Singapore Exchange Limited (OTCPK:SPXCF) Q2 2022 Earnings Conference Call February 4, 2022 5:00 AM ET
Dominic Lim – Head, IR
Ng Yao Loong – CFO
Loh Boon Chye – CEO
Conference Call Participants
Aakash Rawat – UBS Securities
Rikin Shah – Credit Suisse
Robert Kong – Citi
Thilan Wickramasinghe – Maybank
Jayden Vantarakis – Macquarie Capital Securities
Good evening, ladies and gentlemen. Welcome to the SGX Group First Half FY 2022 Results Briefing. Our agenda for today will be as follows: first, a presentation of our financial highlights and performance by Ng Yao Loong, our CFO; followed by a business update by our CEO, Loh Boon Chye. We will then end off with a question-and-answer session with a panel of senior executives from SGX.
For those of you who are viewing this briefing through webcast, you may change the resolution of the broadcast to a higher setting if the images are not clear. The settings can be found at the bottom right of your webcast window. So without further delay, — let me now invite Yao Loong to deliver our financial highlights. Yao Loong, please?
Ng Yao Loong
Good evening and a very happy Lunar New Year. And so thanks for taking the time to join our first half FY ’22 results briefing. SGX has made good progress in executing our multi-asset strategy. We continue to invest, grow and scale our business. Group revenue in the first half was comparable against a year ago at $522 million. But if we exclude treasury income or TI, our underlying business revenue was up 6%, driven by a strong performance in currencies, commodities and equity derivatives business.
Group total expenses increased 6% to $262 million. If we exclude the 2 subsidiaries, Scientific Beta and BidFX, our underlying expenses increased 5%. So even as we invest for growth, we continue to exercise prudence in managing our costs. Group NPAT or earnings down 9% to $219 million. On an adjusted basis, earnings was lower by 3% to $222 million.
As I’ve mentioned before, the adjusted metrics exclude certain noncash and nonrecurring items that have less bearing on SGX’s operating performance. Hence, they better reflect the group’s underlying performance.
So now let me run through the details of our performance. Revenue. Currencies, commodities and equity derivatives were the main revenue growth drivers. FICC revenue increased $15 million, led by higher commodities and currency volumes. As a result, FICC is now a much larger contributor to our group revenue at 22%, which is 3 percentage points higher than a year ago. Volume in iron ore futures was up 17%. We continue to broaden our customer base by bringing on board financial institutions. Screen trading contributed 28% of iron ore volumes compared to 19% a year ago, reflecting the increasing financialization of the product. Beyond iron ore, freight volume was up 90%. Notwithstanding the volatility in underlying freight prices, our market share was up 12 percentage points to more than 17% as our customers choose our platform to hedge against the volatility.
FX revenue performance also came in strong. Our combined OTC and FX futures average daily value, ADV, increased 46% to USD 57 billion. Volumes in exchange traded currency futures increased 6%. We increased our market share for our key rupee and CNH contracts, thereby solidifying our position as the largest and fastest-growing currency futures exchange in Asia. OTC FX is now a key driver of our FX pillar, and this is reflected in BidFX revenue growth.
Continue to see more active trading users on BidFX compared to a year ago. Continuing on the derivatives team, our equity derivatives business continued to demonstrate resilience with a 19% revenue increase to $132 million. While DME declined 4% to 716k contracts, we were able to better manage fees for our key contracts as well, and we see a higher proportion of full fee paying clients using our risk management solutions as they see value in our multi-asset platform. As such, — overall average clearing fee for equity, currency and commodity derivatives increased 19% to 150. Revenue for cash equities was lower, mainly due to weaker trading activity. SDAV declined 7% to just under $1.2 billion as volumes normalized from elevated levels a year ago.
The decline was driven by lower activities in the index and smaller mid-cap segments. Average clearing fee was lower by 4% to 2.6 basis points due to a higher proportion of SDAV contributed by market makers. As for DCI, revenue grew 3% to $73 million, mainly from higher contribution from Scientific Beta.
