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Edited Transcript of S68.SI earnings conference call or presentation 31-Jul-19 10:00am GMT

Full Year 2019 Singapore Exchange Ltd Earnings Presentation

Singapore Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Exchange Ltd earnings conference call or presentation Wednesday, July 31, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Boon Chye Loh

Singapore Exchange Limited - CEO and Executive & Non-Independent Director

* Hsien-Min Syn

Singapore Exchange Limited - Head of Equities & Executive VP

* Lay Chew Chng

Singapore Exchange Limited - CFO

* Sutat Chew

Singapore Exchange Limited - Head of Global Sales & Origination and Executive VP

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Conference Call Participants

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* Harsh Wardhan Modi

JP Morgan Chase & Co, Research Division - Co-Head, Asia Financials

* Krishna Guha

Jefferies LLC, Research Division - Analyst

* Nicholas Lord

Morgan Stanley, Research Division - Head of ASEAN Banks Research and Executive Director

* Rikin K. Shah

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Lay Chew Chng, Singapore Exchange Limited - CFO [1]

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Hi, good evening to everyone here and also to those who have joined us on the webcast. Thank you very much for joining us today. We are delivering our fiscal year 2019 full year financial results. I will start off as usual with a presentation on the financial performance. Boon Chye will give us an update on the business and then we will have a Q&A session.

Let me begin by saying that SGX has delivered a very strong set of results in this fiscal year. We earned net profits of $391 million, up 8% compared to a year ago and this is the highest since fiscal year 2008.

Our reported top line revenue of $910 million was also the highest since our listing in the year 2000 and it increased by 8% year-on-year. Derivatives traded volume reached a record high of 240 million contracts, an increase of 21% year-on-year. Lower activity in our equities market led to a 17% decline in total traded value to $259 billion. This lower level of activity was in line with the performance of regional markets.

Our earnings per share was $0.365 and the Board has proposed a final dividend of $0.075, bringing the total dividend for the year to $0.30. This is unchanged from the previous year.

This is the chart where just highlighted that we have an improving annual financial performance. You will see the upward trend in our annual revenue, operating profit as well as the net profit. For this year, we achieved a positive jaw ratio of 1% as we grew revenue by 8% compared to an increase in expenses of 7%.

This waterfall chart shows our full year revenue movement on a year-on-year basis. Our derivatives business recorded a 35% increase in revenue to $460 million, a record high. Derivatives accounted for 51% of total revenue compared to 40% a year ago and the results were really driven by 3 factors: One, total traded volumes up 21%, mainly due to higher volumes in our SGX FTSE China A50 contract and our MSCI Taiwan contract as well as our iron ore derivatives contracts.

Blended average fee per contract increased from a $1.06 to $1.09, which is mainly due to an increase in the number of higher fee-paying customers.

Collateral management, license, membership and other revenue increased mainly due to higher collateral balances. This is a result of higher margin balances on the back of record open interest demonstrating the increased use of our derivatives contract for risk management purposes.

Our Equities and the Fixed Income business recorded $348 million in revenues, a decline of 15% year-on-year and it accounted for 38% of our total revenues compared to 48% a year ago.

Issuer services revenue declined by 7% due mainly to fewer bond and equity listings during the year. Securities, Trading and Clearing revenue declined 18%, this was due to a 17% decline in SDAV, which came in at $1.04 billion. As mentioned earlier, trading activity was in line with regional markets as investors adopted a more cautious stance amidst concerns of the slower global economic growth.

Our blended average clearing fee declined from 2.72 basis points to 2.66 basis points due to higher participation from market makers. Post Trade Services revenue declined 14%, mainly due to a downward repricing of our delivery versus payment guarantee fee in April of last year, and there was also a decline in subsequent settlement volumes as a result of the lower activity in our securities markets. As previously guided, contract processing has now ceased as all brokers have migrated to their own back-office systems.

