A GOOD YEAR
SGX has enjoyed a bountiful year, on the back of robust activity in the securities market. The daily average volume of securities trading was 1.7 billion units, up 89% from last year, while average trading value was $1.6 billion a day, up 57%.
The reasons for the good performance are not difficult to discern. Quite vigorous economic growth in Singapore and globally, coupled with abundant liquidity, strong corporate performance, benign inflation, and low interest rates and risk premiums, are the root causes of the buoyancy of our market, in common with most global markets. The relentless drive by SGX to broaden the appeal of our markets is an added factor.
How long those serendipitous conditions will prevail is unknown. The global outlook continues to bid fair for the ensuing year, the major risk largely coming from identifiable as well as unanticipated shocks of low probability and, of course, indeterminate timing. So SGX, like any other prudent entity, has to try to be prepared for, if you like, the known unknowns and the unknown unknowns.
The situation in the derivatives market was less assured. Growth in futures trading volumes slowed to 10%, from growth of 49% in FY2006. Perhaps the very environmental conditions that fuelled the securities market restrained growth in derivatives. A benign economic environment with low volatility may have dampened the enthusiasm for hedging and speculation.
Revenue for the year increased 41% to $576 million, while profit rose 125% to $422 million.
DISPOSAL OF BUILDING
In keeping with the prevailing spirit of the times to go asset-light, SGX sold its premises on Shenton Way for net proceeds of $266 million, a significant appreciation from the carrying amount of $201 million. A sizeable slice of the proceeds will be deployed in augmenting our clearing funds and regulatory capital, and part will be available for business expansion. There is a reasonable sum remaining for distribution to shareholders.
ALLIANCES
SGX continued its path of forging alliances with like-minded, open exchanges. Several collaboration agreements and memoranda of understanding were signed with exchanges in Asia and beyond. The purpose of all this activity was not just to create photo-opportunities. Rather, the expectation is that we shall be able to work cooperatively on joint and meaningful projects that result in significant mutual benefits.
Those alliances may be underpinned by selective and modest outward or inbound investments. Thus, we took a 5% stake in the Bombay Stock Exchange in May 2007, while the Tokyo Stock Exchange invested 4.99% in SGX in June 2007. With the Chicago Board of Trade, we have a joint venture JADE, for commodity derivatives. Those deals are designed principally to expand our product range and market reach. They will foster the design and implementation of projects that transcend national boundaries. Regulators will have to keep pace with the demands of an increasingly seamless global marketplace.
 DEVELOPING A ROBUST ORGANISATION
SGX keeps improving from year to year, thanks to the prudent monitoring, leadership and encouragement of the board, the diligent efforts of the CEO and his senior managers, and the harmonious participation of all the employees. The executive committee is at the apex of a professional management team, able to hold its own among the best exchanges in Asia and the world.
MISSION STATEMENT
We have laboured under a wordy mission statement for too long. The role of a mission statement is to crisply express the purpose of an organisation. It explains why the entity exists, and describes in realistic terms the aspirations of the board, management, and staff.
So, early in the year, management conducted a bottom-up exercise to redraft the statement. The draft rose through
the layers of the organisation to the board, which
eventually signed off on it.
The statement now reads as follows: “We aim to offer a
highly trusted securities and derivatives marketplace for
capital raising, risk transfer, trading, clearing and
settlement, and to serve our stakeholders.”
The statement should be of value to all our stakeholders,
particularly our employees, who will be encouraged to
understand and embrace it, and to strive to fulfil it.
DIVIDENDS
The company’s policy remains to declare a minimum dividend of 80% of net profit, subject to a minimum of 2.0 cents per quarter. This year, directors propose, subject to shareholders’ approval, to pay a total dividend for the year of 36.0 cents per share, compared to 16.2 cents in the previous year. The payout accounts for 90.4% of NPAT. The dividend for the final quarter is 30.0 cents, as 2.0 cents have been paid for each of the first three quarters.
For financial year 2008, the directors aim to declare a base dividend of 3.0 cents per share every quarter, in tandem with the improved sustainable earnings level of the company.
ACKNOWLEDGEMENT
One director, Mr Tang Wee Loke, is leaving us this year, after serving for nearly five years.
I thank him for his sound advice during his service on the board, particularly on the important nexus between the exchange and the brokerage community.
A change of guard in the audit committee took place on 27 July 2007. Mr Ho Tian Yee, who had served diligently and effectively as chairman since the inception of SGX in 1999, asked to be relieved. The nominating committee reluctantly agreed. I thank Tian Yee for his outstanding service. His replacement is Mr Lee Hsien Yang, who I am confident will prove a worthy successor. Hsien Yang has served on the audit committee since 20 January 2005.
I thank my fellow directors on the board for their unstinting cooperation and astute steering of the company. I particularly acknowledge the excellent work of the chairmen and members of the five board committees.
On behalf of all the directors, I express deep gratitude to the CEO and all employees for their work ethic and contributions during the year.
J Y Pillay
Chairman
27 July 2007
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