The low interest rate environment has continued to affect our TI or treasury income in the first half of FY ’22, but the rate of decline has slowed and I’ll elaborate further in a later slide.
Moving on to expenses, which on a headline basis increased 6% year-on-year, as mentioned earlier, if we exclude the costs relating to Scientific Beta and BidFX, expenses would have increased 5% to $227 million. The staff cost increased 8% to $119 million, mainly due to the following. We saw a 1% increase in group headcount. There was a merit increment for our staff. And the absence of COVID-19-related support schemes granted last year.
Technology expenses increased 7% to $37 million, mainly due to higher BidFX-related expenses. Processing and royalties rose 6% to $32 million due to higher royalties incurred for certain key products, including our FTSE China A50 and iron ore contracts.
On an adjusted basis, the year-on-year increase in expenses was 2 percentage points lower at 4%. Again, adjustments were made for the amortization of things like purchased intangibles, acquisition-related expenses and one-off costs. These adjustments will allow you to better assess our underlying expense growth. In terms of margins, group EBITDA margins declined 3 percentage points due to 2 key reasons. First, a greater contribution from our faster-growing subs, Scientific Beta and BidFX.
Their margins on a combined basis have improved from 37% to 38% on a stand-alone basis. While improving, this is still lower than SGX’s underlying EBITDA margin. And second, TI, or treasury income has a direct drop through to the bottom line, which means it has a disproportionately high impact on the margins. And if we exclude TI, Scientific Beta and BidFX, you will see that the underlying EBITDA margins declined 1 percentage point to 59%. This can be attributed to lower revenue contribution from cash equities in the first half of FY ’22.
While we have pointed out the impact of declining TI in our revenue and margins, the rate of decline, as you can see from the chart, has slowed and has slightly flattened. The chart shows the half-on-half declines. We do expect TI to recover as interest rates increase — well, already the market is expecting interest rate hikes this year. Just as the low interest rates have had a lag effect on our TI, similarly, there will be a time lag between the actual rate increases and the impact on our TI. As such, we expect TI to remain around current levels in the coming months, even with the much anticipated rate hike taking place in March before the uptick in TI happens several months later.
We previously guided FY ’22 total expenses to be between $565 million to $575 million, excluding MaxxTrader. This is because there was still uncertainty in the completion date of the acquisition. But we also indicated that expenses for MaxxTrader is expected to be about $25 million on an annualized basis. We have completed the MaxxTrader acquisition in January 2022. And so now we are in a position to provide a revised expense guidance for this FY, which incorporates MaxxTrader expenses.
We will maintain our expense guidance range at between $565 million to $575 million. And let me repeat this revised guidance or unchanged guidance includes MaxxTrader’s expenses of about half a year. You can see this in the middle chart. So what this means is that our revised guidance on the like-for-like basis, if we exclude MaxxTrader is $13 million lower than the one which I gave 6 months ago. You can see this in the left chart.
The underlying chart, right chart on the right shows that we have been able to manage expenses of our underlying core businesses even as we invest for growth.
Looking at our FY ’22 underlying expenses, which excludes Scientific Beta, BidFX and MaxxTrader, we expect it to be comparable or just marginally higher to FY 2020 levels at between $475 million to $480 million. Despite the cost inflationary environment, we have been able to pace our hiring and exercise cost discipline in corporate projects and discretionary spend. As for CapEx guidance, it remains unchanged at between $60 million to $65 million.
We have included this slide to better illustrate the underlying performance of the business. We mentioned that the reported earnings or NPAT declined 9%, but this set of numbers include nonoperating one-off expenses relating to BidFX, namely a remeasurement gain of about $17 million in the first half of FY ’21, and we have a $5 million write-back of the contingent consideration in the first half of FY ’22. You can see that in the left chart. And so if we exclude this nonoperating one-off expenses relating to BidFX and other items, adjusted earnings declined at 3% from $228 million to $222 million. This is a better reflection of the underlying performance of our business.
