• 1HFY26 revenue and earnings met our estimates, at 51%/50% of FY26e. Core operating revenue growth (+6% Equities, +14% FICC) offset the drag from Treasury income (-14%). Interim quarterly DPS increased by 22% YoY to 11 cents, with 1HFY26 DPS at 21.75 cents (+21% YoY). SGX has maintained its guidance to increase DPS by 0.25 cents per quarter until FY28.
• FICC grew by 14% YoY, led by continued growth in commodity and currency derivatives volumes and higher OTC FX revenue. Equities revenue rose (+6% YoY) from a surge in SDAV partially offset by lower equity derivatives volumes. Treasury income pulled down earnings momentum (-14% YoY) from lower average yields on margin deposits as interest rates declined.
• Maintain ACCUMULATE with a higher target price of S$18.30 (prev. S$16.90). Our FY26e estimates remain unchanged. Our target price is pegged to +2SD of its 5-year mean, or 28x P/E FY26e (Figure 1), up from 26x P/E. We expect SGX to maintain stable growth from its OTC FX business pillars, driven by digitalization and platform stickiness. As these pillars scale, SGX will increasingly benefit from operating leverage. Additionally, Equity Market Development Programme (EQDP) inflows, Trump administration trade policy uncertainty, and the Fed’s monetary easing cycle will continue to boost volumes in 2026. While falling rates create a treasury headwind, operating leverage from rising SDAV will be the driver of earnings.

The Positives
+ Currency and Commodities growth continue. Currency and commodities trading and
clearing revenue (+18% YoY) was the primary contributor to FICC revenue in 1HFY26, led by
increased currency derivatives volumes (+18% YoY) and commodity derivatives volumes (+24%
YoY). SGX’s OTC FX growth was stable, with revenue rising 8% YoY and headline average daily
volume (ADV) rising 32% YoY to US$180bn. SGX has maintained its guidance that OTC FX will
contribute mid-to-high single digits to EBITDA in the medium term (1HFY26: 5%, FY25: 5%,
FY24: 3%).

• 2HFY25 revenue of S$688mn and earnings of S$308mn were below our estimates, with FY25 revenue and PATMI at 97%/92% of FY25e. The variance came from lower-than-expected FICC and treasury income. 2HFY25 DPS increased by 11% YoY to 19.5 cents with FY25 total DPS at 37.5 cents (+9% YoY). SGX will increase DPS by 0.25 cents every quarter from FY26 to FY28.
• FICC grew by 4% YoY, led by continued growth in commodity and currency derivatives volumes and higher OTC FX revenue. Equities revenue rose (+10% YoY) from a continued recovery in SDAV and equity derivatives volumes. Treasury income pulled down earnings (-17% YoY) from lower average yields on margin deposits as interest rates declined.
• Maintain ACCUMULATE with a higher target price of S$16.90 (prev. S$13.90). We lower FY26e earnings by 10% as we increase FICC revenue and treasury income estimates. Our target price is pegged to +2SD of its 5-year mean or 26x P/E FY26e (Figure 1) from 5-year mean or 21x P/E. We expect SGX to maintain stable growth from its OTC FX business pillars and currency derivatives volumes and benefit from operating leverage. Heightened volatility surrounding the Trump administration and Singapore’s standing as a flight-to-safety venue in Asia will continue to boost volumes in 2025. Falling interest rates remain a headwind as treasury income would decline further from rate cuts.

