Update: 20 August 2018
In the coming months, SGX is exploring the feasibility of a new service, Multi-Currency Trading, which will allow investors to view securities in multiple currencies in addition to the exchange listed currencies. This service allows investors to potentially enhance their investment yield through the foreign exchange movements or manage the risk associated with the foreign exchange market.
In partnership with M-DAQ, SGX has developed a prototype for investors to view real-time prices of the component stocks of the Straits Times Index in selected currencies.
Markets Without Borders:
Enabling Securities Exchanges to be Multi-Currency
M-DAQ is a game-changing platform that prices and trades exchange-traded products in a multitude of choice currencies by blending ‘executable’ FX rates into equities and futures products.
“A lot of participants in Hong Kong’s financial markets, especially in the stock markets, are foreigners and mainlanders. For them, trading financial products in Hong Kong dollars involves a currency risk. If you allow them to trade in their own currency, whether it is Chinese yuan, U.S. dollar, or the euro, they can manage better that risk. I hope to see that happening.”
Joseph Yam, former chief executive of the Hong Kong Monetary Authority
Impact of FX on Security Prices
Currency movement has significant impact on investment returns when buying and selling foreign securities. Presently, FX rates are unknown at the point of trade execution, and fluctuation in FX prices can greatly reduce or erode investment returns.
The sample graphs illustrate pre and post M-DAQ scenarios where buying and selling signals (i.e. "buy low" and "sell high" points) are vastly different when analysed in the respective investment currency. Although these graphs uses a one-year time period, the same is observed for all other time intervals including intra-day for all currencies.
This example clearly demonstrates that exchange rates volatility increases uncertainty and complexity for an investor making cross border securities trades. The analysis of the same security over the same time period looks very different with currency overlay on top of it.
By shifting FX conversion to the point when the trade is executed and performing it at the Exchange level rather at the broker level, we believe you can trade with more certainty and confidence and receive better fills for your cross-border trades.
"MTR" Stock (Present) Original Currency (HKD)
Using present day chart, March would be the time to buy when share price is lowest and October to sell when share price peaks.
"MTR" Stock (Future*) Choice Currency (AUD)
Future graph that is yet to exist in any of the world-wide exchanges today
Instead of buying opportunity only in March, it stretches from February to May under the new paradigm. The ideal profit taking timing would be in August rather than October.
Create New FX Revenue Stream
With fees racing to zero, M-DAQ provides an advantage for Exchanges to attact more overseas companies for secondary listings, increasing business transactions with financial intermediaries.
Pre M-DAQ era
All securities exchanges currently offer stock quotes in their local currency.
Overseas investors trade with unknown, inaccurate and high FX conversion cost, discouraging growth in foreign investor participation, especially in recent high FX volatility environment.
Post M-DAQ era
M-DAQ blends real-time executable FX rates from world’s top FX liquidity providers, with Exchange’s equity prices to quote in the investors’ currencies of choice.
All investors, regardless of profile or trade size, benefit from a multi-bank FX wholesale price in their overseas investment.
Benefits for Exchanges
A holistic and fully tested solution that enables Securities Exchanges to go multi-currency without significant changes to systems and back-end processes, with low start-up and running costs.
Be a unique differentiator in the global Exchange Operator space with our patented technology offering “multiple virtual currencies order book” overlay on “the one and only native securities liquidity pool”.
Increased trade velocity as elimination of post trade “FX conversion hurdle” encourage more cross-border trades. Diversification of investor base from a mostly local community to a larger cross-border investor audience.
Attract secondary listings from overseas companies who want to broaden their company listing in different time zones in a myriad of the world’s local currencies.
Benefits for Brokers
Promote FX on an effective “Best Execution” basis (via access to interbank pricing of top 10 global liquidity providers) at a point in time when clients, both institutional and retail, are focusing on overall costs of execution.
Levels the playing field with global brokerage houses and allows better competition for offshore institutional flows, in particular hedge fund and risk arbitrage activity.
With stock prices quoted in different currencies, more participation can be expected from foreign investors resulting in a sustainable increase in brokerage fees revenue.
Benefits for Investors
Investors enjoy previously inaccessible wholesale FX prices from interbank pricing of top 10 global liquidity providers.
of FX costs
Live streaming executable securities prices in your preferred currency, allows investors to better able to “seize market opportunities” with no need to “price in” additional post trade FX costs.
Trade in One
M-DAQ facilitates inbound and outbound flows using the preferred currency of choice; for e.g. Australian investors can trade off-shore securities in AUD whilst enabling off-shore investors to trade Australian securities in foreign currencies.