Interest-rate hikes heighten FX hedging on Singapore Exchange

The Singapore Exchange (SGX) notched a healthy gain in its FX and commodity volumes, despite seeing a wavering performance across other segments.

As August was yet another month characterized by higher volatility, SGX’s derivatives trading volume rose to a record amid macro uncertainties. The ongoing Russia-Ukraine conflict drove hedging activity in freight with derivatives daily average volume being reported at 20.4 million contracts in August, up 4% year-on-year. The ADV metric also climbed 2% on a yearly basis to 921,170 contracts.

The unprecedented cycle of interest-rate hikes by global central banks continued to place Asian currencies under pressure, driving institutional hedging on SGX FX. Total foreign exchange (FX) futures traded volume increased 31% YoY to 2.6 million contracts, led by a 45% YoY jump in SGX USD/CNH futures to 1.2 million.

The CNH or offshore RMB is increasingly being adopted as a safe-haven currency amid heightened risk aversion, and the SGX contract is the world’s most traded CNH futures.

In addition, trading activity picked up in SGX INR/USD Futures with volume moving higher by 17% year-over-year at 1.3 million contracts amid volatility in the Indian rupee.

In a similar vein, commodity screen derivatives volume rose to a record 1.1 million lots in August as adoption grew from an expanding pool of financial participants. Total commodity derivatives volume also gained 29% YoY to 3.3 million contracts.

Securities market turnover value on SGX Securities climbed 35% m-o-m to S$24.3 billion in August, while securities daily average value (DAV) rose 23% m-o-m to S$1.1 billion.

The broad pickup in securities market turnover came on the back of the corporate earnings season and a strong month-end rebalancing, the exchange operator notes. Institutional portfolio rotation led to an estimated S$750 million in net institutional inflows in August, the highest since January and mainly into the financials and consumer sectors.

FX has been one of the strongest performing sectors during 2022, notably towards the Q3 end. Earlier this year, SGX completed the takeover of FX trading platform MaxxTrader to expand its reach in the foreign exchange space. Together with its wholly-owned subsidiary BidFX, SGX is now Asia’s largest FX derivatives exchange.

After five years operating as a division of TradingScreen, BidFX has emerged in 2017 as a standalone business focused on delivering a workflow solution for FX. Three years later, Singapore Exchange paid nearly $128 million to buy the 80 percent stake it does not own in BidFX. The transaction came as SGX was seeking to build its presence in foreign exchange futures and the over-the-counter market.