Competition is now upon us. The majority of exchanges have become for-profit enterprises. Consolidation has gathered pace in the US and Europe, and resulted in a few combinations that portend global hubs. These hubs aim to converge trading liquidity onto a single platform that offers a spectrum of derivatives only or with both securities and derivatives products.
For those one or two hubs that are largely securities driven, there is intent to dominate fund-raising for international listings. Interestingly, many other exchanges which serve essentially domestic hinterlands have also proclaimed plans to pursue international listings.

As the new order takes shape, it is unclear whether liquidity for securities trading will aggregate in one venue for the plethora of listed companies from across the world. Except for global stocks, trading is more likely to remain geographically confined and time-zone bound. Market participants naturally have better access and accord greater mind-share to news and research closer to home. Hence, trading within the region or time zone will be more active than elsewhere even in a world of increasingly globalised financial markets.

In the Asian time zone, SGX continues to be well-positioned as a regional hub to capture trade and information flows from the Indian sub-continent on one side, to China and Japan on the other. Besides, it thrives in a developed financial centre well attuned to the dynamics of international capital markets and in a regulatory framework grounded on an Anglo-Saxon legal system. Singapore as a fund management centre continues to grow strongly, with inflows of numerous regional and international fund managers including hedge funds. At SGX, whilst institutional funds are vital, vibrant retail liquidity is just as important to defend against the potential incursion of competing trading platforms.

2007 has been a rewarding year. Our results and developments, as outlined below, showed steady progress and continued strengthening of SGX as an Asian Gateway exchange.

LISTINGS PLATFORM
Our listing platform is now host to more foreign listing aspirants than domestic ones.
This year, new foreign listings accounted for 70% of the total number of listings.
Overall, foreign listings account for about one-third of our total market in terms of number
and market capitalisation, and we expect this to enlarge further. The effort to diversify
beyond China is bearing fruit as we listed more non-Chinese foreign companies for the first time. Amongst these are companies from Australia, Europe, Indonesia, Malaysia and the US.

The size of our listed companies has grown notably. We witnessed six listings (Initial Public Offers and Reverse Takeovers) each exceeding $1 billion market capitalisation. In two years, the number of companies with market capitalisation above $1 billion has doubled to 120
(40% are foreign), accounting for 85% of total market capitalisation. One fine example is Wilmar International, a transnational company, which has grown from a $2 billion Mid-Cap to become a $20 billion Large-Cap within a year of listing.

Launch of the new board in the coming months will dovetail with our efforts to grow our listings franchise. SESDAQ will be transformed to become a sponsor-supervised board. We will position it against competitors like London’s AIM market to be the Asian listings hub for regional high-growth companies.

NICHE LISTINGS AND PRODUCTS
Development of sector-focused themes in REITs (Real Estate Investment Trusts) as well as marine and shipping-related sectors continues to yield results. We expanded the market with an additional six REITs, and four marine and shipping-related companies. These include the largest China REIT, the first REIT in healthcare, two shipping business trusts from Europe and one of China’s largest shipbuilders. Market capitalisation for REITs increased by 138% to reach $29 billion, moving us closer to the market leader in Asia, Japan.

New products such as ETFs (Exchange Traded Funds) are at the early stage of development with small but encouraging trading volume. Since the launch of iShares MSCI India last June, we attracted another eight foreign ETFs providing commodities and regional equities exposure.

TRADING ACTIVITY
This year, turnover velocity for the securities market has increased steadily, averaging 74% in the last six months, compared to 58% last year. Additionally, the weight of Singapore in the MSCI World Index has increased to 0.53 from 0.38 two years ago, thus attracting higher asset allocation by institutional fund managers.

The litmus test for management is to raise structurally the level of trading activities on our exchange. Besides the growth in listings of larger companies, we also aim to improve market participation and efficiency. In the past year, the revision of securities clearing fees has encouraged more retail participation, which now accounts for 46% of the market in value compared to 39% two years ago. To further enhance market efficiency, we are also on track to implement a reduction in minimum bid schedule to lower cost of trading. In addition, we hope to attract an emerging segment of high velocity participants – algorithmic traders.
These traders are prevalent in the US and Europe and are beginning to establish a strong presence in Asia.

RISK MANAGEMENT CENTRE
Our diversified suite of derivatives products has gained acceptance as a premier off-shore risk management centre. Our flagship futures products – the Nikkei 225, MSCI Taiwan and MSCI Singapore contracts – have achieved record volumes and open interest in the last 12 months. Nikkei 225 and MSCI Taiwan each accounts for a third of total futures revenue, and the remaining contracts and services make up the last one-third. Our strength currently lies in equity derivatives. Building up a fixed income suite still remains a challenge as our Euroyen contract has not turned out as well as we thought. Our joint venture with CBOT to offer commodities futures is still at its nascent stage of growth.