Market Data and Connectivity business, this is a business that continues to grow steadily. Revenues have exceeded $100 million for the first time. It is now $103 million for the year, a 4% increase. We saw continued growth in our co-location business as well as an increase in the derivatives connectivity subscriptions. So this business accounted for 11% of our total revenue.

This is slide showing the fourth quarter revenue on a year-on-year basis. So it is increased by 16% to $248 million from a year ago. Derivatives revenue for the quarter increased by 52% to $130 million and the reasons are similar to those that I have explained for the full year.

Trading volumes rose 33% to 66 million contracts the increases across all our asset classes, equities, commodities, foreign exchange. Average fee per contract increased from $1.02 to $1.14 due to change in mix of contracts and more importantly, an increase in the number of higher fee-paying customers.

Equities and Fixed Income declined by 9% to $92 million, mainly due to a decline in the SDAV to $1.10 billion.

Our blended average clearing fee declined from 2.72 basis points to 2.66 basis points due to higher participation from market makers. And our Market Data and Connectivity revenue was $26 million comparable against a year ago.

This next slide is on our expenses. Full year expenses, as I mentioned earlier, up 7% to $449 million. This is mainly due to higher staff cost. Expenses came in within our guidance of $445 million to $455 million.

If you look at the waterfall chart, our total staff costs increased by 9% to $191 million, 3 main reasons for this. Our average head count increased by 28 to 820, we expanded our technology capabilities and grew our international presence. So together with the annual increment, this has led to higher fixed staff costs. And for our variable staff costs, which are very dependent on our profitably, given the higher profits this year, that has also resulted in an increase.

Technology expenses were 3% higher at $131 million, this was due basically to implementation of initiatives to digitize our processes internally as well as customer-facing site as well as to improve our information security systems and processes.

Depreciation from new systems implemented was slightly offset by some technology assets that reached end of life for the year. Other expenses rose $6 million, this was due to a number of reasons, some of which were one-offs. We increased the number of marketing activities and events during the year because we wanted to widen our outreach to our customers, both locally as well as internationally. We also had an increase in our regulatory fees as well as information service charges.

For the fourth quarter, our expenses were up 9%. Expenses are seasonally high in the fourth quarter and the increase this year on a year-on-year basis was due to higher staff costs primarily due to the higher profitability as well as an increase in marketing expenses.

So total staff cost increased 20% to $54 million. Processing and royalties rose by $2 million in line with higher derivative volumes, and professional fees declined by $4 million due to the absence of legal and consultancy expenses a year ago. Other expenses rose $2.5 million across a number of expense categories.

So this chart shows the trend in our CapEx and depreciation over the last 5 years. So you can see that our CapEx has been at a declining trend as we have completed most of the building of our technology platforms. The CapEx for the year was $55 million, down 16% from a year earlier, and is slightly below our CapEx guidance of $60 million to $65 million. During the year, we enhanced our fixed income trading platform, we also upgraded our securities trading engine and launched our new securities post-trade system.

Going forward, we will be focusing on enriching our Bond Pro fixed income trading platform as well as our Titan OTC Pro trading platforms, and that tools are really part of our efforts to scale up and to build our multiasset strategy. We expect depreciation expense to increase in FY '20 from these newly implemented systems.

This is my final slide, and it talks about our key financial indicators. You can see that we achieved a high operating profit margin of above 50%, it is 51%, and a high ROE of 36%, both of which have -- both of which are higher compared to a year ago. Operating cash flow was high at $0.39 per share. Mentioned earlier, we earned $0.365 per share, sufficient to cover the proposed total dividend of $0.30 per share.

So this concludes my presentation, and I'll hand it over to Boon Chye.

