06 February 2018
Strong start to 2018 for SGX as FX futures volumes hit US$ 65 billion

The World Economic Forum at Davos saw leaders around the world actively promoting their respective economies. While France’s Emmanual Macron touted France as a viable alternative financial centre post Brexit, the US indicated that it remains open for business despite public posturing on its “America first” policy and despite trying to enforce unilateral protectionist policies in the form of trade tariffs. High volumes in foreign currencies trading, which are a good proxy for international trading activity, indicates that  global sentiment remains largely in favour of open trade.

We’re seeing improving economic conditions, with major economies expanding, corporate profits holding up and central banks yet to flush the excess money from the markets. A confluence of all of these factors is providing an impetus to the growth engines across the world and it has led many analysts to maintain growth forecasts in financial markets.

The VIX index, often used to as a proxy to gauge fear and optimism in the financial markets, has continued at around historical lows in a sign that market does not anticipate any extended periods of trouble ahead. However, the last few days of January 2018 tested that hypothesis with global equity indices dropping in value, and a rise in the bond yields. There have also been calls to remain cautious to avoid a “Minsky Moment”. Named after the economist Hyman Minsky, the theory postulates a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. 

SGX FX futures volume crossed a new record of US$ 65 billion in January

  • Aggregate volume for SGX FX futures soared to a new high of over US$ 65 billion in the month
  • SGX FX futures Average Daily Volume (ADV) above US$ 3 billion through the month
  • SGX USD/CNH futures saw 10 consecutive billion dollar trading days; set record for highest monthly volume
  • SGX INR/USD futures hit a record US$ 35 billion monthly volume as inflationary pressures mount on the Indian rupee

After a year of record volumes in2017, with SGX FX futures volumes ending up 59%, January continued the growth momentum. Trading in the flagship INR/USD and USD/CNH contracts hit new highs, bringing the overall SGX FX futures volume above US$ 65 billion in a month for the first time.

Data Source: SGX

US$ 29 billion start to the year for SGX USD/CNH futures

Trading in SGX USD/CNH futures was rapidly off the block in 2018, crossed US$ 1 billion in each of the first 10 trading days of the year. This is the longest such streak after the 12-day run seen in September 2017.

Volatility in the CNH market had been low towards the end of 2017, despite an occasional liquidity squeeze. As a result, trading in the USD/CNH futures had been slow. However, the volatility picked up with some important PBOC action seen on9 January. With the renminbi no longer under significant depreciation pressure, the PBOC reportedly reduced the influence of the “counter-cyclical factor” that it had introduced in May 2017 on the formula used in the determination of the USD/CNY reference rate. The objective at the time was to reduce the impact of market forces on the reference point. The move had spurred on volatility at the time of introduction and its removal elicited a similar impact as the yuan weakened in both onshore and offshore markets. The trading frenzy for SGX USD/CNH futures subsequent to this ultimately culminated with US$ 2.06 billion being traded in one day on 15 January, marking it the second time that trading for the contract breached US$2 billion in a day.

Data Source: SGX

Trading in the SGX USD/CNH futures contract crossed the US$ 1 billion mark on 19 days during January. The consistent trading activity made January 2018 the best month for the contract with trading volume reaching US$ 29.7 billion [297,011 contracts]. This surpassed the peak seen in September last year [279,424 contracts] and represents an increase of 175% y-o-y and 42% m-o-m.

The ADV for SGX USD/CNH futures in January was US$ 1.35 billion, making it the fifth month in succession where the ADV has been above US$ 1 billion. The strong demand for the contract from participants across geographies and with diverse businesses further consolidates the significant upward shift in the growth of the contract seen throughout 2017. As a result, SGX continues to enjoy a strong 72% share of the listed USD/CNH futures trading volumes across all exchanges globally.

Data Source: SGX, Bloomberg

With the continued integration of Chinese financial markets with global financial markets, the availability of hedging tools such as the USD/CNH futures on SGX becomes more important to market participants. With a rapidly increasing corporate and household debt, the Chinese economy remains exposed to risk despite optimism derived from a high growth rate in Chinese economy. In recognition of the potential risks, the China Central Bank Governor Zhou Xiaochuan, said in October 2017 that China would fend off risks from excessive optimism that could lead to its own “Minsky Moment”.

SGX INR/USD Futures top 1 million contracts, US$ 35 billion in January

New Year brought in new highs for the SGX INR/USD futures, as the contract set a record for total monthly volume. Trading in the SGX INR/USD futures had a steady start to the year - the rupee continued to appreciate for a few days before slipping almost 48 paisa over two days in the second week of the month as the foreign institutions sold off Indian equities. It staged a recovery over the next few sessions and continued to appreciate before plunging over 50 paisa again over a period of two days. Overall, in January, RBI benchmark for Rupee moved within a narrow range [63.3482 to 63.9797] as the currency gained 24 paisa against the US dollar.

Although the daily trading volume for SGX INR/USD futures continued to hover around US$ 1 billion in the first week of January 2018, the momentum was missing. The second week of the month saw this shift in a significant way as CPI numbers came in higher than expected in a sign of inflationary pressure building up, and volatility increased.

The SGX INR/USD futures saw 4 consecutive days (6 in total) with trading in excess of US$ 2 billion. Prior to this month, SGX had seen trading in the contract crossed US$ 2 billion only on 7 days (all in the second half of 2017). We saw 18 days with volume exceeding US$ 1 billion [including, 14 days consecutively].  This is testament to the consistent interest in the contract and a strong endorsement of the ability of market participants to use the SGX INR/USD futures to manage market risk. The activity slowed down towards the end of month with the Republic Day long weekend. However, with US dollar’s movement in the last few days of the month, global markets saw some volatility and major indices across the globe conceded some ground as SGX ended the month with another $1 billion day for the INR/USD futures contract.

Data Source: SGX, Bloomberg

The ADV for the SGX INR/USD futures in January was US$ 1.69 billion – up 45% m-o-m from December and 146% y-o-y. At the end of January 2017, the 3-month ADV for the SGX INR/USD futures was US$ 729 million while the 3-month ADV at the end of January 2018 nearly doubled to US$ 1.4 billion, reaffirming the significant increase in the demand for the INR/USD futures at SGX. With 1,127,178 contracts traded in January, the total volume for the SGX INR/USD futures crossed 1 million contracts for the first time in its history. In notional value terms, this translates to over US$ 35 billion of SGX INR/USD futures traded in January 2018, taking the total volume traded to over US$ 180 billion since the July 2017.

Data Source: SGX, Bloomberg

SGX continues to build liquidity for Korean Won, Singapore Dollar, Taiwan Dollar and other offerings such as Malaysian Ringgit, and all these pairs attracted market participants in the month. The SGX KRW/USD futures contract has seen trading pick up sharply in the last 2 months driven by demand for an active venue to hedge currency risk in an offshore center.

How to access information on these contracts:


Visit http://www.sgx.com/fx for more details on the SGX FX futures.


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