SGX launches new Clob for FX spot and NDFs

CurrencyNode to tap into new matching engines in Singapore, and eventually will look to offer futures-spot spreads

The Singapore Exchange (SGX) has launched a new anonymous electronic communications network (ECN) for trading spot foreign exchange and non-deliverable forwards (NDFs), as it attempts to tap into the growing pool of market-makers building matching engines in the city-state.

CurrencyNode will be headquartered in Singapore’s SG1 data centre, offering a central limit order book (Clob) with firm and non-firm liquidity. It will use a central prime broker model and will initially go live with two FX prime brokers: BNP Paribas and Deutsche Bank. The venue will offer the standard G10 currencies as well as precious metals and the full range of NDF products including the Taiwan dollar, Indian rupee, Indonesian rupiah, Korean won and Philippine peso.

The move opens up another avenue for SGX to further penetrate the $6.6 trillion-a-day FX market, alongside its listed futures products and its trading technology platforms BidFX and MaxxTrader.

“We want to be the beacon of liquidity anchored in the Singapore and Asia time zones, to serve the ecosystem and all the traders that are awake in this time zone,” says Lee Beng Hong, head of fixed income, currencies and commodities at SGX Group.

SGX is also looking to introduce FX futures into the new platform, to allow users to trade the spread between spot FX and futures as CME’s FXLink does. In August, heightened volatility sent the aggregate FX futures volume at SGX to 2.6 million contracts – a 4% month-on-month increase.

“The ability for us to combine the liquidity that we have within our futures products together with the OTC products in CurrencyNode, I think it’s going to be a very exciting opportunity for clients in the OTC world to also access the quality of users within the futures world. That tends to be quite different,” says Lee.

It also plans to launch FX swaps and NDF spreads on the venue at a later stage.

Forex hub

The amount of FX moving through Singapore has been steadily increasing over the years. The average daily volume traded was $837 billion in April 2022, according to the Singapore Foreign Exchange Market Committee. That is a 32% increase from the $633 billion reported by the Bank for International Settlements in its April 2019 triennial survey. This makes Singapore the third-largest FX centre globally, and the largest in Asia.

This growth, and an incentive scheme from the Monetary Authority of Singapore, has meant the number of market-makers that have set up pricing and matching engines in Singapore has grown in recent years. The London Stock Exchange Group announced in May that it would set up a new Clob in Singapore. At the same time, CME-owned EBS Market has been consolidating its data centre footprint into larger trading hubs such as London and New York.

As interest in the region grows, Lee says the move to launch CurrencyNode should help boost price discovery for Asia currency products within the Asia time zone, where liquidity has at times been challenging.

“Clearly, our ECN will keep running in our time zone. The best price discovery for the asset is close to home,” Lee says. “We have an existing network of clients that uses us. They have a large proportion of their needs in Asia.”

The best price discovery for the asset is close to home

Lee Beng Hong, SGX

More than a dozen countries with regional and sub-regional bank liquidity providers boasting tens of billions of dollars in market capitalisation make up this market, Lee says, indicating that more business can be picked up. It could also be a benefit to global markets, since those regional liquidity providers, real money and sovereign wealth fund clients create a diverse mix of bank liquidity and market users.

“It is exciting for us to work together with all the big regional banks, helping them with the whole digitalisation process - starting from their trading desk, how they serve prices, how they risk manage, and how they aggregate prices,” Lee says.

With CurrencyNode, SGX hopes to capitalise on this by leveraging the execution capabilities of its BidFX and MaxxTrader platforms to expand the range of electronification and automation services it provides to the region’s buy- and sell-side clients. Clients of the platforms can access CurrencyNode’s liquidity via their respective interfaces.

SGX acquired MaxxTrader from FlexTrade Systems in July 2021 for approximately $125 million. The exchange snapped up the remaining 80% stake of BidFX in June 2020 for approximately $128 million, a little over a year after obtaining 20% ownership in the firm.

“We think that given the network that we have in both the buy and sell-side community, we have a good opportunity to be able to connect them into the new ECN to help to digitalise the price formation process,” Lee adds.