• 1HFY25 revenue of S$682mn and earnings of S$340mn were above our estimates, with 1HFY25 revenue and PATMI at 53%/55% of FY25e. The variance came from higher-than-expected Equities - Cash and - Derivatives revenue. 1HFY25 DPS increased by 6% YoY to 18 cents (1HFY24: 17 cents), but the dividend payout ratio declined to 57% (1H24: 65%).
• FICC grew 14% YoY, led by continued growth in commodity and currency derivatives volumes, higher OTC FX revenue, and a recovery in listing revenue. Equities revenue recovered (+21% YoY) from a turnaround in SDAV and equity derivatives volumes, while fees remained stable.
• Treasury income was flat YoY, we believe, due to higher average yields on margin deposits from a steepening yield curve being offset by a decline in margin balances.
• Maintain ACCUMULATE with a higher target price of S$13.90 (prev. S$10.78). We increase FY25e earnings by 14% as we increase Equities revenue and lower OPEX estimates. Our target price is pegged to its 5-year mean or 21x P/E (Figure 1). We expect SGX to maintain stable growth from their OTC FX business pillars and currency derivatives volumes and benefit from operating leverage. Heightened volatility surrounding the Trump administration and Singapore’s standing as a flight-to-safety venue in Asia will continue to boost volumes in 2025.

• 2HFY24 revenue of S$639mn met our estimates while adjusted PATMI of S$275mn was below our estimates, with full-year FY24 revenue and adjusted PATMI at 99%/90% of FY24e. The variance came from higher-than-expected FICC revenue offset by lower Equities – Derivatives revenue. 2HFY24 DPS increased by 6% YoY to 17.5 cents (2HFY23: 16.5 cents), full-year FY24 DPS at 34.5 cents (FY23: 32.5 cents).
• Treasury income fell 24% YoY to S$68mn in 2H24 from 2H23’s record level of S$90mn, mainly due to lower average yields on margin deposits and a decrease in margin balances.
• FICC grew 18% YoY, led by continued growth in commodity and currency derivatives volumes, higher OTC FX revenue, and a recovery in listing revenue. Equities revenue fell from a decline in equity derivatives volumes and fees, offset slightly by higher cash equities trading and clearing revenue.
• We maintain ACCUMULATE with a higher target price of S$10.78 (prev. S$10.53). We increase FY25e earnings by 4% as we increase FICC – Currency and Commodities and Market Data and Connectivity revenue estimates. Our target price is pegged to -1SD of its 5-year mean or 18.6x P/E FY25e (Figure 1). We expect SGX to maintain stable growth from currency derivatives volumes and its OTC FX business pillars as they acquire new clients across Europe and Asia Pacific while keeping expense growth contained. However, it will face headwinds to treasury income from the expected rate cuts in 2H24 and continued decline in equity derivatives volumes.

• 1HFY24 revenue of S$592mn was slightly below our estimates, at 45% of FY24e, while adjusted PATMI of S$251mn was below our estimates, at 42% of FY24e. The variance came from higher-than-expected FICC revenue offset by lower Equities – Cash and Equities – Derivatives revenue. 1HFY24 DPS increased by 6% to 17 cents (1HFY23: 16 cents).
• Treasury income surged 47% YoY to S$67mn for 1H24, mainly due to higher average yields on margin deposits, partially offset by a decrease in margin balances.
• FICC grew 28% YoY, led by continued growth in commodity and currency derivatives volumes, higher OTC FX revenue, and higher treasury income. Equities revenue fell due to a decline in trading and clearing, and listing revenue, offset slightly by higher treasury income.
• We downgrade to ACCUMULATE with a lower target price of S$10.53 (prev. S$11.71). We lower FY24e earnings by 3% as we lower Equities – Cash and Derivatives revenue estimates and lower total OPEX estimates for FY24e. Our target price is pegged to -1SD of its 5-year mean or 19.4x P/E (Figure 1). Catalysts include continued growth from OTC FX business pillars, and continued high treasury income due to the higher-for-longer interest rates.

The Positives

+ Treasury income continues to climb. 1H24 total treasury income on collateral balances held in trust surged 47% YoY to S$67mn from 1H23’s treasury income of S$47mn. The increase was mainly due to higher average yields on margin deposits, partially offset by a decrease in margin balances. However, this was lower than the record high of S$90mn reached in 2H23. Notably, 1H24’s treasury income contributed 20% to PBT, similar to the contribution in full-year FY23.