On the other hand, retail investors are embracing derivatives through the trading of structured warrants. Trading value climbed 49% to reach $19 billion with nearly half of it traded by foreign retail investors.

Trading value for warrants on foreign underlying also tripled, now accounting for 35% of the total warrants market. Leveraging on the warrants platform, we introduced Certificates, the first to be launched in Asia, providing yet another type of instrument for trading.

POST-TRADE PROCESSING HUB
Efficient post-trade processing capabilities will strengthen our position as a hub for Asia and it is taking shape. The establishment of SGX AsiaClear^® in May last year expanded the scope of our clearing business. As Asia’s first over-the-counter clearing service for oil swaps and forward freight agreements, this business has made good progress garnering over 120 counterparty accounts and exceeding US$1.7 billion in value of trades cleared. Whilst growth has been exponential from a very small start, the contribution to revenue is still insignificant.

The past year was also devoted to the development of SGX Prime which is to allow direct connectivity into SGX’s back office systems. This should improve the operational efficiencies of our depository agents, broking firms and other intermediaries. We are now preparing for its launch in early 2008.

OPERATIONS AND TECHNOLOGY
The perennial priority is to continually improve the robustness of our business and technology infrastructure, so as to be nimble and expeditious in delivery. In line with developments in the marketplace, there is constant demand for new functionalities to support increased trading activities. For this year, we have secured industry-wide consensus for participants to work
with GL Trade to develop a new Order Management System. This will replace our SESOPS terminals for securities trading. A new data engine for derivatives information will be rolled out by the end of this year, and Quest ST, a new securities trading system, is slated for launch in mid-2008.

RISK MANAGEMENT AND REGULATION
In tandem with the development of our business, we place emphasis on enhancing our regulatory and risk management functions. This includes a regulatory review of several
aspects of our trading and clearing rules, such as the management of failed trades for structured warrants, error trade policies for both securities and derivatives markets,
as well as the listing rules and corporate governance practices. To cater for the growing derivatives market, we are augmenting the clearing fund through insurance, guarantees and capital resources.

As a frontline regulator balancing commercial interests and regulatory objectives,
we undertook a thorough independent assessment of our conflicts management framework
as a Self-Regulatory Organisation (SRO) and implemented a company-wide SRO training programme on conflicts management.

ORGANISATIONAL DEVELOPMENT
In early 2007, a new organisational structure, was put in place to better deliver business plans and strategies both from the front-end and back-end perspectives. The creation of the Post Trade Services and Retail Group serves to exploit opportunities in our back-office business and the retail segment. The senior management team has been strengthened with the appointment of one Senior Executive Vice President for Operations and Technology, and three Executive Vice Presidents for Listings, Human Resources, and Development.

PARTNERSHIPS AND COLLABORATIONS
We do not foresee consolidation taking place within Asia in the near term. To enhance our position as a regional hub, we form partnerships and alliances to extend our product range and globalise our liquidity. To date, alliances are enhanced through strategic equity toeholds. In this endeavour, SGX has acquired a 5% stake in Bombay Stock Exchange and Tokyo Stock Exchange has taken a 4.99% stake in us. This should open up opportunities for business development in two important markets, India and Japan, placing us in good stead for long-term growth.

FINANCIAL PERFORMANCE
SGX saw the best year since our listing in 2000. All revenue categories performed better than in the year before – securities market revenue (up 56%), derivatives market revenue (up 22%) and stable revenue (up 29%).

Our Asian Gateway revenue continues to grow in tandem with the increase in our domestic market. More significantly, the share of operating revenue from foreign securities now accounts for 21% (up from 18% last year) leaving the share of operating revenue from domestic securities relatively constant. This signifies our increasing relevance beyond our home market.

Fixed operating expenses (excluding variable costs such
as staff variable bonus, cost of processing and royalties) remained fairly controlled and stable revenue now covers 92% of the fixed operating expenses compared to 76%
a year ago.

Overall, our operating return on equity after tax has further improved to 37.5% from 32.0% previously.

CONCLUDING REMARKS
We have seen record securities trading volumes reflecting both a buoyant market and structural improvements in our business. As we transcend our home market as a regional
hub, foreign listings is a major driver. We aim to attract the growing pool of transnational
Mid-Cap companies. In derivatives, the focus has been to grow more retail activity alongside continuing efforts to introduce relevant products and increase institutional volumes. It should contribute better to the bottom line.

In view of the recent important mergers in US and Europe, we will continue to explore collaboration and possible consolidation with like-minded partners to strengthen and
expand our role.

Our success so far is owed to the active support of our customers and shareholders, the contributions and teamwork of all staff, in collaboration with our Chairman and Board, intermediary members, and our regulators. To all of you, I give thanks.

Hsieh Fu Hua
Chief Executive Officer
27 July 2007