Business Continuity Incident: Trading interrupted on Singapore’s SGX exchange

Business Continuity Incident

Singapore’s SGX Exchange has suffered a number of high profile outages over the past years. Last week another “glitch” hit their systems, further disaffecting customers and traders as well as attracting further regulatory scrutiny It’s clear that confidence in that institution has been shaken and the 4th major disruption to exchange systems availability in less that two years may be the cause of declining trading volumes on this platform.

Futures on the Nikkei 225 Stock Average, which usually open at 7:30 a.m. local time, didn’t start trading on Thursday until about 10:15 a.m. The delay also affected contracts on India’s Nifty 50 Index and iron ore.

The exchange gave little information publicly about what happened. Given the implications, it’s understandable that SGX might prefer to avoid talking about it.

This was at least the fourth disruption at Singapore’s trading venues in the past 18 months. It also happened at the worst possible time, the day after the Nikkei 225 most-active futures contract expired. On these days, known as a rollover, there is heavy activity from investors creating new positions.

The monetary authority responded by asking SGX to investigate, a less forceful approach than the reprimand it issued in 2014, when trading was halted because of a power failure. There’s little need for the MAS to wield a big stick this time. The impact on the exchange’s bottom line should be incentive enough for SGX to act.

Derivatives are its biggest breadwinner, accounting for 37 percent of revenue in the first quarter of the exchange’s fiscal year. That’s even after a 24 percent drop in volumes from a year earlier.

Derivatives was the biggest contributor to revenue at Singapore Exchange in the quarter ended Sept. 30
Source: SGX filings

The decline in trading follows two years of steady and strong growth in that business.

Singapore Exchange’s derivatives revenue has slipped in recent quarters
Source: SGX filings

It’s impossible to establish definitively whether the slowdown reflects fallout from the disruptions earlier this year. Euronext also reported a drop in derivatives revenue in the third quarter, which it attributed to reduced volatility. What’s certain is that the latest trading glitch won’t help.

SGX is setting an unfortunate track record here. To re-establish confidence, it must do better than saying the delay was the result of a “specific issue” that was “addressed immediately.” (A near three-hour delay may not be every investor’s idea of immediacy.)

Fail to do so, and its customers may look elsewhere. Business continuity in derivatives is a given. The trading doesn’t have to take place in Singapore.