+ FICC – Currency and commodities surges. FICC - Currency and commodities trading and clearing revenue surged 30% YoY to S$148mn in 1H24, as volumes increased in commodity and currency derivatives, primarily from iron ore futures (up 49% YoY in 1H24) and USD/CNH FX futures; as well as higher contribution from OTC FX. SGX’s OTC FX business average daily volume spiked 46% YoY to US$100.1bn, on target to reach SGX’s FY25 target of US$100bn, and contributed S$40.9mn, or 7%, to 1H24 revenue. The increase was primarily due to higher volumes in currency swaps from clients managing interest rate risks.

+ Platform and Others revenue rose 8% YoY. Platform and Others revenue accounted for 20.3% (1H23: 19.5%) of total revenue and grew 8% YoY to S$120mn in 1H24. Market data revenue rose 10% YoY, driven by higher revenue realised from Securities and Derivatives Market Direct Feed subscribers, as well as growth in distribution of Commodities data, while connectivity revenue grew 9% YoY, mainly due to higher revenue from co-location subscribers. Indices and other revenue increased 7% YoY mainly from higher revenue contribution from Energy Market Company and Indices.

The Negatives

- Listing revenue continues decline. FICC - Fixed Income revenue fell 8% YoY in 1H24, dragged down by lower listing revenue. There were 489 bond listings raising S$132bn in 1H24 (2H22: 449 bond listings raised S$104bn). On Cash equities, revenue was 6% lower YoY in 1H24 mainly due to listing revenue declining 3% YoY and trading and clearing revenue falling 14% YoY as daily average traded value, total traded value, and overall average clearing fees fell. Overall, equities revenue accounted for 54% (1H23: 60%) of revenue and fell 6% YoY to S$320mn in 1H24.

- Derivatives volume and fees dip. Total equity derivatives volumes dipped 14% YoY in 1H24, as volumes of GIFT Nifty and FTSE China A50 index futures contracts declined. The average fee per contract for Equity, Currency, and Commodity derivatives was lower at $1.54 in 1H24 (1H23: $1.58) mainly driven by a decline in the average fee of Nifty 50 index futures, due to the reclassification of National Stock Exchange of India fee arrangement from expense to revenue as part of GIFT Connect. Nonetheless, on a pro forma basis, the 1H24 average fee per contract rose slightly to $1.54 (1H23: $1.53).

• FY23 revenue of S$1,194mn met our estimates, at 101% of FY23e, while adjusted PATMI of S$503mn was above our estimates, at 105% of FY23e. Variance came from higher-than-expected treasury income offset by lower listing revenue. FY23 DPS increased to 32.5 cents (FY22: 32 cents).
• Treasury income surged 177% YoY to S$137mn for FY23 and reached a record high, mainly due to higher yield on margin balances from the higher interest rate environment.
• FICC grew 32% YoY, led by continued growth in commodity and currency derivatives volumes, higher OTC FX revenue and higher treasury income. Equities revenue was flat as higher treasury income was offset by lower trading and clearing, and listing revenue.
• We maintain BUY with an unchanged target price of S$11.71. Our target price is pegged to +1SD of its 5-year mean or 20x P/E. Catalysts include continued growth from derivatives volumes and fees and continued growth in treasury income as the higher interest rates start to kick in.

The Positives

+ Treasury income surges to record levels. Treasury and other income surged 141% YoY to S$111mn in 2H23 mainly due to higher interest earned from customer collateral balances. 2H23 treasury income on collateral balances held in trust was reported at S$90mn, which surged 221% YoY from 2H22’s treasury income of S$28mn. Notably, full-year FY23’s treasury income of S$137mn contributed 20% to PBT and reached a record level, surpassing the previous high of FY20’s treasury income of S$135mn.

