
2004 Osaka Securities Exchange, Bursa Malaysia 2004 Bursa Malaysia, International
Securities Exchange
2002 Chicago Mercantile Exchange
2003 OMHex/OMX
2001 Tokyo Stock Exchange, Paris Bourse, Deutsche Bourse, Oslo
Exchanges 2002 Chicago Mercantile Exchange,
2000 Toronto Stock Exchange, Sydney Futures Exchange, London Toronto Stock Exchange,
Sydney Futures Exchange
Stock Exchange, Hong Kong Stock Exchange, New York
Mercantile Exchange & Pacific Exchange 2001 Euronext, London Stock
1999 Iceland Stock Exchange, Athens Stock Exchange, Stock Exchange
Exchange of Singapore, Singapore International Monetary 2000 Hong Kong Exchanges &
Exchange, London International Financial Futures and Options Clearing, Singapore Exchange
Exchange
1998 Australian Stock Exchange
1998 Australian Stock Exchange
1995 Tradepoint/virt-x
1997 Amsterdam Exchanges, Borsa Italiana
1996 Copenhagen Stock Exchange
1995 Helsinki Stock Exchange
1993 Stockholm Stock Exchange
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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
 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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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,

US
Europe CME
attempted to
Derivative Euronext. acquire ISE
Eurex
s Trading liffe Futures Exchanges Options
100% 50% Exchanges
Cash Deutsche CME ISE
Euronext
Trading Bourse CBOT AMEX
25% 100% CBOE Futures CBOE
3.6%*
LCH. Clearstream OneChicago PHLX
Clearing PBOT
Clearnet Clearing BOX
10% 100% NYMEX PCX
Clearstream NYBOT
Settlemen Euroclear
Settlement
t
* Deemed interest may be higher CBOE opened a futures PHLX reviving PBOT to
exchange subsidiary list equity index futures

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

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…presents a number of challenges to Asian
Exchanges
 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

 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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Growth of SGX Electronic Market
2,000,000
78.1
%
1,800,000
Trading Volume

1,600,000
1,400,000 e-TW
67.0%
1,200,000 67.6%
e-JGB
40.7%
1,000,000
800,000 45.1
%
e-NK 31
.3%
39.1
%
600,000 SGX Quest 28.0%

400,000 9.2% 1
0.7%
7.8% 8.6% 1
2.2% 1
2.6% 1
5.5%
8.5% 8.3% 1
1.8%
200,000
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 Total electronic trading volume grew 330% in the 1st half of 2005
 Achieved an average daily volume (Jan-Jun 05) of 53,400 contracts
Performance Growth in Trading Volume
Nikkei 225 Index Future 19% in 1st half of 2005

Mini JGB Future 18% in 1st 3 mths after launch

Record Volume (Jun 05): 198,806
Record OI (Jun 05): 78,268
MSCI Taiwan Index Future 38% yr-on-yr monthly trading volume
Record Volume (Jun 05): 816,250
Record DAV (Jun 05): 158,061
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FIA Asia Derivatives Conference
Asian Financial Markets Become More
Mainstream

Singapore Exchange

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