Speech by Mr Tharman Shanmugaratnam, Minister for Finance, at SGX's 10th Anniversary Commemoration, SGX Event Plaza, 9 Sep 2009

Mr J Y Pillay, Chairman, SGX
Distinguished guests
Ladies and gentlemen

Good evening.

1. It gives me great pleasure to join you this evening to celebrate the 10th anniversary of the Singapore Exchange ("SGX").

Stabilising Economy

2. We mark this occasion amidst signs of a stabilising world economy. However, the immediate improvements we are seeing, in the US and around the world, owe themselves primarily to aggressive government stimulus packages and a correction in private sector inventories. We have yet to see a firm or sustainable rebound in private spending, that can underpin global economic growth in 2010 and beyond.

3. This is why we can only be cautiously optimistic about the next few years, globally and in Singapore. We are past the worst of the crisis, and seeing an immediate bounce in economic activity, but have to be prepared for the possibility of a sluggish world economy or even a `double-dip' in 2010.

Resilience of the Financial Sector

4. Our financial industry has reflected the recent pick-up in investor confidence. (It grew by 23% in the second quarter (quarter-on-quarter) of this year, following a 10% expansion in the first quarter.)

5. It has also shown some resilience through the global crisis. While the global financial industry has gone through severe contraction, investors have remained bullish on Asia. And Singapore has retained its role as an important gateway to Asia.

6. Domestic lending has stabilised, while offshore lending by Singapore's financial institutions has resumed growth (ACU grew 3% in Q2 09).

7. Our asset management industry is rebounding. It lost some steam last year, but held up better than the general market performance. Assets under management (AUM) declined by 26% in 2008, to $864 billion. This brought the rolling 5-year average AUM growth rate to 16% per annum. Fund flows have resumed this year. In the first half of 2009 - the AUM of the 20 largest asset managers in Singapore grew by 23%. Singapore continues to be an attractive location for fund managers.

8. Corporate debt issuance in Singapore has also held up relatively well. It declined in 2008, like the global debt markets, but only marginally. Our corporate debt market stood at $168 billion in 2008, down by just 2% from 2007. With foreign entities accounting for almost a third of SGD debt issuances, Singapore remains one of the most international bond markets in Asia.

9. Capital-raising on the SGX has also held up relatively well. Over $12.5 billion in primary and secondary offerings was recorded on the SGX over the year ending 30 June 2009.

Demutualisation and Merger of the Exchanges in Retrospect

10. The SGX has seen through the ups and downs of a tumultuous decade in financial markets. But the exchange of today is very different from what we had a decade ago. The SGX, like Singapore's financial sector at large, has opened up, transformed its governance and seized new opportunities, so as to stay relevant and grow.

11. The prospects were not quite so sanguine back in 1998, when we decided to take a fundamental look at our exchanges at the time, the SES and SIMEX^[1].

12. We knew then that we had to reform the exchange industry to prepare it for the future. In August 1998, MAS formed the Committee on the Governance of Exchanges, comprising leading representatives from both the private and public sectors, and which I was privileged to chair. The Committee recommended that the two legacy exchanges ? SES and SIMEX ? be simultaneously demutualised and merged. The objective was to develop a vibrant, innovative and competitive exchange for the trading and clearing of securities and derivatives that would be attractive to market participants from Singapore as well as the world over.

13. The move was not uncontentious. The SES and SIMEX had not done badly in most regards, and we would be opening up what had been a closed business. But we knew we had to do a fundamental restructuring if they were to go beyond what they already had in hand, and grow in a much more competitive and rapidly changing global exchange environment.

14. The Government accepted the Committee's recommendation, and in November 1998, then-Deputy Prime Minister Lee Hsien Loong, who was Chairman of MAS, announced the commencement of the merger process.

15. The Singapore Exchange was formed in December 1999, and listed on its own bourse in November 2000. Unlike its predecessor institutions, which operated as mutuals and confined trading rights to its members, SGX opened membership to any entity that met its requirements, including foreign institutions. Instead of a closed fraternity, the Exchange became a business. Broker commissions were gradually liberalised, and eventually freed, to lower trading costs for investors.

16. This paradigm shift was accompanied by a gradual move towards greater responsibility being assumed by investors. Applicants seeking listing had to meet stricter and more comprehensive disclosure requirements, to allow investors to make informed judgements. They are required to meet enhanced prospectus disclosure standards set out in regulations under the Securities and Futures Act.

SGX as Asian Gateway

17. Upon commencing business, SGX quickly established that its fortunes depended not just on widening its local footprint, but on catering to the region and the world. It embarked on a journey to turn itself into an Asian Gateway.