+ Higher fees from FTSE China A50 and Nifty 50 contracts. Despite equity derivatives volumes dipping 17% YoY in 2H23, Equities - Derivatives trading and clearing revenue only fell 10% YoY, as the lower volumes were offset by higher average fees from SGX Nifty 50 Index futures and SGX FTSE China A50 Index futures contracts. Average fee per contract for Equity, Currency and Commodity derivatives was higher at $1.61 in FY23 (FY22: $1.51) from an increase in higher fee-paying customers for SGX FTSE China A50 Index futures and Nifty 50 Index futures, coupled with strong volume growth in Iron Ore.

+ FICC – Currency and commodities continue growth. FICC - Currency and commodities trading and clearing revenue - rose 19% YoY to S$118mn in 2H23, as volumes increased in commodity and currency derivatives, primarily from iron ore futures (up 37% YoY in 2H23) and USD/CNH FX futures; as well as higher contribution from OTC FX. SGX’s OTC FX business (BidFX, MaxxTrader and Electronic Communication Network (ECN)) average daily volume grew 7.3% YoY to US$75.8bn with a target of US$100bn by FY25, and contributed S$39.2mn, or 6%, to 2H23 revenue. SGX said that it is on track to reach its ADV target of US$100bn as clients settle into the new platform.

The Negatives

- Listing revenue continues to dip. FICC - Fixed Income revenue - fell 28% YoY in 2H23 dragged down by lower listing revenue. There were 469 bond listings raising S$139bn in 2H23 (2H22: 687 bond listings raised S$220bn). On Cash equities, revenue was 12% lower YoY in 2H23 mainly due to listing revenue declining 9% YoY and trading and clearing revenue falling 21% YoY as daily average traded value, total traded value and overall average clearing fees fell. Overall, equities revenue accounted for 59% (2H22: 63%) of revenue and was flat YoY at S$365mn in 2H23, as the growth in Equities – Derivatives revenue pulled up the decline in the Equities – Cash business.

- Data, Connectivity and Indices (DCI) business growth flat. DCI revenue accounted for 12% (2H22: 13%) of total revenue and was flat YoY at S$75mn in 2H23. Market data and indices revenue dipped 4% YoY, mainly due to lower revenue from the index business. Nonetheless, this was offset by an increase of 5% YoY in connectivity revenue mainly due to the upselling of connectivity services to existing clients and the introduction of new GIFT Connect-related co-location and network services.

• 1HFY23 revenue of S$571mn met our estimates, at 48% of FY23e, and adjusted PATMI of S$237mn also met our estimates, at 49% of FY23e. 1HFY23 DPS was unchanged at 16 cents.
• Treasury income surged 124% YoY to S$47mn, mainly due to higher yield on margin balances from the higher interest rate environment.
• FICC grew 35% YoY, led by increased volumes in commodity and currency derivatives and higher contribution from OTC FX.
• We maintain BUY with an unchanged target price of S$11.71. Our estimates remain unchanged, and our target price remains pegged to +2SD of its 5-year mean or 26x P/E. Catalysts include continued growth from derivatives volumes and fees, and higher treasury income as the higher interest rates start to kick in. Expense growth for FY23e was also guided down by management and expected to be at the lower end of the range (7%).

The Positives

+ Treasury income surged in 1H23. Treasury and other income surged 85% YoY to S$73mn in 1H23 with higher interest rates earned from customer collateral balances. 1H23 treasury income on collateral balances held in trust was reported at S$47mn, which surged 124% YoY from 1H22’s treasury income of S$21mn and made up 96% of FY22’s treasury income of S$49mn.

+ Higher fees from FTSE China A50 and Nifty 50 contracts. Despite the flat growth of equity derivatives volumes of 1% YoY, Equities – Derivatives trading and clearing revenue grew 11% YoY to S$145.4mn in 1H23, mainly due to higher average fees from SGX Nifty 50 Index futures and SGX FTSE China A50 Index futures contracts. Average fee per contract for Equity, Currency and Commodity derivatives was higher at $1.58 (1H22: $1.50) mainly due an increase in proportion of higher fee-paying customers for SGX FTSE China A50 Index futures and higher fees realised from SGX Nifty 50 Index futures.

