Futurizing Forex – Growing A Multi-Trillion Dollar Market

  • Singapore is building on its position as a global center for foreign exchange trading

  • July-September was a record quarter for CNH trading on SGX, with $259 billion changing hands

  • Increased global regulation has led to rising OTC trading costs

Singapore is already Asia’s biggest foreign exchange center and the world’s third-largest after London and New York, but it’s not stopping there. The city is building on its position by growing the ecosystem and attracting more institutional investors to build FX matching and pricing engines.

Globally, FX is the biggest and most liquid financial market, with $6.6 trillion changing hands each day, according to the triennial Bank for International Settlements survey. Growth concerns and the search for yield are themes that institutions are increasingly factoring into their investing and risk-management strategies.

Recent developments that have impacted the market include political crises in the U.K. and Hong Kong, the fracturing of trade between the U.S. and China, as well as further easing by major central banks.

Singapore Exchange (SGX) is at the heart of developments to strengthen the city’s status as a leading FX center and its numbers speak volumes. Back in 2016, its first full year of offering FX derivatives, the exchange was the venue for a notional daily trading volume of $310 million. Today, this has grown to $1.1 trillion and FX has become a pillar of its multi-asset growth strategy.

One of the things that we did when we started this journey was to embark on creating FX as an asset class in SGX – and we were hardly the first to do that. But if you look at where we were almost six years ago and where we are now, you'll see a lot of growth, a lot of liquidity.

KC Lam, head of rates and FX at SGX

When SGX first launched FX futures, it focused on Emerging Asia currencies such as the Indian rupee and CNH, the offshore renminbi (RMB). These contracts enable global investors to manage risk and access opportunities in the region’s powerhouse economies. Currently, the exchange lists 19 currency pairs and is calibrating its offering to market demand.

Focusing on the needs of Asian markets.

The FX product that has tracked the fastest growth is the SGX USD/CNH futures contract. July-September was a record quarter with $259 billion traded, up 50% year-on-year, as the RMB weakened to more than 7 to the U.S. dollar for the first time in over a decade. Market volatility from the escalating trade war and Beijing’s longer-term efforts to internationalize its marketplaces and supply chains have been behind the surge in volumes.

SGX’s partnership with Bank of China (BOC), the pioneer Chinese settlement bank for its derivatives market, underpins Singapore’s role as an international RMB hub. Since 2013, BOC has boosted its participation, in trading volume and market share, as a market maker for RMB.

“RMB internationalization is crucial to global institutional investors,” said Li Gongfu, senior FX dealer at BOC's Singapore branch. “Traditionally, they are heavily invested in U.S. and European or U.S. dollar-denominated assets with a relatively small proportion of investment in emerging market assets. With the current low-yield environment and weak global economic outlook, institutional investors are looking to boost their yield while achieving diversification.”

Singapore had supported the internationalization of the RMB early on, while the exchange was among the first to accept China’s currency as margin collateral.

With trading becoming more and more active, the trading volume of SGX’s RMB futures is expanding quickly. Since 2017, SGX has become the largest RMB futures exchange globally, with daily volumes around $4-5 billion, far surpassing contracts traded on other exchanges. This gives an extra edge to SGX and Singapore as the major trading hub for RMB – the fastest-growing section of the FX market – and in turn, improving Singapore’s status as a global FX hub.

Li Gongfu, senior FX dealer at BOC’s Singapore branch

And it isn’t just interest from Asia that’s driving the CNH market. Much of the liquidity on SGX is taking place during the overnight session, which runs from 1800 to 0445 Singapore time covering European and U.S. trading hours. Participants include commodity trading houses, funds, banks, proprietary trading firms as well as asset managers.

“We see a lot of traction coming into this market and that’s basically a good testimony of how successful RMB has been in terms of internationalization,” Lam said.


Increased regulation is one area that the broader financial world has had to contend with in the aftermath of the 2008-09 global financial crisis.

Policymakers are putting in place a slew of reforms to promote stability in the international financial system, such as Basel III. And one unintended consequence has been an increase in the cost of over-the-counter trading.

This is where SGX saw an opportunity to support market participants with the introduction of FlexC FX futures, an innovative way to mitigate counterparty credit risk while retaining bilateral trading relationships. Just like in an OTC transaction, FlexC allows customers to trade with any expiry they choose.

The first SGX FlexC contract changed hands earlier in 2019, ahead of major phases of Uncleared Margin Rules that will be implemented globally.

“We believe that futures and the OTC world are symbiotic, we rely on one another. Although the futures world has been growing faster, we’re still a very small part compared with the OTC market,” said Lam. “One of our initiatives is to ensure that OTC traders can continue to enjoy the flexibility and bilateral nature of OTC-styled transactions, alongside the benefits of an exchange-traded futures contract.”

To further digitalize the marketplace and integrate the futures and OTC liquidity pools, SGX is building up its FX offering with key strategic investments. In March, the exchange bought a 20% stake in BidFX, plus an option for a controlling interest, for $25 million. BidFX is a specialized trading platform that also serves as a liquidity aggregator tool for spot, swaps and forwards for G10 and Asian currencies.

Jean-Philippe Malé on the BidFX partnership with SGX.

This follows last year’s acquisition of a minority stake in U.K. fintech start-up Cobalt, which is harnessing blockchain technology to streamline settlement for FX trading floors around the world.

“When we launched FX on SGX, we were already offering risk-management tools for asset classes like commodities and equities, giving us a global macro feel of the customers we can serve,” said Lam. “So as a natural marketplace for our participants, we are making transactions more efficient for them and helping them to grow.”

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