Businesses across industries are facing disruption and the exchange sector is no different, writes Loh Boon Chye, CEO, Singapore Exchange (SGX).
Disruption presents exciting opportunities for exchanges to reinvent themselves. At the same time, it also demands exchanges to rethink their role and relevance, and to become as agile as the customers they seek to serve.
No order in the new world
The first thing to recognise is that there no longer exists an order in the new international arena. With increased connectivity, we find ourselves operating in a progressively complex and fragmented world. Inherent to this is the need for exchanges to understand the evolving economic and political forces, whilst navigating the diverse environments of individual markets.
Notably, regulation has become one of the biggest drivers of change for the exchange industry. Post-financial crisis regulatory and compliance requirements, rising levels of scrutiny by stakeholders and increasing demand for greater transparency mean that exchanges have higher expectations to meet on multiple fronts.
Adding to the equation are new disruptors, be it financial technology challengers, new funding platforms or crypto-currencies, just to name a few. As much as these innovations may present commercial opportunities that could unlock exponential growth, they also present regulatory and even social considerations that require rethinking of conventional models.
More than just a platform
In this new world, businesses are fundamentally changing from linear pipeline models to platform ecosystems. In the same way, exchanges of the future must maximise their platforms and build robust marketplaces that can attract participation and facilitate interaction, which would in turn generate a positive multiplier effect.
It is no longer sufficient to just develop new products and push them to customers. As market infrastructure operators, our value lies in bringing producers and consumers together, effectively and efficiently. The information that we hold, and the interactions we create within our ecosystem, are equally important assets as our infrastructure, products and services.
In the securities space, exchanges are confronted with a capital raising landscape that is changing to meet the needs of new economy companies springing up across the globe. For exchanges to establish themselves as the go-to destination for all capital needs, one can expect to see either stronger partnerships, or an amalgamation, of public and private funding platforms. One such example is the recent partnership between SGX and Nasdaq, where we have signed a collaborative listings agreement to leverage our strengths as two of the leading listings venues in the U.S. and Asia respectively.
Beyond funding needs, technological innovations within the exchange industry are also fast advancing. With technology, exchanges can link and aggregate liquidity pools across multiple venues, enhance transparency and price discovery, and allow a broader pool of market participants to manage risk in tandem with varying geographical complexities.
Exchanges can also further harness the potential of data to improve the way they serve market participants within their domestic markets as well as overseas. While exchanges have already been monetising the data they own, there is still more value they can extract from data that will not only contribute to bottom lines, but also benefit the ecosystem and marketplace. Blockchain and artificial intelligence present ample prospects that can revolutionise market making activity in a way that enhances liquidity and opens up untapped opportunities.
Collaborate to compete
What is clear is that exchanges of the future have to embrace disruptive change in a constructive way. As exchanges strike a balance between adapting to change and driving change, one of the often-overlooked areas is the chance to collaborate deeper with peers.
Cross-border mergers have their challenges and limitations. Exchanges can, instead, take a leaf from the airline industry which has shown that strategic alliances can offer significant advantages while remaining as independent companies. Any frequent flyer will acknowledge that airline alliances have made global connections easier and more convenient.
Similar to airline alliances, exchanges – by collaborating and working together – can spawn creative ideas, encourage greater investment activity and elevate the overall quality of the markets they operate in. At the end of the day, this is not a zero-sum game and the benefits of partnerships far outweigh the concerns of competition. Stronger cooperation among exchanges will enable the industry to collectively support what WFE actively promotes – the development of fair, transparent, stable and efficient markets that help sustain global economic growth.
Loh Boon Chye, CEO, SGX was elected Board Director of The WFE, Asia-Pacific region (3-year term), at the WFE General Assembly & Annual Meeting in September 2017.