+ OTC FX business on track. SGX’s OTC FX business (BidFX, MaxxTrader and Electronic Communication Network (ECN)) average daily volume grew 34% YoY to US$68.4bn with a target of US$100bn in the medium term, and contributed S$36.2mn, or 6%, to 1H23 revenue. Consequently, FICC - Currencies and Commodities trading and clearing revenue grew 29% mainly due to increased volumes in commodity and currency derivatives and higher contribution from OTC FX. SGX said that it is on track to reach its ADV target of US$100bn as clients settle into the new platform.

The Negatives

- Lower listing revenue hurt Fixed Income and Cash businesses. FICC – Fixed Income revenue was down 35% YoY mainly due to lower listing revenue with 449 bond listings raising S$104.3bn in 1H23 (1H22: 492 bond listings raised S$209.4bn). On the Equities – Cash side, revenue was 10% lower YoY mainly due to listing revenue decreasing 13% YoY and trading and clearing revenue decreasing 11% YoY as daily average traded value, total traded value and overall average clearing fees declined. Overall, equities revenue accounted for 60% (1H22: 64%) of revenue and grew 3% YoY to S$344.7mn, as the growth in Equities – Derivatives revenue pulled up the decline in the Equities – Cash business.

- Data, Connectivity and Indices (DCI) business dipped in 1H23. DCI revenue accounted for 13% (1H22: 14%) of total revenue and decreased 1% YoY to S$0.6mn as market data and indices revenue dipped 8% YoY, mainly due to lower revenue from the index business. Nonetheless, this was offset by an increase of 9% in connectivity revenue mainly due to an increase in subscription of co-location services.

Outlook

Continued development of multi-assets to anchor long-term growth. SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly acquired businesses.

Investing for the medium term. SGX has maintained their guidance of FY23 expenses growth of 7-9% from FY22. This includes ~2% growth from the full-year impact of the acquisition of MaxxTrader. However, expectations are expenses growth will be at the lower end of guidance (7%). The higher expenses are mainly from the buildout of their OTC FX business and higher staff costs from salary increments. With that, SGX expects medium-term expense guidance to remain at mid-single digit growth.

Rising interest rates. Apart from the banks, SGX is another beneficiary of higher interest rates, and treasury income is expected to recover with rising interest rates. As at FY22, SGX reported a S$14bn float from collateral and S$49mn of interest income, which represents 10% of FY22 net income. 1H23 treasury income of S$47mn is currently at 97% of FY22’s. In comparison, in FY20, SGX reported interest income of S$135mn and earned a yield of 98bps on collateral balances when the Fed fund rate peaked at 2.50%. We believe there is a huge upside in their treasury income with the potential to more than triple with the current high interest rate environment.

• Securities volume softening while derivatives volumes trending at 10% growth rate, and derivatives pricing climbing to record levels.
• Pick up in treasury income to accelerate in FY23 as higher interest rates kick in. We estimate Treasury income to rise at least 8% YoY in FY23.
• We maintain BUY with an unchanged target price of S$11.71. Our estimates remain unchanged, and our target price remains pegged to +2SD of its 5-year mean or 26x P/E. Catalysts include continued growth from derivatives volumes and fees, and higher treasury income as the higher interest rates start to kick in.

Securities volumes dip while derivatives volumes trend upwards

SGX’s securities volume is trending downwards, with the 5MFY23 securities daily average volume (SDAV) down 10.5% YoY at 1,095mn contracts as the market sentiment remained subdued due to macroeconomic factors, and the volumes moderated from a record year in FY22. However, SGX’s derivatives volume is trending upwards, with the 5MFY23 derivatives daily average volume (DDAV) up 9.4% YoY. As market volatility continues to rise, derivatives volume can climb for the rest of FY23e.

