The Singapore Exchange Limited — or SGX — announced on July 6, 2012 that it is ready to list, quote, trade, clear and settle securities denominated in Chinese renmimbi (RMB), as it aims to parlay the decision to name an RMB-clearing bank for Singapore into a game changer for offshore RMB business. SGX's addition of RMB securities trading complements the offshore RMB bonds already listed on the exchange.
CEO of the SGX Magnus Bocker said that, “SGX, as the Asian gateway, is committed to being the exchange of choice for issuers with RMB fund-raising needs who are keen to participate in the China growth story. The listing and trading of RMB securities on SGX will also extend Singapore’s position as an offshore RMB center.”
The SGX announcement came on the same day that the enhanced China-Singapore Free Trade Agreement was inked. It entails a promise from China to name a new RMB-clearing bank in Singapore. Market watchers anticipate that setting up a clearing bank in Singapore will lead to more capital flowing into the city, and a surge in offshore trading of RMB assets, driven by increases in RMB deposits.
Singapore is seen as the natural hub for Chinese RMB flows to and from the ASEAN economies. Banking representatives in Singapore believe it is likely that it will capture more of the regional trade and investment flows and that many Chinese companies seeking to globalize or to establish their presence in the ASEAN region will also set up operations in the city. Companies that already have offices in Hong Kong may want to set up a second treasury centre in Singapore to tap US- and Singapore-dollar funding. ASEAN trade with China totalled US$362 billion in 2011, and market watchers such as Deutsche Bank’s head of trade finance, expect that China’s capital flows with ASEAN countries will only continue to grow in the coming years, “particularly with the continuing trend of RMB internationalization and the increasing number of Chinese companies going international.”
The SGX is making full use of its flexibility advantages by allowing issuers listing RMB securities on the SGX to offer dual currency trading, building on its decision in March 2012 to allow investors to trade the security either in RMB or Singaporean dollars. Dual currency trading allows listed securities to be traded in two different currencies. The SGX is now expanding the initiative to the broader suite of foreign currencies supported by the exchange, which include the Australian dollar, the Hong Kong dollar and the US dollar.
In another act of innovation, the SGX is poised to become the world’s first exchange to offer over-the-counter FX forwards for China’s RMB.
Singapore has been in ongoing discussions with Beijing to turn itself into a major offshore RMB hub for trading securities and bonds — after Hong Kong, and along with London and, most recently, Tokyo and Sydney.
Singaporean authorities have explained to Beijing how Singapore can be useful for helping China to prudently internationalize the RMB, and continue to develop its global financial and monetary profile in a stable manner, over the medium to long term. The SGX is the premier access point for managing Asian capital and investment exposure, and Asia's most internationalized exchange, with more than 40 percent of companies listed on the SGX originating outside of Singapore. The SGX offers the world's biggest offshore market for Asian equity futures trading, centred on Asia's three largest economies — China, Japan and India.
The SGX provides a fully integrated value chain, from trading and clearing to settlement and depository services. It is centred in a highly globalized city, with AAA-rating strength and the benefits of Singapore’s predictability and stability. As such, the SGX can legitimately claim to be Asia's pioneering central clearinghouse for financial and commodity products.
The SGX elevated its outreach to Chinese decision makers when it opened a Beijing Representative Office in April 2008. The office has played a supportive role in bridging China and Singapore’s equity capital markets, and servicing the current and future listed Chinese companies. In the past, Singaporean authorities have emphasized that the office demonstrates Singapore’s ongoing, long-term commitment to China, and the development of its financial markets. Now the SGX is working on the two-way development of capital markets, including Singapore’s exchange, through RMB asset trading.
The future growth of RMB securities and bond trading in Singapore will be bolstered by the fact that the Monetary Authority of Singapore (MAS) is one of 17 central banks that have established bilateral currency swap arrangements with the People’s Bank of China (PBOC).
Recent data from a large US-based investment bank indicates that Singapore’s central bank, along with central banks in the rest of Southeast Asia, are looking to diversify their reserve holdings beyond treasuries and European bonds, and to further increase their holdings of RMB-denominated government and corporate bonds. In brief, there is appetite for more.
The MAS recently opened a Representative Office in Beijing (in June 2012) — the first such office for Singapore’s central bank in Asia, and its third office worldwide after London and New York. The MAS and PBOC suggest that the office will further strengthen bilateral monetary and financial cooperation between Singapore and China. Fostering such direct communication channels between central banks is crucial for backstopping the international use of the RMB in the early stages of experimentation. The PBOC added that opening the MAS office in Beijing will also help expand economic and trade ties between the two countries.
Singapore joins a growing list of countries opening central bank representative offices in China in recent years. In September 2011, the Reserve Bank of Australia announced the establishment of an office within the Australian Embassy in Beijing; in April 2012, Malaysia and Thailand announced that central bank offices would be set up in Beijing.