The Singapore Exchange (SGX) has launched a consultation on the pre-opening and closing mechanisms on its securities market with the aim of improving transparency and price discovery.
In the consultation, which ends on 15 June, SGX has proposed the publication of indicative equilibrium prices (IEP) throughout the opening and closing phases. These would display the price at which orders would be executed at any time during an auction and would subsequently form the opening or closing price. Currently, securities market members are only able to view the aggregate buy and sell quantities at the various bid and offer prices during the opening and closing auction.
The exchange said that an IEP would provide greater transparency while enabling members to assess market demand and supply conditions and adjust their orders accordingly.
SGX is also looking for feedback on implementing a random end to the closing auction, which currently takes place for a fixed duration of five minutes after continuous trading. SGX has proposed stopping the closing auction at a random point between four and five minutes, to protect the integrity of the closing price against the impact of sudden large orders.
SGX is the second Asian exchange to begin consulting on potential changes to its closing auction following a similar initiative by Hong Kong Exchanges and Clearing (HKEx). HKEx, which has been consulting with various market participants individually, abandoned its closing auction in March 2009 after suspected market manipulation. Closing prices on HKEx are currently calculated by taking an average of five price snapshots taken during the last minute of continuous trading. Some market participants have claimed this places undue pressure on HKEx's trading platform. However, the exchange has not yet released any firm proposals on potential new options for its closing auction.
Meanwhile, SGX has also announced that it will begin clearing Asian FX forwards by September this year. The service will cover non-deliverable Asian currencies including: Chinese yuan; Indonesian rupiah; Indian rupee; Korean won; Malaysian ringgit; Philippine peso; and Taiwanese dollar.
SGX says the initiative is in line with ongoing regulatory initiatives to improve transparency in the over-the-counter derivatives (OTC) market by mandating non-deliverable FX forwards and FX options via a central counterparty.
“Demand for OTC-traded financial derivatives clearing will grow rapidly and we are pleased to be able to extend the service to cover foreign exchange forwards for Asian currencies,” said Magnus Böcker, CEO, SGX. “Asia is the world's fastest-growing region and this service will benefit our members as they grow their businesses here.”
The eleven SGX clearing members eligible to clear FX Forwards are Barclays, Citi, Credit Suisse, DBS Bank, Deutsche Bank, HSBC, Oversea-Chinese Bank, Standard Chartered, RBS, UBS and United Overseas Bank.