Treasury income to tick up in FY23

Treasury income dipped in FY21 and FY22 due to the low interest rate environment (Figure 3). However, we expect a rebound in treasury income in FY23e by 8%. Looking at the chart below, we can see that SGX’s treasury income is lagging behind the Fed Fund Rates. As a majority of SGX’s collateral balances (FY22: S$13.9bn) are placed in Fixed Deposits (FDs) with the tenure spread out, certain deposits have not matured yet and the interest rates have not been refreshed. Nonetheless, moving into FY23 we should expect the treasury income to recover to pre-pandemic levels as they get placed into higher interest FDs. In FY20, SGX earned a yield of 98 basis points on collateral balances when Fed fund rate peaked at 2.50%.

• FY22 revenue of S$1.1bn was slightly below our estimates, at 94% of FY22e, while earnings of S$452mn met our estimates, at 99% of our FY22e. Variance came from lower-than-expected equity revenue due to lower treasury income. FY22 DPS was stable at 32 cents.
• FICC and DCI grew 19%/3% YoY, led by an increase in OTC FX revenue and an increase in data and services subscriptions.
• Excluding treasury income, revenue was up 7% YoY, driven by higher derivatives volumes across equities, currencies and commodities.
• Equities – Cash & Derivatives was 4% higher YoY as higher trading and clearing revenue was offset by lower treasury income due to the lower net yield.
• Upgrade to BUY with a higher target price of S$11.71. Our TP is pegged to 26x FY23e P/E, +2SD of its 5-year mean. Catalysts include continued growth from new acquisitions and higher treasury income as the higher interest rates start to kick in.

The Positives

+ New businesses accelerated growth. With the acquisition of MaxxTrader in Jan 2022, SGX’s OTC FX (BidFX, MaxxTrader and Electronic Communication Network (ECN)) average daily volume grew 64% YoY to US$70.6bn with a target of US$100bn in the medium term, and contributed S$55mn, or 5%, to FY22 revenue. Consequently, FICC and DCI grew 23% and 3% YoY respectively to boost revenue growth. Both businesses are expected to remain growth engines for SGX, with opportunities from cross-selling and new client acquisitions on the back of customer access to an enlarged trading network.

+ Underlying business resilient. Excluding treasury income, revenue grew 7% YoY, lifted by higher trading and clearing revenues from equity derivatives, currencies, and commodities. Treasury and other revenue income dropped as treasury income was affected by lower yields from low interest rates.

+ FTSE China A50 and Nifty 50 contracts continue to grow. Despite the introduction of HKEX’s MSCI China A50 Connect Index in Oct 2021, SGX’s FTSE China A50 contract saw increased volume, with growth of 9% YoY. SGX expects trading activity and open interest of the FTSE

China A50 contract to continue growing as the international A- share market expands. SGX’s Nifty 50 contract also showed increased volume and grew 14% YoY.

The Negatives

- Equities – Cash revenue and treasury income dip. Equities – Cash revenue was 6% lower YoY mainly due to corporate actions and other revenue dipping 14% YoY and trading and clearing revenue decreasing 9% YoY as daily average traded value, total traded value and overall average clearing fees declined. On the Equities – Derivatives side, treasury revenue was down 50% YoY to S$28.6mn mainly from treasury income, which declined primarily due to lower net yield. Nonetheless, this was offset by an increase of 22% YoY in trading and clearing revenue as equity derivatives volume increased 4% YoY and higher fees per contract of S$1.51 in FY22 (FY21: S$1.34), 13% higher YoY. Overall, equities revenue was stable YoY at S$699mn and accounted for 64% (FY21: 66%) of revenue.

Outlook

Continued development of multi-assets to anchor long-term growth. SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly acquired businesses.

Investing for the medium term. SGX has guided FY23 expenses to grow 7-9% from FY21. This includes ~2% growth from the full year impact of the acquisition of MaxxTrader. The higher expenses are mainly from the buildout of their OTC FX business and higher staff costs from salary increments. With that, SGX expects medium-term expense guidance to remain at mid-single digit growth.

