The SGX Centre, which houses the Singapore Stock Exchange, stands illuminated at dusk in Singapore. Singapore Exchange is relying on derivatives for growth amid a dearth of merger and acquisition candidates in Asia.

Bloomberg/Singapore

Singapore Exchange, Southeast Asia’s biggest bourse, is relying on derivatives for growth amid a dearth of merger and acquisition candidates in Asia.

SGX is planning energy and bond futures, chief executive officer Magnus Bocker said. The bourse’s revenue from derivatives climbed 50% to S$234.5mn ($183.7mn) in the five years through June 2013, outpacing the 4.4% increase in equity trading to S$469.50mn, according to data compiled by Bloomberg.

“Our primary focus is organic growth,” Bocker said in an e-mailed response to queries on August 2. “I cannot say that there are clear merger and acquisition opportunities in this region yet.”

Exchanges worldwide have been building their futures and commodities businesses as the value of stock trading dropped 38% from June 2008, according to the World Federation of Exchanges. SGX has been searching for other growth avenues since its $8.8bn bid for ASX was rejected by Australian regulators in April 2011. Since then about $16.3bn in exchange deals have been completed, according to data compiled by Bloomberg.

Hong Kong Exchanges and Clearing took over the London Metal Exchange in December and the Japan Exchange Group, formed from the merger of rivals in Tokyo and Osaka, has said it wants to start trading commodities. Regulators approved IntercontinentalExchange’s bid for NYSE Euronext in June.

SGX has fallen 2.5% since Bocker became CEO in December 2009. The stock hit a Bocker-tenure high of S$10.12 October 2010, the week before the company initated its failed takeover bid for ASX. The stock closed at S$7.66 on August 2.

In the past three years, SGX rolled out the world’s fastest trading engine, scrapped the midday trading break and introduced dual listings of American Depositary Receipts. Brokerages are turning less bearish on the company, with the number of sell recommendations at the lowest since October 2011, according to data compiled by Bloomberg.

Credit Suisse analyst Arjan van Veen said he downgraded his rating on SGX in October 2010 because the ASX acquisition looked pricey and didn’t provide sufficient cost savings. Most of the capabilities the Singapore bourse was looking for from the transaction have been built organically, van Veen, who now rates the stock an outperform, said.

The Singapore bourse, which hosts the biggest market for Nikkei 225 Stock Average contracts outside Japan, started trading iron-ore futures in April and is preparing to add contracts on foreign exchange and Philippine and Thai equity indexes later this year.

To capitalise on the growing bond offerings on the exchange, Bocker said the exchange is looking at developing fixed-income products. Companies raised S$196bn selling bonds on the bourse in the year ended June, compared with S$161bn the previous year, SGX said in a statement on July 23.

“Fixed income is a very important infrastructure play for Singapore and SGX,” Bocker said. “While bonds being issued are growing rapidly, there is no adequate secondary market. We need to develop that before we could have a market for bond futures.”

SGX, located in Asia’s biggest oil-trading centre, also plans to introduce trading of gas and electricity futures in a few years, Bocker said. Unit Asian Gateway Investments bought a 49% stake in Energy Market Co, operator of Singapore’s spot electricity market, for S$17.6mn in August 2012.

“Once we have the spot and futures market for electricity, it’s much easier to go into gas,” Bocker said. “Gas is much more of regional and global product than electricity. This may take a few years to develop fully. The gas market in Singapore has just started and storage tanks are just being built.”

Futures and commodities trading will become increasingly important for SGX, making the Southeast Asian bourse look a bit more like CME Group, owner of the world’s largest derivatives market, Credit Suisse’s van Veen said.

CME, the world’s biggest bourse by market value, traded 309.9mn equity index futures in the six months ended June, according to data from the World Federation of Exchanges. That’s almost six times more than the volume of SGX, the world’s sixth-biggest venue for such contracts, the data show. The market value of CME, which also offers products linked to interest rates, commodities and energy products, is about four times that of SGX, data compiled by Bloomberg show.