(SINGAPORE) The Singapore Exchange (SGX) is investing $250 million in a new initiative to boost trading speeds and enhance connectivity with global financial markets.
This comprises $70 million for a new securities trading engine and $180 million for infrastructure outsourcing services and data centres, collectively known as the Reach initiative.
The initiative - aimed at bolstering liquidity and high-frequency trading - will be rolled out from the first quarter of 2011. SGX chief executive Magnus Bocker said at a briefing yesterday that the resulting higher market liquidity and velocity is expected to translate to higher valuations for the Singapore market.
Gan Seow Ann, head of markets at SGX, noted that as regional products rolled out on SGX are increasingly global in nature, higher trading speeds and velocities will raise attractiveness of this market.
Migration of the securities trading engine will start in 2011, followed by derivatives trading, which is expected to take place in about two years' time.
High-frequency trading already accounts for about 30 per cent of derivatives trading on Singapore's exchange but is not significant yet in equities trading.
Mr Bocker expressed interest to raise trading velocity - a closely watched measure of liquidity - which is just over half the average level in Asia, based on SGX's figures.
The new trading engine - SGX Reach - will provide the lowest end-to-end latency in the world. It is delivered through Nasdaq OMX's Genium INET platform, Voltaire's InfiniBand solution and HP's technology.
SGX had on May 7 conducted a benchmark test with partners at HP's Singapore Capacity Planning Centre and established an average order response time of 90 micro-seconds 'door-to- door' - the fastest in the world and over 100 times faster than SGX's current Quest-ST system.
The current fastest trading system is run by Nasdaq and takes 177 microseconds to execute trades, according to Bob Caisley, head of technology at SGX.
SGX's new trading facility, together with market data and clearing infrastructure, will be housed in the new SGX data centre leased from Keppel Digihub. The current lease is for seven years.
Customers that co-locate at this data centre can transact with SGX's trading engine at the lowest possible latency at a monthly fee for co-location. According to Mr Gan, 40 per cent of SGX's broking members have already signed up as the first batch of subscribers.
The Reach initiative also includes establishing presence at key data centres in Chicago, London, New York and Tokyo.
SGX said this will allow customers in these places to directly connect with SGX's trading engine at significantly lower costs and facilitate participation in Asia's growing markets by a larger number of global trading firms.
The network of these SGX hubs may be expanded in future to other financial centres, including Hong Kong, Mr Bocker said.
'There will be financial impact for us,' said Mr Bocker. Arising from the Reach initiative, SGX expects that the incremental annual expenses of about $12 million for the next five years to be more than offset by the potential revenues from the co-location services.
Mr Bocker noted that SGX is already an attractive destination for new listings. But what it is seeking to do now is 'going from the middle of the pack to the front' with the new trading technology, which he coined as 'transformational'.
He disclosed that SGX is planning to launch trading of Asian companies' American Depository Receipts (ADRs) in the third quarter.
Mr Bocker also told reporters on the sidelines of the briefing that SGX is looking at new product offerings such as equity derivatives, gold and other soft commodities, and contracts related to fuel oil.
Stock exchanges across the world are pitting against each other in rolling out faster trading platforms.
The Australian Securities Exchange had in February said it will introduce a trading platform that will cut the average time to execute trades to 250 microseconds from three milliseconds. Tokyo Stock Exchange also introduced in January a new trading system to process trades in 5 milliseconds, 600 times faster than the 2 to 3 seconds needed on the current system.