Singapore Exchange Accelerates Wind-Down of Pact With MSCI

(Bloomberg) -- Singapore Exchange Ltd. is beginning to reduce its pact with MSCI Inc. months earlier than expected, citing market uncertainty into year-end to speed up delisting the largest derivatives product it has in partnership with the index provider.

The exchange will migrate all open positions in the MSCI Taiwan Index futures to its newly launched FTSE contracts on Oct. 30 and the MSCI product will then be suspended, Michael Syn, who oversees both the cash equities and equity derivatives businesses, said in an interview. The MSCI product had previously been set to wind down as of the license expiration in February.

“There's uncertainty as to what the market should expect November onward because of the U.S. election” and December holidays, Syn said, adding the delisting is being brought forward to avoid potential operational issues and “to make sure everyone's strapped in before the elections.”

The move comes after MSCI's decision in May to shift index licensing for some derivatives products from Singapore to Hong Kong. Come February, its pact with the city-state's exchange will be limited to products based on MSCI's Singapore indexes. SGX has partnered with FTSE Russell to introduce new offerings and signed a broad-ranging deal that spans multiple asset classes.

It previously estimated that delisting its non-Singapore MSCI products would impact net profit for its current financial year ending in June by 10% to 15% if no mitigating actions were taken.

The bourse introduced the SGX FTSE Taiwan Index Futures contracts in July and there's already ample liquidity to make the move, Syn said. Total turnover exceeded $1.5 billion in the first week of trading. This is the first time an exchange will migrate open interest on behalf of customers, he said.

The Taiwan contracts accounted for more than half of the volumes of all MSCI derivatives products trading on the exchange, and about 12% of overall equity derivatives volumes, in fiscal year 2020. According to Syn, U.S. customers are key to the Taiwan business, with about 26% of volume occurring overnight amid demand from American and European investors for the technology-heavy index.

Other highlights from the interview:

• SGX is targeting the launch of a derivatives trading link with India by the end of next year.
• The exchange aims to introduce about five more futures contracts on individual stocks listed in the city-state by the first quarter of 2021.
• The bourse will introduce more derivatives linked to real estate investment trusts and some in the environmental, social and governance category.

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