Derivatives keep shining
Last quarter was one of the strongest for derivatives on record for SGX. Derivative daily
average volumes grew 53% y/y last quarter. A50 (SGX FTSE China A50 Index Futures)
volumes were up 340% y/y in December. These are strong indicators of the
transformation of SGX. They also underline the exchange’s strong competitive position
in Asia. This growth is welcome particularly when the securities business has been lack
lustre. Derivatives revenues have grown by about 70% since mid-2010, while securities
revenues have declined 30% over the same period. As a share of the total revenues,
derivatives recently overtook securities and account for almost a third.
Blended revenue per contract for derivatives could see a significant decline
A50 is one of the lowest margin products (based on our estimates). SGX does not
disclose the revenue per contract individually for their product offerings. It might be
dangerous to extrapolate the average blended revenue per contract for the new higher
volumes. Based on our estimates the blended rate might decline by 10-15% in 2Q15
(Oct-Dec14). This is probably not a positive catalyst for the share price.
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