Transcript Title Typography

FIA Asia Derivatives Conference
Asian Financial Markets Become More Mainstream
10 August 2005
Singapore Exchange
Linus Koh
Executive Vice President
Head of Products & Services
1
Singapore Exchange Limited
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
Contracts (Billions)

5
4
Equity Indices
3
Interest Rate
Individual Equities
Equity Indices (ex-KOSPI)
2
1
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
2
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
Rank
Million
contracts
Top Contract
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
3
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.
South America
4.9%
North America
32.3%
Korea
80.4%
Asia Pacific
37.4%
China / Hong Kong
6.1%
Singapore
0.9%
Middle East / Africa
0.8%
Europe
24.6%
Source: FIA
Japan
6.3%
Australia / NZ
2.1%
Other Asia
4.2%
4
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
17
25
26
34
43
51
74
94
Country
GDP - real growth rate (%)
China
Singapore
Hong Kong
Malaysia
India
Taiwan
Brazil
Korea, South
9.1
8.1
7.9
7.1
6.2
6
5.1
4.6
Rank
101
120
121
131
141
144
181
Country
GDP - real growth rate (%)
United States
Sweden
Australia
United Kingdom
Finland
Japan
Germany
4.4
3.6
3.5
3.2
3
2.9
1.7
Source: Central Intelligence Agency
Date of Information: 2004 est.
 …disproportionately increasing endogenous interest in commodities, and inbound
participation in equities

Increasingly sophisticated investors
 Rising education levels & increasing standards of living
 High degree of speculation among retail investors

Developing infrastructure for technology and telecommunications
 Korea: World-class telecommunications infrastructure with highest broadband penetration
5
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
6
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
2004
Osaka Securities Exchange, Bursa Malaysia
2002
Chicago Mercantile Exchange
2001
Tokyo Stock Exchange, Paris Bourse, Deutsche Bourse, Oslo
Exchanges
Incorporation / Listing
2004
Bursa Malaysia, International
Securities Exchange
2003
OMHex/OMX
2002
Chicago Mercantile Exchange,
Toronto Stock Exchange,
Sydney Futures Exchange
2001
Iceland Stock Exchange, Athens Stock Exchange, Stock Exchange
of Singapore, Singapore International Monetary Exchange, London
International Financial Futures and Options Exchange
Euronext, London Stock
Exchange
2000
Hong Kong Exchanges &
Clearing, Singapore Exchange
1998
Australian Stock Exchange
1998
Australian Stock Exchange
1997
Amsterdam Exchanges, Borsa Italiana
1995
Tradepoint/virt-x
1996
Copenhagen Stock Exchange
1995
Helsinki Stock Exchange
1993
Stockholm Stock Exchange
2000
1999
Toronto Stock Exchange, Sydney Futures Exchange, London Stock
Exchange, Hong Kong Stock Exchange, New York Mercantile
Exchange & Pacific Exchange
7
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
8
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
Derivatives
Trading
Euronext.
liffe
100%
Cash
Trading
3.6%*
Clearing
Euronext
Settlement
Euroclear
25%
LCH.
Clearnet
10%
* Deemed interest may be higher
Eurex
50%
Deutsche
Bourse
100%
Clearstream
Clearing
100%
Clearstream
Settlement
CME attempted
to acquire ISE
Futures Exchanges
Options Exchanges
CME
CBOT
CBOE Futures
OneChicago
PBOT
NYMEX
NYBOT
ISE
AMEX
CBOE
PHLX
BOX
PCX
CBOE opened a futures
exchange subsidiary
 other exchanges are using M&A as a general growth strategy
PHLX reviving PBOT to list
equity index futures
9
…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.
10
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 intercommodity 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.
11
Growth of SGX Electronic Market
2,000,000
78 .1%
1,800,000
Trading Volume
1,600,000
e-TW
1,400,000
6 7.0 %
1,200,000
4 0 .7%
1,000,000
800,000
SGX Quest
600,000
400,000
200,000
6 7.6 %
e-JGB
9 .2 %
8 .5%
8 .3 %
7.8 %
10 .7% 8 .6 %
12 .2 % 11.8 %
e-NK
3 1.3 %
3 9 .1% 4 5.1%
2 8 .0 %
12 .6 % 15.5%
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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
12
FIA Asia Derivatives Conference
Asian Financial Markets Become More Mainstream
Singapore Exchange
13