Sin­ga­pore's bourse sub­mits bid for Lon­don's Baltic ex­change

The Pak Banker - - MARKETS/SPORTS -

Sin­ga­pore Ex­change Ltd. said it's seek­ing to buy Baltic Ex­change Ltd., the 272 year-old Lon­don-based provider of in­for­ma­tion on global ship­ping costs.

SGX has made a non-bind­ing bid for the Baltic, South­east Asia's big­gest bourse op­er­a­tor said in a state­ment Fri­day af­ter Reuters re­ported the talks. Dis­cus­sions are pre­lim­i­nary, SGX said. The Baltic Ex­change has held talks with other po­ten­tial suit­ors in­clud­ing Lon­don Metal Ex­change, CME Group Inc., In­ter­con­ti­nen­tal Ex­change Inc. and Platts, Reuters re­ported, cit­ing uniden­ti­fied peo­ple fa­mil­iar with the mat­ter.

The news of the of­fer comes days af­ter Lon­don Stock Ex­change Group Plc and Deutsche Bo­erse AG said they were in merg- er talks, sig­nal­ing a new round of ex­change merger and ac­qui­si­tion ac­tiv­ity. For SGX, con­tracts us­ing the Baltic's freight rate data are an ap­peal­ing tar­get.

"This ac­qui­si­tion will help SGX strengthen their de­riv­a­tives busi­ness," Bernard Aw, a strate­gist at IG Asia Pte in Sin­ga­pore, said by phone. "Their de­riv­a­tives busi­ness has been do­ing quite well. If equity trad­ing con­tin­ues to stag­nate, de­riv­a­tives will be­come in­creas­ingly dom­i­nant." De­riv­a­tives ac­counted for about 40 per­cent of SGX's most re­cent quar­terly rev­enue amid grow­ing de­mand for con­tracts tied to eq­ui­ties and com­modi­ties, in­clud­ing iron ore, the FTSE China A50 In­dex and the Nikkei 225 Stock Av­er­age. The ex­change also of­fers freight con­tracts tied to ship­ping costs com­piled by the Baltic Ex­change. The Baltic, which pub­lishes bench­mark freight rates, is one of the City of Lon­don's most fa­mous trad­ing names. Like in­sur­ance mar­ket Lloyds of Lon­don it grew out of 18th-cen­tury coffeehouses, where shipown­ers and mer­chants matched ves­sels with car­goes such as grain. Its name is de­rived from the trade in tal­low, used to make can­dles and soap, and other goods that orig­i­nated from the Baltic states.

The com­pany is owned by its bulk ship­ping in­dus­try mem­bers, ac­cord­ing to its web­site, one of the last mem­ber-owned ex­changes in an age of for-profit busi­nesses. Lon­don Metal Ex­change sur­ren­dered its mem­berowned sta­tus af­ter it was bought by Hong Kong Ex­changes & Clear­ing Ltd. in 2012. The Baltic re­jected a pro­posal from the LME in 2010 to co­op­er­ate on start­ing a freight de­riv­a­tives ex­change. The com­pany has 30 staff in Lon­don, Athens, Sin­ga­pore and Shang­hai. It re­ported net in­come of 1.34 mil­lion pounds ($1.88 mil­lion) in the year ended March 31, 2015, on rev­enue of 6 mil­lion pounds, ac­cord­ing to its web­site.

SGX has been de­vel­op­ing its de­riv­a­tives busi­ness to off­set lack­lus­ter equity trad­ing vol­ume in the city state. While the av­er­age daily value of shares traded in the Sin­ga­pore mar­ket in­creased 5.1 per­cent to S$1.1 bil­lion ($786 mil­lion) in 2015, it re­mains well below the S$1.7 bil­lion that changed hands ev­ery day be­fore the global fi­nan­cial cri­sis, data com­piled by Bloomberg show. "Sin­ga­pore Ex­change has quite poor home liq­uid­ity," said Tony Tanaka, Tokyo-based an­a­lyst at Haitong In­ter­na­tional. "They have to ex­pand liq­uid­ity, they have to ex­pand out­side Sin­ga­pore. It has al­ways been a fo­cus for them." SGX in 2011 failed to pur­chase ASX Ltd., Aus­tralia's main ex­change op­er­a­tor, af­ter the coun­try's govern­ment blocked the bid cit­ing na­tional in­ter­ests. Loh Boon Chye, who be­came SGX CEO last year, said in July that the bourse is open to mak­ing ac­qui­si­tions.

"SGX wishes to em­pha­size that as dis­cus­sions are still pre­lim­i­nary, there is no cer­tainty or as­sur­ance that the pos­si­ble trans­ac­tion will ma­te­ri­alise or that any defini­tive or bind­ing agree­ment will re­sult from such dis­cus­sions," the ex­change said in an e-mailed state­ment. SGX's state­ment came near the end of a week that saw two of the world's largest ex­changes con­firm merger talks. Lon­don Stock Ex­change and Deutsche Bo­erse said on Tues­day they're in talks that would cre­ate Europe's big­gest ex­change with a com­bined busi­ness worth more than 20 bil­lion pounds ($28 bil­lion).

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