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Singapore Exchange eyes higher returns from cash pile

Bourse operator to expand foreign-exchange, fixed-income products

SINGAPORE (Nikkei Markets) -- Singapore Exchange is looking for ways to better deploy its huge cash holdings and might consider parking excess funds in riskier assets to generate better returns, its chairman said.

Kwa Chong Seng was speaking at the bourse operator's annual general meeting on Thursday, where the board faced questions about SGX's stagnant earnings over the past five years.

Shareholders also pointed to SGX's huge cash holding amounting to 520 million Singapore dollars ($384 million) at the end of June 2017. In addition, SGX had another S$260 million committed for its securities and derivatives clearing funds.

Speaking to reporters after the AGM, CEO Loh Boon Chye said the company could potentially use between S$200 and S$300 million of its cash for higher-yielding investments, after setting aside funds to act as a buffer.

SGX could also deploy the funds for acquisitions, as it did with its purchase of London-based Baltic Exchange for 87 million pounds ($117 million) last year, or return part of it to shareholders.

"Our risk policy historically was a little more restrictive in terms of just bank deposits," Loh said when asked to comment about the company's excess cash holdings.

Banks currently pay well below 1% per annum on Singapore dollar fixed deposits that mature in 12 months. At DBS Bank, the city-state's largest lender, the rate quoted for a one-year fixed deposit of between S$500,000 and S$999,999 is just 0.35%.

SGX has been struggling to grow its business in recent years amid subdued trading volumes in local stocks and as companies increasingly look towards other bourses like Hong Kong and Australia to list their shares.

For the financial year ended June 2017, SGX posted a 3% drop in net profit to S$340 million as revenue fell 2% to S$801 million. SGX's net profit has barely changed in the past five years, having ranged between S$320 million and S$349 million, while its return on equity has fallen from 39% in year ended June 2013 to 33.6% in the just-ended year.

In his address to shareholders, Loh said SGX's priorities in the current financial year include expanding its range of fixed-income and foreign-exchange products.

Foreign exchange "as an asset class has the largest off-exchange market globally, with $5.1 trillion traded daily. Regulatory forces are pushing for greater transparency in this space, which will gradually shift these transactions to the exchange," he said.

As for the stock market, Loh said SGX would continue efforts to attract listings by home-grown and international companies while expanding its suite of investment products to increase liquidity on the local bourse.

--Kevin Lim

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