Singapore Exchange - DBS Research 2020-07-02: FTSE Taiwan Index Futures As Replacement Product

SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - FTSE Taiwan Index Futures As Replacement Product

FTSE Taiwan Index futures to be launched as replacement product for MSCI Taiwan futures.
Subject to Commodity Futures Trading Commission (CFTC)’s approval.
Clearing fees waived till December 2020.
Maintain FULLY VALUED, Target Price S$7.40.

Following Singapore Exchange's announcement in May 2020 that its licence agreement with MSCI will be reduced going forward, except for MSCI Singapore products, Singapore Exchange (SGX:S68) has further revealed that it will launch FTSE Taiwan Index futures contracts on 20 July 2020.
In our view, this is a positive development as FTSE Taiwan Index futures will help to replace MSCI Taiwan futures contracts, which contribute ~80% of MSCI ex-Singapore futures contracts volumes, and allow for continuity for Singapore Exchange’s existing customers.
Management has previously guided for a potential 10-15% impact on FY21 net profit assuming zero trades in all other MSCI products from July 2020. We believe with the replacement product announced, the earnings impact would be smaller than expected.

The FTSE Taiwan Index futures will cover c.80% of Taiwan’s listed companies by market capitalisation, offering strong correlation with other major Taiwan benchmark indices. According to Singapore Exchange, the capping methodology is put in place to limit concentration in a single security to help investors meet the Regulated Investment Company (RIC) concentration requirements for US-registered funds, i.e. no single security is more than 20% of the index.
Singapore Exchange expects to receive certification from CFTC shortly after launch.

Clearing fees will be waived until 31 December 2020 (US$0.50). Off-exchange facility fees (US$1.00) will also be waived until further notice. We expect that with CFTC’s approval, most of Singapore Exchange’s existing customers for MSCI Taiwan futures contracts should continue trading the new FTSE Taiwan contracts.

We maintain our FULLY VALUED call on Singapore Exchange and Target Price of S$7.40.
We expect better financial performance in the medium term due to the introduction of a replacement product. However, we believe Singapore Exchange will see more competition from Hong Kong Exchange (HKEX) going forward in the derivatives space following the latter’s new offerings with MSCI of up to 37 equity index futures contracts.
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Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2020-07-02

SGX Stock Analyst Report FULLY VALUED MAINTAIN FULLY VALUED 7.400 SAME 7.400