11 Aug 2020

Singapore: a fast-changing FX landscape

By Matthew Lempriere, BSO Head of Asia Pacific & UK

It is now almost a year since the Bank for International Settlements (BIS) published its Triennial Central Bank Survey on Foreign Exchange turnover, which showed that Singapore had retained its position in third place behind London and New York, slightly ahead of Hong Kong SAR.

Since BIS’s previous report was released in 2016, the Monetary Authority of Singapore (MAS) has done much to further its aim of establishing Singapore as the leading FX trading hub in the region. Through a range of incentives, it has steadily lured an increasing number of banks, brokers, liquidity providers (LPs) and trading platforms to the city-state.

First movers

A particular area of focus for MAS has been supporting first movers in primary inter-dealer platforms, multi-dealer platforms and FX liquidity venues to set up their matching, pricing and trading engines in Singapore.

The approach seems to be paying off. In the last few months, the list of major banks launching new electronic trading platforms located in Singapore has grown significantly, with announcements coming thick and fast from the likes of Standard Chartered, JP Morgan Chase, BNY Mellon, Citi, BNP and UBS.

But it’s not just the banks who have been making the move to Singapore. XTX, the largest liquidity provider globally in FX spot/forwards (Euromoney, 2019), was one of the first non-bank LPs to announce that they were building a pricing and trading engine at Equinix’s SG1 facility, in 2018. And in March of this year, Equinix further announced that several additional companies, including Euronext FX, Lucera, Orient Futures and Spark Systems amongst others, also now host their FX trading platforms at Equinix’s data centres in Singapore.

Decisions like these are not taken lightly, so there are undoubtedly significant opportunities that these firms, and others, are looking to capitalise upon by making Singapore the centre of their regional FX electronic trading activities.

Reducing latency

A major factor behind all of this is the reduction of trading latency. Although Singapore has a higher daily FX turnover than Japan, Tokyo remains one of the three key FX trading centres globally (along with New York and London). But routing trades from Singapore via Tokyo incurs a round-trip latency of 70-80 milliseconds, whereas routing directly to a matching engine in Singapore can reduce latency to the point where it is negligible. This factor alone is likely to draw more high frequency trading (HFT) firms and hedge funds to Singapore, once a critical mass of liquidity providers, brokers and trading platform providers has been established.

For any firm looking to take advantage of the growing opportunities that the Singapore FX market offers, having the right infrastructure and fast, reliable, flexible connectivity in place is crucial, not only to Tokyo, New York and London but also to other trading centres around the world, particularly Southeast Asian nations, where rising trade is driving a need for more sophisticated FX instruments and facilities. So it is essential to work with specialised infrastructure and connectivity provider who can facilitate all of this.

The FX market in Singapore is evolving rapidly and these are exciting times. Perhaps it is not surprising that as recently as June 2020, Singapore Exchange (SGX) announced its intention to buy an additional 80% stake in FX trading platform BidFX – which has seen record trading volumes in recent quarters – for $128 million.

There will no doubt be further interesting announcements as this dynamic market grows.

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