A view of the Singapore Exchange’s SGX Centre headquarters. The SGX’s new corporate bond trading platform is expected to travel a difficult road, with some traders fearing that long-standing problems in Asia’s debt market will see the bourse struggle to make headway just like others before it.

Reuters
Singapore/Hong Kong

Singapore Exchange’s new corporate bond trading platform is expected to travel a difficult road, with some traders fearing that long-standing problems in Asia’s debt market will see the bourse struggle to make headway just like others before it.
The platform, due to launch early next year, is the first of its kind in Asia to attempt to consolidate a range of regional corporate debt, providing an electronic matching system that will allow buyers and sellers to anonymously put in orders.
“For issuers to continue to come to the market, they need to have price discovery,” SGX CEO Loh Boon Chye said in an interview for the Reuters Global Investment Outlook Summit this week.
“They need to know where their bonds are traded, who owns their bonds, how frequently it’s being traded. This is what we are trying to do with the bond trading system.”
Debt trading platforms managed by exchanges are seen by some in the industry as the way of the future amid increased regulatory pressure to improve transparency and as banks no longer want to hold too much inventory under post-financial crisis capital rules.
SGX’s initiative also comes at a time when corporate issuance in Asia’s emerging markets is booming as firms seek out low-cost debt to finance business operations.
But others list a slew of potential problems, especially the relatively small amount of corporate bonds that trade in Asia and problems with encouraging sufficient liquidity. “Some common problems are the buy-and-hold nature of the investors here, fragmented markets, lack of liquidity, and those are the very issues some of the other platforms tried to solve but failed,” said the head of fixed income trading at an Asian bank in Hong Kong.
“SGX is not offering anything radically new here,” he said, declining to be identified as he was not authorised to speak to the media.
Corporate bond issuance in dollars, euro and yen for Asia, excluding the more developed markets of Japan and Australia, has notched up three straight record years, climbing to $210bn in 2014, Thomson Reuters data shows. But at the same time, that amount is still only 5% of European international corporate bond issuance.
The bond world is also littered with failed corporate debt trading networks. Goldman Sachs shuttered its GSessionsplatform in 2014 while BlackRock, the world’s biggest asset manager, closed its Aladdin network in 2013 after less than a year. Both projects were global in nature.
SGX is, however, a more neutral party than an investment bank to run an electronic trading platform, which may help overcome reluctance on the part of fixed income players worried about losing proprietary information, traders say.
The bigger hurdle may be lack of liquidity, particularly acute in Asia as many bondholders do not trade that often, and as firms often issue in small chunks making the bonds less appealing to institutional investors.
Turnover ratios for Asian corporate debt this year are at their lowest levels since 2004, according to the Asian Development Bank.
Still, some participants in the fixed income market say the bourse has a reasonable chance of making a go of it as long as it is prepared for a long haul.
“It takes time to increase participation which will result in better two way trading, as long as the provider has the resources and patience to stick with it,” said Bryan Collins, a Hong Kong-based fund manager at Fidelity Investments.