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [2]

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Thanks, Chng. I have just seen the full financial results from our CFO, Mr. Chng. Against the backdrop of the market trends that we have envisaged, we have made significant progress in executing our strategic priorities. The trends just to reiterate, as I mentioned, a couple of times are as follows: First, we expect Asia to lead in global growth with emerging and developing Asia growing at a faster pace in the next few years compared to advanced economy; second, Asian markets will continue to internationalize across asset classes; third, the growth of passive investing will lead to increased demand for equity index products on exchanges; and last but not least, the regulatory impact that we've seen over the years on financial markets does allow for greater centralized clearing of OTC derivatives leading participants to seek greater capital efficiency.

For the year ended 2019, we expanded our products and services offerings across the asset classes of FICC, Equities, and built out our multiasset exchange strategy. We also grew our international presence, setting up offices in New York and San Francisco and expanded resources in our London office. We made investments in companies such as Trumid, BidFX and Freightos to support the growth of FICC business and widen our partnerships and network.

FY 2019 results, in our mind, really validates our position as a international multiasset exchange, providing a single point of access into Asia. You've heard from Chng in terms of some of the similar numbers, it was a year of records for the Singapore Exchange, record total revenue since listing in 2000, record revenues and derivatives on the back of very strong volumes, but I think more importantly, significant open interest pack with the clearinghouse at SGX. And third, net profit at 11-year high. The derivatives business contributed 51% of total revenue, Equity and Fixed Income 38% and then Market Data and Connectivity at 11%. So all these efforts has also been recognized by the industry.

These are just some of the awards that we received in FY 2019. We continue to innovate and provide relevant risk-management solutions for our clients across the various different asset classes.

In FX, we were recognized for our SGX FlexC FX solution that bridges the standardized futures and the bespoke OTC world. In commodities, our efforts to innovate and launch new offerings were recognized for the Titan OTC Pro platform, which really enhanced the workflow of our brokers; and two, the high-grade 65% iron ore derivatives; and third, our virtual steel mill value chain, which combines capital efficiency across coking coal and freight derivatives.

So now let me move on to the respective business line. In Derivatives, a record year in volumes and open interest. The point to highlight here is also our full year T+1 volume, the so-called overnight session that was up 38% year-over-year, and is now contributing to 14% of our total derivatives volume. It reflects increased trading interest from international participants in the non-Asian hours. And the open interest was at a record high of 5.9 million contracts, an increase of 17% year-over-year.

In the subsegment of Derivatives, let me start off with equity derivatives. You heard from Chng, higher trading volumes in key Equity Index contracts, that was up 19%. This is not just only in A50, which obviously reflects the growing demand for access into the Chinese equity market. Another highlight is our MSCI net total return futures, which set new volumes and open interest records in FY 2019. This really reflects the trend of passive investing as these contracts provide for increased demand on greater capital efficiency and provide an exchange-listed solution to over-the-counter equity swaps in Asia. We now have 23 such contracts in this category of offering, providing a pan-EM Asia as well as single-country access into the markets here in Asia. And also we are the first exchange in Asia to extend a portfolio compression service from OTC products to listed derivatives and now offering portfolio compression for the listed Nikkei street of contracts. And today, our suite of equity index products covers 99% of Asia by GDP.

International clients accessing Asia through SGX can enjoy a wide range of asset class offerings as well as international coverage from offices in various international financial center.

In foreign exchange, we achieved record FX futures volumes of close to $21 million contracts, an increase of 46% year-over-year. This truly reflects our position as Asia's fastest-growing and largest Asia FX futures venue. There was a strong demand for dollar/CNH and dollar/INR contracts with strong participation in non-Asian hours. Again, our overseas presence does help to market such offering and services to the international clients.

In the course of 2019 financial year, we have increased our focus to bridge the OTC and listed FX markets. We see a rising conversions in that space and in that we've introduced the FlexC FX futures where users can now send bilateral OTC trades with bespoke settlement dates to the exchange for clearing. And our strategic investment in BidFX allow us to offer our suite of listed Asian FX futures alongside the OTC products on the BidFX platform, bringing together both pools of liquidity. And we look forward to launching such a service in the next few months.

