Hong Kong brokerage Quam Securities has said it plans to trade OTC derivatives on the Singapore Exchange (SGX) after it became a trading member of the derivatives market earlier this month. However, Quam had not bargained on SGX approval being such an arduous process.
Quam wants to move into SGX OTC products as part of its future business plans. Its expansion into Singaporean derivatives trading was originally designed to make use of the SGX’s Nikkei 225 and the China A 50 derivatives product. It had identified those products as being particularly attractive to its mainland China client base, which wanted the scope to take and trade derivatives positions in these instruments.
Before becoming a trading member, access to the products had been obtained for Quam clients via a Singapore broker. The admission of Quam Securities brought the total number of trading members in SGX’s derivatives market to 46.
However, for a foreign company to get approval to become a trading member in Singapore is no easy task. An enormous amount of preliminary paperwork is required, because the incoming firm needs to be compliant with Monetary Authority of Singapore regulations as well as those of the SGX. A lot of work had to be done from scratch.
“We were surprised by the depth of SGX procedures. Getting approval to trade derivatives at the CME Group had been much easier,” said Doris Yan, associate director, middle office credit and risk control at Quam Ltd, the parent company of Quam Securities. Quam Securities is the brokerage arm of Quam Ltd and provides trading services for securities and futures, covering a range of markets around the world.
Ongoing compliance also calls for significant commitment on the part of the foreign firm, which has to open up to a new team of Singaporean examiners.
“Having a Hong Kong Securities and Futures Commission (SFC) licence isn’t enough. Singapore goes beyond that, as for example, its Financial Ratio requirements are different,” said Kenneth Lam the deputy chairman and CEO of Quam Ltd.
He added that had they known just how laborious the application and compliance process was when it started over one year ago, they might have had second thoughts, but they are happy now it is over.
“Being a clearing member, SGX will now help Quam in developing products and education around what we can do. Quam is also interested in SGX’s iron ore derivatives products because we have Chinese clients that need to hedge themselves.
In Hong Kong, Quam ranks in the top 20% of brokers for its usage of Hong Kong futures and options, driven by appetite from its mainland customers. The CME Group rates Quam in its Group A client list in the Asian region for derivatives usage and Quam believes that it is currently the only Hong Kong firm in that list.