Singapore Exchange: Fiscal 1Q19 net profit nearly flat, bolstered by derivatives revenue rise

Signage at the SGX building on Shenton Way in Singapore; taken October 2018.Signage at the SGX building on Shenton Way in Singapore; taken October 2018.

Singapore Exchange reported on Friday that its net profit for the fiscal first quarter rose 0.4 percent on-year to S$91.07 million, as a jump in revenue from derivatives was offset by declines from equities and fixed income.

“We achieved a strong performance in our derivatives market and a comparable securities market performance with the region, amid heightened volatility and emerging market weakness,” SGX said in the statement.

“Looking ahead, we expect continued market volatility as the U.S. tightens interest rates and trade tensions with China escalate, coupled with recent volatility in emerging markets. Our broad range of Asian products, including our recently launched MSCI Net Total Return index futures suite, positions us to meet the increased demand for risk management solutions,” it added.

Revenue for the quarter ended 30 September rose 2.2 percent on-year to S$208.86 million, it said in its exchange filing after the market close on Friday.

Operating expenses rose 4.1 percent on-year in the fiscal first quarter to S$102.50 million, it said.

SGX declared an interim dividend of 7.5 Singapore cents a share, up from 5 Singapore cents a share in the year-earlier period, it said.

Derivatives

Revenue from derivatives climbed 21.3 percent on-year in the quarter to S$97.74 million, accounting for 47 percent of total revenue, up from 39 percent in the year-earlier quarter, it said.

Within the segment, equities and commodities revenue was up 11 percent on-year at S$64.9 million, as total volume increased 17 percent on-year to 54.2 million contracts, mainly on increased volume in the SGX FTSE China A50 futures amid higher volatility in the underlying market, it said. It also saw higher activity in the U.S. dollar/offshore yuan (CNH) and Indian rupee/U.S. dollar futures contracts, it said.

The average fee per contract traded fell to S$1.05 from S$1.12 a year ago, mainly on a product-mix shift, SGX said.

Collateral management, licence, membership and other revenue rose 48 percent on-year to S$32.8 million, mainly on increased demand for risk-management services, including the new MSCI Net Total Return index futures, which spurred higher open interest and collateral margin balances, SGX said.

Decline in IPO value

For the equities & fixed income segment (EFI), revenue fell 13 percent on-year in the quarter to S$86.4 million, accounting for 41 percent of total revenue, down from 49 percent in the year-ago period, it said.

For the issuer services segment, under EFI, revenue fell 11.7 percent on-year in the quarter to S$19.46 million, accounting for 9 percent of total revenue, down from 11 percent in the year-earlier quarter, it said.

SGX said it had 247 bond listings raising S$91.8 billion in the fiscal first quarter, compared with 347 listings raising S$156.1 billion in the year-ago quarter. It had six new equity listings raising S$200 million in the quarter, compared with six raising S$2.7 billion in the year-ago quarter, it said.

Average daily trading falls

For the securities trading and clearing segment, under EFI, revenue fell 8.4 percent on-year in the quarter to S$46.92 million, accounting for 22 percent of total revenue, down from 25 percent in the year-ago quarter, it said.

The securities daily average traded value fell 8 percent on-year in the quarter to S$1.07 billion, from S$1.16 billion in the year-ago quarter, while total traded value fell 8 percent on-year to S$67.5 billion, SGX said.

It said equities’ traded value fell 9 percent on-year in the quarter to S$61.1 billion, while other products’ traded value rose 12 percent on-year to S$6.4 billion.

Post-trade services

Revenue from post-trade services, also considered under EFI, fell 24.3 percent on-year in the quarter to S$20.02 million, accounting for 10 percent of total revenue, down from 13 percent in the year-ago quarter, SGX said.

That was after contract processing revenue ceased after brokers migrated to their own back-office systems by February 2018, SGX said.

In addition, securities settlement revenue fell on a decline in settlement activity and lower prices for the delivery-versus-payment guarantee fee since April, SGX said.

For the market data and connectivity segment, revenue rose 2.1 percent on-year to S$24.71 million, accounting for 12 percent of total revenue, on par with the year-ago quarter, it said.

Outlook

In its outlook, SGX said its agreement with the Tel-Aviv Stock Exchange would help develop interest in technology-sector listings. It added that it planned to set up offices in New York and San Francisco to acquire new customers and improve client coverage.

It guided that operating expenses for the fiscal year would be between S$445 million and S$455 million, with technology-related capital expenditure of S$60 million to S$65 million, in line with previous guidance.

The exchange also pointed to its new product, the FlecC FX futures.

“This will allow the trading desk to be able to hedge their expiry of their forward contracts and they could customize based on the fixing they will see in the next 100 days and send those to the clearing house at SGX for clearing,” CEO Loh Boon Chye said at the results briefing on Friday.

“So you get flexibility via the OTC market, yet you get the confidence of clearing through the SGX clearing house,” he said.

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