In commodities, very strong volume increases across the iron ore, freight and rubber suite. Iron ore volume increased 19% to almost $17 million contracts as users adopt our market-leading iron ore suite of products to manage heightened price volatility arising from supply constraints in the iron ore markets.

And also during the year, we launched the first high-grade 65% iron ore contract to complement the 62% and also to supplement the low-grade iron ore, iron ore lump, and now the high-grade 65% iron ore allows for the participants to play their spreads where they have to manage -- to risk manage the downstream processes.

In freight derivatives, we remain the largest clearing venue for freight derivatives, and we'll continue to launch new products to offer a comprehensive suite of services to our clients. And increased demand for our benchmark rubber futures saw volume increased 14% year-over-year, and we also launched the first option contract on the Benchmark TSR 20 rubber contract offering market participants a new risk management tool.

As we grow our position and strength in the Asian commodities and freight market, this will continue to help us drive synergies between global trade and transport marketplaces.

Let me now move on to the next segment, Equity and Fixed Income. We remain the most international exchange in Asia with 45% of our new equity listings and 90% of our bond listings originating from outside of Singapore.

As private markets provide alternatives to the private equities and companies can now avail themselves to numerous sources of funding, it is essential that we provide a variety of fundraising platforms to support businesses in different stages of growth. So in addition to equity listings, our debt capital markets provide an attractive alternative for companies to tap the capital markets, and we remain as the leading exchange in Asia for the listings of international bonds, with 80% of the listed bonds coming from offshore issuers and 40% market share for listed G3 Asia Pacific bonds. We've also added new listing agents, which enable us to extend our distribution network for bond issuances.

In the securities, trading and clearing, market activity declined year-over-year, this was in line with the regional markets as investors adopted a more cautious stance amidst a more difficult market environment in the second half of calendar year 2018 globally. And as you may recall, cash was the best-performing asset class of 2018, the only major asset class that posted positive results in the last calendar year. We continue to place emphasis on strengthening the ecosystem through product services and platforms. In products, we launched DLC, Daily Leveraged Certificates, on single stocks. It now covers 26 Singapore and Hong Kong companies. Such structured products offer participants other avenues to gain exposure to key Asian indices and large-cap stocks. They have continued to garner trading interest as we see a sustained increase in a number of active accounts.

Lastly, we upgraded our Reach securities market trading engine in June. The key feature that was introduced was the trade at close session set, which now allows participants to trade at a fixed price, namely the closing price of security, while preserving the integrity of the price discovery process.

Further on platforms, successfully launched the new post-trade system in FY 2019. Market participants with the launch of the platform have now benefited from the reduction to a T+2 settlement cycle, increased operational efficiency as well as brokers being able to use their own back-office system to connect to CDP. On top of that, they enjoy reduced fees for the BBP services. And introduced also the initiatives in terms of digitalization through our online CDP account opening service. It now links up to My Info to enhance the investors experience in opening up accounts with CDP.

Brokers, investors, market participants can expect more of such digitalization initiatives as well as new value-added Post Trade Services as we move forward to build on the foundations of what we've just launched in the post-trade system.

In Market Data and Connectivity, we grew 4%, 2% from a market data and 6% from connectivity. Connectivity is a result of growth in our co-location businesses and higher derivatives connectivity subscription. And as I mentioned earlier, we expanded resources into our London office in the last financial year. This was primarily to cater to our index business to better service our international clients, and we have seen initial success as the majority of our new index calculations in FY '19 came from Europe.

So looking ahead into FY 2020, SGX is positioned to grow and scale across asset classes. As Asia is expected to continue to play a leading role in global growth and markets in this region develop further with international participation, we anticipate greater demand for Asian equity portfolio risk management solutions as well as access to Asian capital markets and products. Our multiasset class offerings put us in a robust footing to meet international demand in this area. And in addition, we have invested in product, services and platforms as well as investments in other companies to capitalize on trends in the individual asset classes.

