SINGAPORE (September 17): Singapore has seen its leadership over Hong Kong shrink to just one paw in the fight for Asia's largest currency hub in Asia. To maintain its advantage, the island nation wants to attract more companies to set up electronic trading platforms.
Singapore's average daily trading jumped 22% to a record US $ 633 billion in April compared to the same period in 2016, according to the latest Bank of International Settlements survey. That's just ahead of Hong Kong's $ 632 billion, as the Chinese city saw a 45% increase in daily transactions.
Singapore last year enticed UBS Group AG, Citigroup Inc, Standard Chartered Plc and JPMorgan Chase & Co to set up FX engines for pricing and trading so investors can reduce the time lag from directing traffic elsewhere. This has helped to take market share from Japan as it competes against Hong Kong, which is at the forefront of the yuan market.
The Southeast Asian nation will need three to five more major players to build electronic trading platforms to reach "critical mass" over the next year, said Benny Chey, Assistant Director General for Development and International Relations of the Monetary Authority of Singapore.
"We are confident that we will bring these players in as we have already talked to them," Chey said in an interview, without revealing their identity. "The growth of trading in emerging Asian and other currencies will be an increasingly important market driver for Singapore."
The latest BIS data showing a side-by-side race between two rival financial centers also reflected the rise in Hong Kong dollar trading that month, as the bears squeezed when loan costs rose sharply.
"The increase in foreign exchange turnover is mainly due to the protection and arbitrage of trading clients, as well as the increased need for protection and financing of financial institutions," Hong Kong's monetary administration said in an email response. "The results of the BIS 2019 survey confirmed Hong Kong's status as a major international financial center."
BIS data showed that Japan's share of global foreign exchange trading fell to 4.5% in April from 6.1% in 2016.
The increase in foreign exchange trading in Singapore is broad based, with growth recorded in Group 10 currencies and emerging markets such as the South African Rand and the Mexican Peso. The US dollar, the yen, the euro and the Australian and Singapore dollars were the most traded currencies in the island nation, data showed.
Singapore offers tax breaks and government grants to encourage trade. MAS's Chey is also a focus for family offices in central Singapore's central bank. “Wealth accumulation and the need to transfer wealth from one generation to another will help grow,” he said.
The number of Asian billionaires will rise 27% to 1,003 between 2018 and 2023, accounting for more than a third of the world's total billionaire population, according to a March report by KLN's Frank Frank LLP.
"We just need three more big players – for example Goldman, Commerzbank and HSBC – and the flood homes need to open," said Wong Joo Seng, CEO of currency platform provider Spark Systems Pte, which received financial support from MAS to set up in Singapore.
The heart of the challenge for Singapore is the delay – it takes about ten seconds for an order to be placed through a server in Tokyo or London or New York, where most major banks have placed their trading engines. In order to capture large-scale players, the government must persuade companies to build those expensive systems and data centers in Singapore.
Citigroup, the world's largest forex trading group by market share, will provide liquidity through its Singapore trading facility in October. It is also investing in another data center, said Mark Meredith, Citi's global head of electronic trading for foreign exchange and local markets, based in London.
Singapore is the fourth foreign exchange market for Citi, which also has systems set up in Tokyo, New York and London.
"It's an environment that supports the growing e-commerce activity," said Meredith of Singapore. "Wealth is growing in Asia and high-value individuals there."
While Singapore and Hong Kong have seen increased trade, both cities are still far behind the UK and US, where investors trade US $ 3.58 trillion or US $ 1.37 trillion daily, BIS data show.
"Hong Kong's growth reflects the continuing boom in financial activity in the Hong Kong dollar market, including IPOs and long-term financing in recent years," said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. "The growing integration between Hong Kong and mainland China could also be a source of growth for HKD's trading activities."
Standard Chartered Bank wants to build an exact copy of its foreign exchange hubs found in Tokyo, New York and London, Singapore, by supporting trading with 130 currencies, said Michele Wee, head of financial markets for Singapore at the lender.
"We have a lot of new market users talking to us in shared locations," Wee said of Singapore's development as an FX hub. "It's a work in progress."