Rising interest rates. Apart from the banks, SGX is another beneficiary of higher interest rates, and treasury income is expected to recover with rising interest rates, with SGX’s management mentioning that the low treasury income is to remain for the following months, with only an uptick expected later in the year. As at FY21, SGX reported a S$12bn float from collateral and S$72mn of interest income which represents 13% of FY21 operating profit. Based on our calculations, a 25 basis point rate hike would mean an increase of S$30mn in operating profit (or a 6% uplift).

• 1HFY22 revenue was slightly below our estimates, at 44% of FY22e, while earnings met our estimates, at 50% of our FY22e. Variance came from lower-than-expected equity and FICC revenue.
• FICC and DCI grew 15%/3% YoY, led by newly acquired businesses, BidFX and Scientific Beta, respectively.
• Excluding treasury income, revenue was up 6% YoY, lifted by higher trading and clearing revenues from equity derivatives, currencies, and commodities.
• Lower yields dragged down equity derivatives treasury income. Equities – Cash & Derivatives was 5% lower YoY as equity derivatives volume declined 4%.
• Maintain NEUTRAL with unchanged target price of S$10.78. Our TP is pegged to 25x FY22e P/E, +2SD of its 5-year mean. Catalysts include continued growth from new acquisitions and higher treasury income as economic conditions improve.

The Positives

+ New businesses accelerated growth. Newly acquired BidFX and Scientific Beta contributed S$40mn, or 8%, to 1H22 revenue, which is 20% higher YoY. Consequently, FICC and DCI grew 15% and 3% YoY respectively to mitigate Equities - Cash & Derivatives revenue decline. Both businesses are expected to remain growth engines for SGX, with opportunities from cross-selling and new client acquisitions on the back of customer access to an enlarged trading network.

+ Underlying business resilient. Excluding treasury income, revenue grew 6% YoY, lifted by higher trading and clearing revenues from equity derivatives, currencies, and commodities. Treasury and other revenue income dropped as treasury income was affected by lower yields from low interest rates.

+ FTSE China A50 contract showed growth. Despite the introduction of HKEX’s MSCI China A50 Connect Index in Oct 2021, SGX’s FTSE China A50 contract saw increased volume, with open interest growing at more than 10% between Oct and Dec 2021. SGX expects trading activity and open interest of the FTSE China A50 contract to continue growing as the international A-share market expands.

The Negatives

- Lower yields drag equity derivatives treasury income. Equities - Cash & Derivatives was 5% lower YoY as equity derivatives volume declined 4%. This was mitigated by higher fees per contract of S$1.50 in 1H22, 18% higher YoY and in line with our expectations as introductory fees in 1H21 tapered off. 1H22 treasury and other revenue declined 46% YoY mainly from lower treasury income, which declined primarily due to lower yield. Nonetheless, this is expected to recover with rising interest rates, with SGX’s management mentioning that the low treasury income is to remain for the following months, with only an uptick expected later in the year.

Outlook

Continued development of multi-assets to anchor long-term growth. SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly acquired businesses.

Investing for medium term. SGX has guided FY22 expenses of S$565m-575mn, an 8.6% increase from FY21 at the mid-point. More than 50% of the increase will be for near-term investments. These include setting up FX ECN, climate-related initiatives and continued investments in BidFX and Scientific Beta. However, this guidance includes expenses for Maxxtrader, which was previously not included in their earlier guidance. With that, SGX expects FY22 expenses to remain flat or marginally higher compared with FY20’s pre-acquisition expense of S$475mn.

Rising interest rates. Apart from the banks, SGX is another beneficiary of higher interest rates. As at 2H21, SGX reported a S$12bn float from collateral and S$72mn of interest income which represents 13% of FY21 operating profit. Based on our calculations, a 25 basis point rate hike would mean an increase of S$30mn in operating profit (or a 6% uplift).