First is the Bond Pro, our own fixed income platform, for institutional investors that addresses the digitalization of the fixed income markets, and this was augmented with our investments in the Trumid. I have also described earlier on how we are addressing the conversions of the OTC and listed FX on the commodity markets.

We have launched FX FlexC futures. We have our Titan OTC Pro that provides efficiency for the workflow and also investments in BidFX where in the next few months capitalizing on the rising conversion -- convergence between listed and OTC, we'll launch our products on that platform.

And then the trend around passive investing is a trend index business is looking to capitalize on with increased focus. In July, we announced reorganization of our business in client units. The fixed income currencies and commodities unit, in short, FICC as well as data connectivity and the indexes unit, DCI, both will be responsible for delivering on these opportunities.

In the equity asset class, we have put together our cash Equities and Equity Derivatives business into an expanded unit. This is it to offer retail and institutional clients a single point of access to a continuum of equity products. We see potential across synergies between the cash markets, which has traditionally been about capital formation and wealth management and derivatives market with its risk management and market access solutions. As an example, more sophisticated wealth managers will now require better access to risk management solutions and cross margin and benefits. And some of the unique investment thematics in our cash equity markets, such as large companies with Asian footprint and REITs that have a variety of structures and assets, could now be marketed more efficiently to international clients. All this will be supported with the formation of the Global Sales and Organization unit, which will provide the platform for SGX to serve customer segments across the full spectrum of our products. This includes not just investors and intermediaries, but also the issuers.

And just in terms of guidance for FY 2020, operating expenses is expected to be between SGD 465 million to SGD 475 million and tech-related CapEx is expected to be between SGD 45 million and SGD 50 million.

With that, I conclude my presentation and invite my colleagues up on stage as we take questions. Thank you for your attention.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [2]

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Any questions?

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Nicholas Lord, Morgan Stanley, Research Division - Head of ASEAN Banks Research and Executive Director [3]

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It's Nick Lord from Morgan Stanley. Can I ask 2 questions, actually. First is just a simple one. Could you talk a little bit more about the -- what drove up the fee per contract. You spoke about a change in mix of derivatives, but I wonder if you could be a little bit more specific about that. And then secondly, about $0.39 cash flow per share, free cash flow per share. Is that...

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [4]

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Say again your second question?

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Nicholas Lord, Morgan Stanley, Research Division - Head of ASEAN Banks Research and Executive Director [5]

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$0.39 of free cash flow per share, $0.36 of earnings and $0.30 of dividend. So I just wonder why the dividend is so low to your available resources?

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Hsien-Min Syn, Singapore Exchange Limited - Head of Equities & Executive VP [6]

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On the first question, very similar to our last quarter, I think, we explained that for the large part of the growth that we saw, which was in A50, in particular, there was much less need to avail ourselves of the services of market makers who tend to provide liquidity, and so the mix of clients who were paying full fees was high. And that particularly drove the increase in the fee per contract across the portfolio.

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [7]

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On your second question, you've noticed in the last 2 years, we have done bolt-on acquisition. And if you look at the accumulation of some of the efforts around it and the delivery of these results, and putting on our multiasset strategy, we clearly want to grow further, and we want to build a sustainable dividend trend for investors. And as our earnings increase further over the years, we clearly would like to reward our shareholders with higher dividends subject to the Board approval, but we want it to be growing, sustainable on the back of growing earnings.

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Nicholas Lord, Morgan Stanley, Research Division - Head of ASEAN Banks Research and Executive Director [8]

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So it's not a -- I mean obviously there's a lot of things that have gone very well for you this year. One of the things that really helps has been the A50 derivatives volumes. And I guess we don't know the sustainability about (inaudible) things would happen last year in the market that may happen -- may repeat in the first half of next year may not be repeated thereafter. Should we read into the dividend that you're slightly cautious on where thereafter this year you'll be able to maintain your A50 volumes or is that quite a small part of your calculation?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [9]

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I would say we're not cautious on the outlook. Obviously, the commentary is around global growth slowing, which would likely be the case. But relative to that, Asia will grow at a faster rate. Asia will lead the growth better than the rest of the developed markets. And more importantly, also besides the A50, our net total return product suite has also reached record volumes and that brings with it a very sticky open interest. And that is, as I said, quite a few times on the back of the trend around passive investing. And we will continue to look at bolt-on acquisitions that could supplement our FICC pillar and also our DCI pillar.

