Singapore Exchange, or the SGX, connects investors in search of Asian growth to corporate issuers in search of global capital. Indian issuers have raised (cumulative) $ 60 billion in bonds on SGX, making India the third-largest issuer of SGX-listed bonds.

SGX, which opened its liaison office in India on Tuesday, is the first exchange globally to set up shop in India. Magnus Broker, Chief Executive Officer, Singapore Exchange and Muthukrishnan Ramaswamy, President, Singapore Exchange tell Puneet Wadhwa in an interview that they are impressed by the speed of the policy changes that are coming through besides highlighting the need for an improved bond market in India. Edited excerpts:

What is the mix of trading on the Singapore exchange (SGX)? How much of this from within Singapore and how much from the developed markets like the US and Europe? How have the volumes panned out?

One-third of our business is the stock exchange business, one-third is the futures business and the remaining is the other business relating to market data. We have seen over the last few years that there has been a strong growth in the futures business of nearly 20 per cent. Geography-wise, there has been a strong growth in the Indian and the Chinese market related products and the Association of South-east Asian Nations (ASEAN) products. What has come lately now is the commodity segment, especially iron ore.

Ramaswamy: Commodities has been a strong area for us and we stand between Australia on one hand, and China, Indonesia and India on the other. All this flows through Singapore and we do settlement of such trades / contracts.

What about emerging markets like India? How does it fit into your overall plans and what does the road ahead look like?

We are a gateway for investments and facilitate trades in and out of India. A lot of people who want to manage the risk and exposure to India do it on our exchange using the Nifty. The opening of our India office reaffirms SGX’s long-standing commitment to the country. We will continue to strengthen our partnership with the National Stock Exchange (NSE) as we grow the Nifty franchise internationally.

As a stake holder in BSE, we will support the exchange by bringing efficiency with new initiatives and initial public offers (IPOs). At the same time, our India office will enable us to better support Indian enterprises seeking to raise capital as India is one of the world’s fastest growing economies with significant funding needs to support its growth and development.

Does SGX plan to offer more indices going ahead than the Nifty which is on offer right now?

Magnus: There are two parts to this. We are very happy with the collaboration with the NSE and are proud of what we have built together. When I listen to most of my investors, there need is not always about the new index. They are always looking for a new product. So, the possibility of trading Nifty Futures and Nifty Options on SGX would probably be there request, it is natural for us to talk to the NSE about that. This is a higher priority than the other indices. However, I cannot resist looking with some interest to the Bank Nifty right now. That can be a possibility if there is more interest among our investors.

How much importance would you give to worrisome events like trading glitches in India? Do you think there is scope for improvement? If so, can you highlight where and what can improve?

I think all markets need to continuously improve and Indian markets are no different. If you look deeper into issues, I believe we need to improve the bond market, trading of rupee onshore, which again is a positive sign. The policy makers are also changing the rules for some of the direct investment products like business and investment trusts – and I think that is a healthy sign. We are impressed by the speed of the changes that are coming through. A lot has been said in the recent Union Budget and I believe that it augurs well for the future.

Do you think investors are moving to SGX due to regulatory issues and trading cost advantage vis-a-vis other geographies?

I think investors do move across different trading platforms for a host of reasons. I think why most investors use Singapore as a hub is that they do not use is just for one product but for a number of products. They are familiar with the rules and regulations, technology and most importantly they trust the system. We are counterparty to the clearinghouse and are prepared to put in a lot of money at risk to port investors. So there are a lot of factors that come into play on why people use Singapore (SGX) as a hub. I would put trust above all factors as to why investors prefer to trade here.

We have a new government in place now and it recently unveiled its maiden Budget. What is your reaction to the announcements pertaining to the capital markets? What more can be done to increase penetration and draw more retail participation?

Ramaswamy: I think any policy certainty always helps progress and I think that as long as we are clear on the policy front, one can expect the capital market to grow. And the needs in India are huge and there is every reason for the market to grow.

Singapore is one of the fastest growing and the biggest real estate investment trust (REIT) market. What is your interpretation regarding the announcements pertaining to RETIS in the recent Budget? How soon do you think SGX will see an India-related or India centric REIT on its platform given the renewed focus given on this issue in the recent Budget?

As I said earlier and re-iterate whenever I do meet people here as well is that there is nothing more important for us as an outside market to provide as many products as possible. I think there is a great opportunity for the Indian market to have REITS and business trusts. I am very pleased to see the recent Budget laid focus on this and can see REITS coming in quite quickly. If that becomes a success here, there is no doubt that the success will be taken to the other markets as well, including the SGX. Singapore / SGX can never be successful in Indian REITS unless they are first successful here in India. There is a strong belief that we can be a successful without having a strong Indian market, but I don’t believe in that.

Can you elaborate more on the commodities segment?

Ramaswamy: Our interest is primarily in cross-border commodities. Most of the commodities we support today are hard commodities like iron ore, coal etc. So these essentially are trade related between Australia, China, Indonesia and now India as well. We act as a price discovery centre.

Do you see an increased participation from Indian shores in coal trading given the recent emphasis on the commodity given the overall supply situation?

Ramaswamy: Well as I said earlier, price discovery is the function we play besides removal of risk between counterparties. So you need both these functions. Every time trade grows, even in a country like India, one needs risk to be removed from the system and one needs a way to discover price. For us, agri-commodity is not the focus area right now. We have contracts in rubber and coffee but not on grains.

Another focus area in the Union Budget was infrastructure. How does the SGX plan to tap this avenue?

Ramaswamy: We are one of the largest bond listing venues in Asia and I think more and more infrastructure will have to be funded by bonds. If you look at bank financing for infrastructure, most banks face pressure on their balance sheets due to this funding. So going ahead, I don’t think banks will do long-term infrastructure financing which is a stress on the balance sheet, which is offset by short-term consumer deposits. Therefore bond rates will play an increasing role. Therefore automatically, we’ll have a bigger role to play here going ahead.

As regards infrastructure, the Reserve Bank of India (RBI) did rejig cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) guidelines for banks and has given leeway regarding meet priority-sector lending targets for funds raised through bonds for extending credit to these sectors. Your comments…

Ramaswamy: Though I am not completely familiar with the bank guidelines, it does augur well for the bond issuance. However, most of those will be local currency denominated bonds. Though we do plan to develop rupee bonds but the ones we intend to focus on right now are G3 currency-listed (US dollar, euro, and Japanese yen) bonds.