The Last Look…
Posted by Colin Lambert. Last updated: January 31, 2022
Given the stunning growth in activity reported by Singapore last week, it really is time the local FX committee changed how it presents the data.
Amidst a string of reports from elsewhere in the world indicating a decline in activity from April, but an increase from the previous October, Singapore has rolled in with 30-50% increases in activity in every product except currency swaps – which is normally a strong suit of the centre.
To put the data into context, at $5.9 billion per day, currency swaps activity is 60% lower than the lowest ever reported, when the centre handled $14.7 billion in April 2009 at the height of the global financial crisis. Over the past decade Singapore has reported an average of $58 billion per day in these products.
It is the exact opposite in every other FX product, which only serves to make the increases more staggering. Obviously, all products hit a new high in October 2021, but looking at the data compared to the average over the previous 10 years, so 20 SFEMC surveys, the sheer magnitude of the increase is highlighted.
Spot activity in October 2021 was up more than 60% on the 10-year average; outright activity was almost double the 10-year average, while FX swaps, long a heavily traded product in Singapore, more than doubled – it was actually 114% higher than the decade average. Even FX options, a product that can’t buy a friend elsewhere in the world, saw activity in the latest report that was more than 50% higher than the average over the past 10 years.
To provide a high-level comparison, the October 2021 data from the UK is 7% higher than the previous 10-year average, while turnover in the US is up 4.1%.
It is at this stage that someone such as myself launches into a detailed analysis of what prompted such a diversion from the rest of the world, but unfortunately, there is a problem. The UK’s FX Joint Standing Committee and New York Foreign Exchange Committee provide a report that breaks down activity across customer segment and execution channel. Singapore provides it by product and by counterparty location only – and even the latter only by whether the counterparty is in or outside Singapore.
Singapore’s influence as an FX centre is clearly growing strongly, and is likely to continue to do so, therefore it would be helpful if market participants could better understand where trading is being done, and by whom. It’s one thing to provide the basics when a centre is still a relative backwater, but Singapore is growing – has grown – to the degree that it is easily the third biggest, and eyeing up the number two spot. That means that a more detailed report is required.
There is little doubt, assuming this report is not a serious outlier – and speaking to sources in Singapore they do feel that the market is busier than ever – that what we are probably seeing is the fruits of the MAS’ labour to get more e-FX pricing and risk engines sited in SG1. It is probably also notable that a major player in the e-FX business, Deutsche Bank, co-located in SG1 in October.
More banks are streaming FX swaps and outrights to the clients, therefore the uptick could be a manifestation of this – the data is collated according to the location of the trading desk, or in modern market parlance, the pricing and risk engine and associated overseers.
It will be interesting to see what happens when the Tokyo FX Committee finally issues its report, because Singapore definitely saw an uptick in activity in yen – will there be signs that Singapore is taking business away from Tokyo?
More pertinently perhaps, is this trend likely to continue if, as media reports suggest, more banks shift staff from troubled Hong Kong to Singapore? The Hong Kong FX volume survey indicated steady activity, albeit below the peak in April 2019, but still the third highest in the short reporting life of the Markets Committee there. If there is indeed a trend to pull more functions out and site it in Singapore, then surely the city state’s position will grow even further? If it does, will Singapore close in on the US as the world’s second largest FX centre? The gap is under $200 billion a day now, considerable I know, but significantly down from the $500 billion gap that existed for much of the past decade.
The good news for those of us who would like to have some insight into these questions is that an opportunity exists for the SFEMC to make the change very soon. The BIS Triennial Survey collates data by counterparty and trading channel, so presumably MAS will be doing just that for the April 2022 survey?
If ever there was an opportunity for market participants in Singapore, via the SFEMC, to replicate the BIS structure into their semi-annual survey it would be now. Singapore has always been a “serious” FX centre, but its position continues to climb inexorably, to the extent that, pending the Tokyo report, it is firmly establishing itself as the Asian FX centre. The MAS’s ambition was to establish the centre as the e-FX centre for Asia – but clearly e-FX is FX now, so with success there comes broader growth. Now is the time for the centre’s banks to put in what I accept is extra effort, by upgrading the semi-annual survey through the replication of the workflow for the BIS survey. Here’s hoping they do so.