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Rikin K. Shah, Crédit Suisse AG, Research Division - Research Analyst [10]

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Rikin from Crédit Suisse. Congratulations on good set of results. My question is on market data side. Market data revenues constitute around 5% of total revenues right now and given the backdrop of LSE acquisition of Refinitiv, my question really is what could SGX potentially be doing to increase the market data revenue and monetize this line item going forward? Would that be more bolt-on acquisitions or anything organically that could be done?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [11]

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I think a more increased pace of growth will have to come from bolt-on acquisitions in that broad space of DCI. And I don't think it's just along the data vertical. It could be the index space that provides for different from of indexing that leads to AUM and thereby all these related data services that could grow.

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Harsh Wardhan Modi, JP Morgan Chase & Co, Research Division - Co-Head, Asia Financials [12]

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Harsh Modi from JPMorgan. Two questions, first is more numbers related. The royalties and processing has not moved much, despite a sharp pick up in derivative revenues. Is that something due for renegotiation or should we expect that operating leverage, so to say, to accrue to you if it continues? That's one. And second continuing on that more on data monetization, and you have a huge amount of data in all the trading, CDP, holding of accounts and everything. In a -- how should I put it, in an ideal scenario if you had all the ability to monetize it, what are the potential ways you could monetize it? And you talked about indexation and passive one way, are there any other ways where you could significantly scale up the data monetization and what could those be?

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Lay Chew Chng, Singapore Exchange Limited - CFO [13]

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So within the processing and royalty expenses, there are 2 components, one is processing and one is variety. So royalty expenses actually did increase, it was just offset by decreases in the processing part of the expense. So that's why you saw it just pretty flat.

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Hsien-Min Syn, Singapore Exchange Limited - Head of Equities & Executive VP [14]

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So this was a portfolio effect. I think one thing to call out is that for our FX contracts by and large, this is not a material part of what you would consider in the expensive base of listing FX. But FX is very large or increasing part of our portfolio. So that's why P&R doesn't appear to grow proportionately.

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [15]

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On your second question, I think there are 2 points around it: One is, we don't quite see data as a single vertical. I think data will be related and connected to index. I think it's one integrated way of looking at how those could be utilized; two, I would say we won't want to monetize it directly. Yes. You can try and aim for that, but the second point on that is, we can use data to see what services we can offer to our retail accounts. And that obviously will bring alongside other market service offerings and activity on the exchange to be less accrued around monetization.

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Harsh Wardhan Modi, JP Morgan Chase & Co, Research Division - Co-Head, Asia Financials [16]

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So just to understand that better. Are there regulatory limitations on how you could monetize data, especially the retail bit? And so risk management, I understand, it's more institutional, you can provide different layers of data in that. But especially the retail bit of it, is that out of -- there is no clear revenue line as yet that you have seen or regulatory requirements limit your ability to monetize it?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [17]

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There isn't any direct part of that, but we have to look at data as a ecosystem, right? Who owns the data? Let's have the data that drives a better ecosystem that is good for the investor, the participants, that is also good for the exchange in terms of higher trading activity and better service offering. It's a nicer way of putting it than being blunt about monetization.

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Unidentified Company Representative, [18]

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Okay. There's a question from Nikki. With the new organizational structure, will SGX continue to give revenue breakdowns in terms of equities, derivatives or what we are disclosing right now?

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Lay Chew Chng, Singapore Exchange Limited - CFO [19]

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Going forward, our segment reporting will have to reflect the way that we manage our business. So in the first quarter, you will see a revised reporting structure, which will reflect the new organization structure.