18. Ten years after its formation, SGX can claim to have realized that goal to a good degree. From fewer than 500 listed companies in 2000, there are now more than 760 on both the Mainboard and Catalist ? 40 percent of them hailing from 20 countries, besides Singapore. Today, close to half of SGX's revenue is foreign-sourced.

19. Beyond the traditional IPOs, financial futures and options, SGX has significantly widened its offering of Asian products for international and local investors to keenly participate in the region's growth. These include REITs; business trusts; infrastructure funds; structured warrants; commodities; and Exchange Traded Funds (ETFs).

20. The first REIT was introduced in 2002, and today, 19 REITs are listed on SGX, allowing investors to gain access to a variety of retail, commercial, industrial properties from over 10 countries. This marks Singapore's status as a regional REITs hub, with the highest market capitalisation in Asia outside Japan.

21. SGX has also expanded its derivatives offerings, particularly the suite of options contracts and the launch of Extended Settlement contracts this year. This market is largely international in nature, with foreign products accounting for more than 90 percent of SGX's derivatives business.

22. With commodity markets fragmented, SGX has seized the opportunity to consolidate its Asian trading hub, by strengthening and expanding its subsidiary, the Singapore Commodity Exchange (SICOM). SICOM plans to expand its product offering, besides strengthening and developing its established rubber contract. SICOM's products will soon reach SGX clients seamlessly through a trade transfer facility.

23. Today, its wide outreach to global market participants is testament to the success of SGX's Asian Gateway.

Strong regulatory framework underpins commercial success

24. In developing its business, SGX recognised that robust regulation and commercial success were not mutually exclusive. Indeed, a strong regulatory regime underpins a fair, orderly, and transparent marketplace, upon which SGX thrives.

25. Singapore's capital markets today operate under a dual-level regulatory framework. MAS, as the statutory regulator, has overall supervision of the financial and capital markets, including SGX itself, and maintains oversight of the exercise of regulatory responsibilities delegated to SGX. SGX, as the frontline market regulator, has the capacity to be market-oriented and responsive to the needs of the marketplace.

26. During the recent periods of heightened market volatility, SGX was proactive in managing its members' exposure, and worked well with MAS in monitoring and handling potential risks. SGX also stepped up its oversight of listed companies, and engaged their Boards and auditors on heightened vigilance over company matters. Recently, SGX announced measures it will be taking to strengthen corporate governance of listed companies. MAS welcomes such initiatives by SGX. It is a good example of SGX staying vigilant and responsive to the risk outlook of listed companies, which vary depending on overall business and financial conditions.

27. The current dual regulatory framework has generally served the capital markets well. But this is not something that regulators here or elsewhere can set in stone for all time. As markets continue to evolve, we will need to keep our regulatory framework under review to ensure it remains relevant and effective.

Investor education helps improve quality of marketplace

28. Investors too need to play their part by stepping up awareness of the latest market developments and product offerings. SGX recognises this, and has spearheaded investor education for listed products ? especially with continuing innovation in the marketplace and the introduction of more complex products. To this end, I am pleased that the SGX Academy works well with MoneySENSE, SIAS and other industry associations, which are well represented here tonight.

The next 10 years

29. While the last 10 years has been a good ride for SGX, I am glad that it has no intention of resting on what it has achieved. Contrary to frequent perception, SGX does not have the luxury of being a monopoly, in law or in fact. Any exchange, or indeed any entity, can apply for a licence to operate in Singapore, and there are already alternative trading platforms operating here.

30. SGX also faces global competition daily for listings and investment monies. Companies are free to list anywhere in the world. Investors in Singapore can already trade foreign stocks seamlessly over the Internet.

31. As the disclaimers in the financial industry say, past performance is not indicative of future returns. Just like Singapore, SGX needs to continually innovate to stay ahead of the game.

32. "AsiaClear", SGX's over-the-counter (OTC) clearing business, is a good example of such innovation. The first such clearing platform in Asia, it was set up in response to the region's OTC market needs, and has grown rapidly since its establishment in May 2006. It offers a growing network of Asia-based counterparties to facilitate OTC trading and clearing activities, enhance credit and risk management, and increase operational efficiencies.

33. Efforts are underway to launch clearing services for OTC financial derivatives. With an eye on the commodities market, SGX is also looking to complement its existing energy product suite with a bunker fuel contract in the coming months.

34. Underlying such initiatives is an open and forward-looking mindset that SGX will need to thrive in today's hyper-competitive and continually-evolving marketplace. There is no space for complacency, and no time for hubris. I wish SGX the very best in rising to the challenges of the future. Success in doing so will mean another decade of achievements to celebrate, and indeed, many more after that.

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^[1] The Stock Exchange of Singapore (SES) and the Singapore International Monetary Exchange (SIMEX)