Singapore woos banks in battle of Asia’s biggest currency hubs as it loses ground to Hong Kong
- Average daily trading in Singapore jumped 22 per cent to a record US$633 billion in April from the same period in 2016, just ahead of Hong Kong’s US$632 billion
- Singapore has enticed UBS, Citigroup, Standard Chartered and JPMorgan Chase in the past year to set up forex pricing and trading engines
Singapore saw its lead over Hong Kong shrink to just a whisker in the battle to be Asia’s biggest foreign-exchange currency hub. To keep its advantage, the island state wants to attract more companies to set up electronic trading platforms.
Average daily trading in Singapore jumped 22 per cent to a record US$633 billion in April from the same period in 2016, according to the latest survey by the Bank for International Settlements. That’s just ahead of Hong Kong’s US$632 billion, as the Chinese city saw a 45 per cent surge in transactions each day.
Singapore has enticed UBS Group, Citigroup, Standard Chartered and JPMorgan Chase in the past year to set up forex pricing and trading engines so that investors can reduce the lag from routing trades elsewhere. That’s helped it take market share from Japan, while competing against Hong Kong that’s at the forefront of the yuan market.
The Southeast Asian nation will need another three to five major players to build electronic trading platforms to achieve “critical mass” over the next year, according to Benny Chey, assistant managing director of development and international at the Monetary Authority of Singapore.
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“We have confidence that we’ll get those players as we’re already in discussions with them,” Chey said in an interview, without disclosing names. “Growth of trading in Asian and other emerging-market currencies will be an increasingly important market driver for Singapore.”
To be sure, the latest data from BIS showing a neck-and-neck race between the two rival financial centres also reflected a surge in trading of the Hong Kong dollar that month as bears were squeezed when borrowing costs suddenly advanced.
“The increases in [forex] turnover were mainly due to hedging and arbitrage trades of clients, as well as increased hedging and funding needs of financial institutions,” the Hong Kong Monetary Authority said in an emailed response to questions. “The 2019 BIS survey results reaffirmed Hong Kong’s status as a major international financial centre.”
BIS data also showed that Japan’s share of global forex trading in April dropped to 4.5 per cent from 6.1 per cent in 2016.
The increase in forex trading in Singapore was broad-based, with growth seen in Group-of-10 currencies and emerging-market ones such as the South African rand and Mexican peso. The island state has been offering tax incentives and government grants to boost trading.
Family offices are a focus for Singapore’s central bank, according to Chey. “The wealth accumulation and need to transfer wealth from one generation to another will help growth,” he said.
The number of Asian billionaires will rise by 27 per cent to 1,003 between 2018 and 2023, making up more than a third of the world’s total billionaire population, according to a March report by Knight Frank.
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“We just need another three big players – say, Goldman, Commerzbank and HSBC for example – and the floodgates should open,” said Wong Joo Seng, chief executive officer of currency-platform provider Spark Systems, which got financial support from MAS to set up in Singapore.
The heart of the challenge for Singapore is latency – the 10th of a second extra it takes to route an order through servers in Tokyo or London or New York, where most major banks have sited their trading engines. To capture big-volume players, the government needs to persuade companies to build those expensive systems and data centres in Singapore.
Citigroup, the world’s joint biggest forex trading group by market share, will provide liquidity through its Singapore forex trading engine in October. It’s also investing in a second data centre, said Mark Meredith, Citi’s London-based global head of electronic trading for forex and local markets.
Singapore is the fourth forex trading hub for Citi, which also has systems set up in Tokyo, New York and London.
“It’s an environment that supports an increasing amount of e-commerce activity,” Meredith said of Singapore. “There’s the growth of wealth in Asia and high-net-worth individuals situated there as well.”
While Singapore and Hong Kong have seen increased trading, both cities still lag significantly behind the UK and US where investors exchange US$3.58 trillion and US$1.37 trillion respectively each day, according to BIS data.
“Hong Kong’s growth reflects still flourishing financial activities in the Hong Kong dollar market, including IPOs and debt financing over the past few years,” said Ken Cheung, chief Asian forex strategist at Mizuho Bank. “Growing integration between Hong Kong and mainland China could also be a source of growth in HKD trading activities.”
Standard Chartered Bank is looking to build an exact replica of its forex hubs found in Tokyo, New York and London in Singapore, supporting the trading of 130 currencies, according to Michele Wee, the head of financial markets for Singapore at the lender.
“We have a lot of new entrants into the market who are having conversations with us on co-locations,” Wee said of Singapore’s development as an FX hub. “It’s a work in progress.”
