Magnus Böcker on Minis, Metals and Markets

Magnus Böcker on Minis, Metals and Markets
Before Singapore Exchange (SGX) shook the exchange world with a bid for the
Australian Securities Exchange (ASX), SGX’s CEO Magnus Böcker had his eyes
on another joint venture. He was working with the London Metals Exchange
(LME) to jointly develop cash settled mini monthly metals futures contracts.
These contracts will be traded and cleared through the Singapore Exchange
(SGX). Magnus Böcker met with press including MarketsWiki’s Jessica Titlebaum to talk about the exchange’s foray into the metals markets, his
experience leading intra-regional exchanges and thoughts on what is driving
growth in Asia.
Q. How did the metals venture come about? Whose idea was it?
I have had the pleasure to work with the LME for 50 years in different ways
on a personal basis. The LME has been growing and developing from only
having a trading floor to the addition of electronic trading. I’ve worked
with Martin Abbott and I think they are a fantastic institution regarding
their ability to grow their metals business. Our relationship with LME is a
long established one that has gone on longer than a decade so it was a
natural fit to work with them.
Like everything, it is very hard to say who said what to whom. What has
been more interesting are the discussions about how to make these contracts
tradable for investors but also have the feature of price discovery in this
part of the world. This needs a lot of innovation and we are far from
ready, it’s a constant development.
Q. Some LME members have some concerns about SGX trading LME mini metals
contracts. What would you say to some of those concerns that it could
fracture liquidity?
I have the greatest understanding of their fear but I don’t think it has to
do specifically with SGX. I have been fortunate to meet some of the board
members and I think they regard SGX as a good institution and, probably the
best institution in Asia to work with. I think it’s a question of if they
should trade any contract outside of London market because that is the way
they trade today. In that regard, I think it is more of a distribution
question.
They are wondering about the best way to continue to distribute their
products. Should we set up our own exchange? Is SGX the best way? Should
we set up our own operations? How much does it cost to set up our own
operations? How long does it take? There are always a lot of alternatives
and it is healthy to think through all of the alternatives before choosing
the right solution.
Q. When SGX made the announcement earlier this year, were you aware that
not everyone on the LME board was happy about the idea?
A. I don’t know whether we talk about people being happy or unhappy. We
talked about an agreement that is so robust and beneficial for both parties
that it is worth doing. I think I have people on my end who are questioning
why we are not doing this on our own. Of course we did our analysis and
looked into alternatives and said this is a compromise of certain things but
beneficial in other areas. I think they said the same thing. The way they
are organized they are a little more transparent to the world. We don’t
expose all views to the press, we have the discussion internally first and
then go for the solution. It makes it less interesting for the press but
it’s a better way to run the company.
Q. When do you plan to launch the LME metals contracts?
A. We hope to get started in the first quarter of 2011. For us, we still
have to work to do on the regulatory, technology and membership fronts.
Q. What are the differences in leading a European exchange and an Asian
exchange?
A. They talk different languages. (laughs) That’s both an easy and complicated
question. We have the same features. We have the same obligations and that
is the need to deliver a certain number of things. We need to create
capital for companies to grow and prosper. We are here to create risk and
risk mitigation for investors and if we don’t do that, we don’t fulfill our
aim. We do this through listed business, trading equities and trading
derivatives.
Countries with efficient financial markets grow faster than countries
without – so if you are not good at operating your financial markets, your
neighboring countries will grow faster than you. This is a fundamental
thing. Therefore, it is a little like the banking industry. No country
grows fast without a less functional banking system because a good banking
system will make sure capital gets to the right places and gets in and out,
and so on. Exchanges are the same way. So fundamentally, there is no
difference. We are here to help corporations and countries grow and prosper
and create the facilitation of the risk appetite for investors.
Taking it to the next level, how do we operate? When you talk about
European exchanges you have already passed the point of Europe being one
country. Many see Asia as Asia and Europe as Europe and the Americas as the
Americas. And there are many countries in the Americas and so on… but
normally, we refer to the US as one country even though there are a lot of
regulatory differences within each state and different distribution methods.
Europe used to be 28 countries and we all looked at things differently but
now things are coming together. Asia is just a number of countries; we
have very little inter-relationship or decision-making processes that over
time will come closer.
So when you compare Asian exchanges with the European Exchanges you are
comparing a market that is on its way to integrate and harmonize rule
setting with a part of the world that has no ambition to integrate and
harmonize. Regulators in Asian countries are constantly looking at what is
going on with US and Europe. They copied what was going on, they swallowed
it and said what was happening there should be happening here.
Following the financial crisis, the confidence among Asian regulators is
much stronger. They don’t just take what is going on and copy it, now they
look at it and wonder why things happen in certain parts of the world.
Regulations need to constantly develop. It’s a natural thing, like
technology and similar to the markets, we constantly change and so do the
rules and regulations.
Q. What’s the biggest regulatory hurdle you see in Asia?
Regulatory changes take too long. It’s a natural thing in developing a
market. There is always a risk that the market is developing faster than
the regulator. I think Singapore is unique in a good way because there is a
good market and simultaneous regulatory development. Not in all of Asia
though, some countries are not walking at the same speed that Singapore is.
Q. How is the ASEAN Trading Link developing?
What’s important on the trading link is that we are working together and
coming together. This is a new constellation and we have to deliver a
combined thing. I still believe there will be a trading link up and running
by the end of next year.
Q. What has driven the growth in Asian futures trading?
Thirty-seven percent of the futures trading volume is Asian related while
33% comes from North America. The question is how could this be? One thing
is that you see a part of the world that is growing faster than the rest of
the world. Growth in Asia and the need for capital in Asia leads to the
need for better financial products. The number of products is growing
along with the number of members and exchanges with products. They are
doing that to facilitate capital to all the places that need it whether it
be a school in Vietnam or a factory in Southern China. There is a need of
capital in order to grow and develop these countries. As long as the growth
continues, as long as the demographic curves look like they do now… you need
to see that continued growth and if you see an underlying growth in the bond
or equity markets, the futures market will continue to grow following that.
I take a lot of time thinking about what products need to come first, what
partnerships we should pursue, the technology we should invest in and what
should be a priority. We are constantly evaluating what we are doing. We
developed the SGX reach project, launched a number of products and services,
and talked about the regulatory landscape and how it can better our
markets…. Our activities over the past 10 months have been in an effort to
be active. We do not want to be behind the curve.
Q. What was the last business book?
The last business book I read was Too Big To Fail. It is about a lot of
people I know and it takes place around the block that I lived and is
written by Ross Sorkin and with a little bit of a smile. It’s like reading
a tabloid about your neighbor. You forget there are other pages and only
hold up those pages. It was a lot of fun, I had a lot of fun reading it.