The 3% or $6 million earnings decline can be explained by the decline in our TI. As presented earlier, TI declined by a much larger number, a pretax $28 million. So the earnings, if we exclude TI, actually would grow given the revenue performance from our broader derivatives franchise across commodities, currencies and equities.
And back to the topic of the BidFX-related adjustments, even with the write-back of $5 million in the first half of FY ’22, the total earn-up is estimated at around $15 million, given the revenue outperformance of BidFX relative to the expectations at the point of acquisition. This reflects the strong execution focus by BidFX, which has given us a strong platform to grow in the OTC FX space.
In the last 2 years, we have made acquisitions and investments of about $1 billion. This is also why our leverage levels have gone up, we invested. And our debt levels have increased to 1.4x EBITDA. It’s still prudent, given our strong operating cash flows. Our interest coverage ratio remains very healthy at more than 100x.
No major refinancing in the near term. Our weighted debt duration is about 3 years. Our recent acquisitions of subsidiaries, Scientific Beta, BidFX and MaxxTrader, have allowed us to expand our addressable market and customer base in the areas of FX and index and enable technology and knowledge transfer.
Our minority of growth investments are also important. They help SGX stay abreast of emerging technology trends and identify opportunities, often in partnerships that can support our business priorities. BidFX is one example. We first invested 20% in March 2019 to BidFX as a core pillar of growth. We then decided to acquire the remaining 80% a year later as they scale and improve their offering amongst institutional investors.
And recently, we also invested in the Climate Impact Exchange, CIX, the DBS Digital Exchange and Makino. These are emerging and partnership opportunities that help us stay abreast of key strengths, such as ESG and digitalization.
Excluding the subsidiaries, the gross carrying value of our portfolio of growth investments is about $600 million. If we translate that, it means about $0.55 per share. A significant proportion of value is from our minority stake in Trumid, a U.S. fixed income electronic trading platform, and a private equity fund managed by 7Ridge Investments, in trading technologies. On a portfolio basis, the carrying value is significantly above the cost of our investments.
The Board of Directors has declared a quarterly dividend of $0.08 per share. This brings our first half FY ’22 total dividends to $0.16 per share, unchanged from a year ago. Our operating cash flow and adjusted earnings per share more than covered the dividend per share. Mentioned at our FY ’21 results briefing that we plan to put in place a scrip dividend scheme. We do not plan to introduce scrip dividends in FY ’22, even though we have completed the groundwork for the scheme.
We will reassess the feasibility of doing so sometime in the future. With this, let me now hand over to Boon Chye, who will deliver our business update.
Loh Boon Chye
Good evening, everyone. Likewise, Wishing everyone a prosperous and healthy, successful year of the Tiger. Thank you again for joining our first half FY ’22 results briefing. Excited to report that in the first half of FY ’22, our listing platform helped companies and REIT raise a total of SGD 1.3 billion. That is 90% higher year-on-year and also exceeding FY ’21.
In that included one of the largest REIT listings globally by funds raised. We’re seeing clear interest from potential issuers on the back of our new special-purpose acquisition companies or SPACs framework and the joint interagency funding initiatives for high-growth companies.
Last month, we welcomed our inaugural batch of 3 SPACs listings, which raised a total of more than SGD 500 million. The SPACs launched by high-quality sponsors received positive reception. We look forward to the subsequent business combinations, which will introduce more businesses in the new economy sectors and provide investors with wider choices. Together with the rest of the capital markets initiatives and secular trends that we’re seeing, indeed, we are well poised to provide wide-ranging solutions to support global enterprises at different stages of our growth.