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Unidentified Company Representative, [20]

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There is also a question from HSBC. Concerning the -- when will SGX -- under what conditions will SGX raise the dividend payout? And second question is, can you talk more about the latest fintech investments and how that just relates to your future growth?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [21]

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Well, as our revenue grow and as I said earlier, we want to grow our dividends on the sustainable and absolute basis, and we review that every year in terms of rewarding our shareholders. In terms of the investments, all the FinTech investments, we've done -- we have taken -- we've put investments into BidFX, FX within the FICC complex, this is an area that I've said quite many times over the 2 years in terms of us growing it. We would not make that investment. But more importantly, it is on the back of a trend we see in terms of rising conversions between listed futures, listed derivatives and the OTC market. And the other investment obviously is in Trumid, which is the U.S. fixed income platform. There are clear synergies in terms of market participation in this part of the world, on the Asian Fixed Income, and participants in this part of the world on the U.S. credit.

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Unidentified Analyst, [22]

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I just wanted to confirm whether you are saying you will look at acquisitions to boost the DCI business? Secondly, wanted an update on the -- any agreements on the Nifty product trading front?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [23]

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So I would say, we are optimistic that the joint proposal submitted by SGX and NSC will receive the support from our statutory regulators. Once we have obtained our regulator support, we will work with our key stakeholders on the operational and commercial details of the NSE, IFSC SGX connect. We will endeavor to implement the connect probably thereafter.

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Unidentified Analyst, [24]

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Do you have a time line for the regulatory approval?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [25]

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We are optimistic.

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Unidentified Analyst, [26]

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What about the acquisitions bit for your DCI business? Are you going to be making any acquisitions for the data?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [27]

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We want to grow that DCI pillar, and it will be quicker with bolt-on acquisitions.

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Krishna Guha, Jefferies LLC, Research Division - Analyst [28]

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Krishna from Jefferies. If I can push you for a number, in aggregate, how much have you spent for the various bolt-on acquisitions so far. So that is Trumid, BidFX, Freightos, and I think there was one more (inaudible), if I'm not mistaken. So if you can give that and versus all these bolt-on acquisitions, if you had to make any relatively larger acquisition, I mean there has been some names like Tradeweb, others, which are involved in the bond trading, how do you weigh one single large investment versus various bolt-on investments?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [29]

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Well, the numbers aside, the way we look at this is as follows. The strict investment would typically be one way. We could have a lot of operational interaction. For example, in our FX platform. You need a platform like BidFX and an exchange like SGX to try and be a value add as we see in the rising conversions right between listed futures and OTC. You can't have one of each other operating individually, you need a (inaudible). So that you could do that with a strict investment or you can do that with an acquisition. In areas where we will be slower to a scale-up, a complete bolt-on will be quicker. So that's the way we will look at how we want to grow and deepen our marquee asset offering.

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Unidentified Company Representative, [30]

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There's a question from CIMB. Can we understand the drivers for the higher OpEx for FY '20, expectations so far, higher OpEx? And second question is, on the lower average trading fee for equities, can you disclose, number one, the participation of market makers in that SDAV? And number two, what are you doing in terms of trying to grow more participation in the market?

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Sutat Chew, Singapore Exchange Limited - Head of Global Sales & Origination and Executive VP [31]

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So on the second question, with regards to the participation of our market makers and liquidity providers, first, I would like to just say that we are very happy to see the second half SDAV numbers improve on the first half and fourth quarter and third quarter, and that's really been supported by a breadth of wider participation in both categories. With this change in mix, clearly there has been a slight decline in the clearing fee use, but the overall improvement in the liquidity is positive for the market.

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [32]

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On the first question, three factors around a higher OpEx: We continue to invest, so one of which will be staff; two, there will be higher depreciation from some other systems that we have launched, for example, Bond Pro, the Titan OTC, Reach STN post trade, so that will have increased depreciation; and third is, we are anticipating higher royalties and processing from higher derivatives volumes.