Besides company listings, we are also broadening our product shell so that investors can participate in Asia’s growth. In our ETF market, we saw strong growth with the combined AUM increasing almost 50% to more than SGD 12 billion. We saw and launched new thematic such as green REITs, sustainability, electric vehicles and also future mobility as well as leverage and invest products. This clearly expanded investment possibilities for investors and effective of these ETFs were launched in partnership with SGX using indices developed by SGX Index Edge or IEdge.
Our comprehensive derivatives platform, coupled with around-the-clock liquidity, enable investors to navigate, amongst others, as we all have seen in the last few months and more recently, the evolving COVID-19 pandemic, the sell-up in technology stocks and also the future direction of Fed interest rate policy. In equity derivatives, our product suite provides unparallel liquid access to the market and the largest economies in Asia. In the first half of FY ’22, on average, USD 20 billion of notional value was transacted daily. With the mixed economic environment across various economies and uncertain outlook, this really will provide opportunities for investors, for risk managers. And in that, we saw dampened volatility in FTSE Taiwan, the Nikkei 225 will lead to slightly lower trading activity.
However, market activity increased in A50, the FTSE SGX A50, Nifty and SiMSCI, combination of various reasons: regulatory changes in China, a return of foreign portfolio investments in India and concerns about Omicron leading to greater institutional demand for risk management solutions.
FX, we are now clearly the largest globally for listed Asian FX futures, and this essentially is the venue for price discovery and liquid access to the largest and fastest-growing economies in Asia. Trading in the key contracts remain very robust in the face of major macroeconomic developments. In commodities, our suite of commodity derivatives registered strong volumes above physical and financial participants hedge and traded more. You heard from my colleague, Yao Loong, that talks about financialization of iron ore. And this is amidst market opportunities in the ongoing disruption and the trade-off in the supply chain.
In China, clearly remains a key driver of emerging market and global growth. Our very comprehensive suite of multi-asset access products allow investors to participate in this important market. So let me share some of the business update around that. In the SGX FTSE China A50 that remains super hyper liquid, that remains the leading international U.S. dollar-denominated China Asia futures.
It indeed had a strong first half of FY ’22. We started last year to introduce tighter spreads, change a big size. Today, it is 1 basis point across both the Asian and U.S. hours. That really means price formation across all time zones.
In the offshore market, it remains the most liquid China futures contract. And importantly, open interest grew at more than 10% between October and December of 2021. And you all know why we mentioned October, and we expect trading activity and open interest of FTSE China-A50 contract to continue to grow as the offshore Asia market expense.
In FX, we are the most liquid international dollar CNH futures in — on 9 December, the particular contract, CNH futures reached a new single-day volume record of more than 100,000 contracts being traded. In notional terms, that is USD 11 billion. Commodities, we are indeed now the leading global market for seaborne iron ore. As you are aware, iron ore is a major global commodity, and it is the second largest traded by tonnage and value. It has a key role in steel production, and that really means a proxy to the Chinese economy.
And as the reference, the SGX iron ore contract is highly correlated to key measures of the Chinese economy, such as the growth rate of industrial value added and PMI, purchases managers index.
In fixed income, we have the largest pure Chinese government bond ETF. And now the assets have doubled since its launch to USD 1.4 billion. This is important because it is an ETF that provides ease of access with the most competitive beta spreads. And currently, foreign investors only owned 3.5% of China’s onshore bonds, the lowest among major markets. And with monetary easing and also following inclusion in major global bond indices, we think this ETF is expected to receive a good amount of significant inflows from international investors over the coming months.
So you have equity access via our A50, you have currency access via CNH contract iron ore for commodities and obviously, fixed income. This really shows the strength of what a multi-asset platform means. Our customers did increase their activity on these key China access products in the first half of FY ’22. And we’re not stopping there. We have widen our product offering further across such asset classes.