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Unidentified Company Representative, [33]

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There is a question from HSBC. What opportunities do you see in areas outside of equity derivatives, given the A50 may face challenges going forward?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [34]

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Can I clarify, is that opportunities outside the equity derivatives space?

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Unidentified Company Representative, [35]

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Outside of equity derivatives, correct?

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Hsien-Min Syn, Singapore Exchange Limited - Head of Equities & Executive VP [36]

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It's a very broad question. I think the way we're trying to frame this and particularly with the formation of the new business unit in equities, it's a growing realization that we will look at the very largest and most important international clients that we have. What they're looking for is total returns from equity risk premium. They don't ask us for securities, they don't ask us for futures, they don't even particularly ask us for swaps; dividend futures, total return futures. So it's very clear to us that if we want to deliver total return to these guys, for equity risk premium, we need to restack the way we deliver that.

And putting together the securities and derivatives platforms, which are by and large regulatory platforms. They also happen to be technological platforms. It allows us to genuinely think about synergies. And one of the key synergies is distribution synergies. There are many clients or client types we may have on 1 platform not available on the other platform. Other forms of synergy are to do with timing, how long are you open for, microstructure, auction types. So when we put these synergies together, they are very practical things. But the end result is to say to the end-user, the end investor, if liquidity breeds liquidity, then what is most important for us to do is deliver your need for total return. And you've seen this year we've kind of completed the -- at least philosophically, the shelf of things we can do with equity risk premium.

First of all in Asia, equity risk premium is almost always twinned with a currency risk premium, right? I can hardly ever buy a Taiwanese stock without thinking about what's the risk profile of the Taiwanese currency. Secondly, most of these investors are long-term investors. So they need to think about term exposure, in which there is dividend risk and there is repo risk. So with the Nikkei suite, we started this year to say, "How can I start stripping out what you're actually looking for when you invest in that index?" Thirdly, we're going sub the index, we'll do sector indices, we'll do pan-Asian types of composite indices. We do even single name derivatives. So there is a very large family of things we can do, which goes away from something as simple as a cap-weighted index, and that's kind of what Boon Chye was alluding to. Some of the fashions that we've seen in the more advanced markets maybe in the West are, what's your ESG factor, what's your carbon efficient factor, what's your momentum factor? Now, we haven't come into that space in Asian equities yet. But if there's demand for that, then with the total equities platform that's what we seek to deliver.

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [37]

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And I will add the following, I mean just to rehash, we have now expanded cash derivatives equities unit, right? So the platform would allow us to offer more derivatives around stocks that would form a broader liquidity in terms of trading into certain markets. Then two, we talk about why we reorganize into 3 business units, FICC and DCI obviously supported by the sales and origination unit. So through the combination of organic efforts, combination of some of the bolt-ons and strict investments, and if we could also further have some of the other bolt-on acquisitions, we would like to double our FICC pillar and our DCI pillar in 5 years' time.

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Unidentified Company Representative, [38]

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2 questions, one question from Philip and the other from UBS. Philip asks, in terms of the China A50, is it going to face similar risk as what had happened to the Nifty 50? And the question from UBS is, where do you think the A50 volumes are going to hit going forward, given the month-to-month decline since June?

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Boon Chye Loh, Singapore Exchange Limited - CEO and Executive & Non-Independent Director [39]

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Looking at A50 per se month-on-month decline, but year-on-year increase, so you got to look at some of the seasonal factors around certain parts of the month or during the year, and July we know typically has slow activities compared to June.

And if you look at our -- the approach working with other partners, other platforms, and with my earlier comment around both SGX and the NSE submission of a proposal, and we are optimistic of being able to set up a NSE, IFSC and SGX connect, the A50 is on the back of a increased participation interest into the Asian markets and China is opening up with greater index inclusion, the market will only get bigger.

All right, any other last question? Okay. Thank you very much. Thank you for your attendance and support.