And in addition, collaborating very closely with onshore Chinese exchanges to build closer mutual market connectivity. You have seen our announcement on the ETF product link. Also discussions with China foreign exchange trade system, CFX, to establish connectivity between bond trading platforms. And indeed, with economies reopening, Asia will continue to offer investment opportunities, and our growing multi-asset and comprehensive platform will be in a good position to benefit from such flows.
Now let me talk about our SGX commodity asset class. Clearly, has seen strong growth over the years with a number of market-leading contracts enabling investors to manage risk, but also to trade and gain exposure to global trade. And obviously, that comes to the fore in the last 2 years with the disruption to the supply chain. We are very, very focused in growing this asset class, just in comparison of the half year performance over the previous half year.
You heard from Yao Loong, but let me reiterate. The total commodity volume was up 17% year-over-year. Iron ore and sales volume was up 15%. In Freight, our FFA volume was up 90%. And even in our petrochemical street, that has gained good traction and volumes was up 28% year-on-year.
So indeed, our suite of seaborne products is also underpinned by our strong position in freight. This truly enables market participants to manage bulk cargo together with freight risk, and importantly, on a single liquid, capital-efficient platform.
I’m happy to share with you that more than 60% of our freight volumes come from customers who take advantage of the synergies in our iron ore and freight contracts. We are the largest dry bulk freight and ferrous exchange. and that really means deep liquidity for our customers in freight FFA and obviously, in various raw materials in the complete virtual steel mill. If you look back in the calendar year of 2021, that was a record year for dry freight derivatives volume globally. And with shipping — shipping alone or shipping transport, this is 85% of world trade.
And with the volatility that was caused by the supply chain and trade disruption as well as higher energy prices, this really saw greater demand for shipping risk management solutions.
Our subsidiary, Baltic Exchange, reported freight volumes referencing its index were up 61% on a year-on-year basis. Options trading in the dry bulk market was up 25% year-on-year, an all-time high. We look forward to broadening the adoption of Baltic indices by exchanges globally, new freight futures or the 6 daily Freightos Baltic index indices will be launched by the end of this month by a global exchange. And just November last year, our partner exchange, NZX, these dairy derivatives went live on SGX. That will now have global access and reach and the NZX suite of dairy derivatives now only trades exclusively on SGX.
Obviously, in a strong partnership between the 2 exchanges. And this will allow us, both exchanges, to harness the complementary capabilities of the New Zealand exchange product and the SGX client distribution footprint.
As small economies emerge from the pandemic and as small economies reopen, we expect global trade to rebound. And I think our SGX suite of commodities contracts provides an avenue for investors to position, to gain access, to trade and to risk manage. And these are opportunities that I think the market can look forward to.
Also very pleased to report that our FX futures franchise, the largest and the most liquid FX business exchange in Asia, continues to thrive. Just to share with you the volume on a calendar year basis. 2021 over 2022, that is up almost 6% to $1.5 trillion from roughly about $1.4 trillion before. And we’re seeing greater electronic trading, we’re seeing greater connectivity between OTC and now on exchange trading. We now truly have a sizable and scalable FX franchise.
You heard from Yao Loong, volumes are now, in the first half, up 40%, close to USD 60 billion now. And we are excited to further grow this ADV with the completion of the acquisition of MaxxTrader, which is now part of the SGX Group as well as our FX ECN that went live last November. We’re starting off with G10 spot FX.
So, with the combination of futures, BidFX, MaxxTrader, ECN, that really brings together a continuum of FX services. So just to put it simply, why so, one, across a whole spectrum of FX clients now. this obviously covers the buy side, real money hedge funds. It covers also the sell side, regional banks, broker-dealers and global banks. Two, it will offer workflow, risk management solutions and different marketplaces.
And third, it will offer across different product segments. You will have FX spot, swaps, NDFs, options and futures.
So just to give the context in terms of example, because this is what we call and you heard a lot about this, a greater network effect. And what would it do? This will allow us to tap not just into existing clients, but be able to tap into new segments of clients. So for example, an existing client of MaxxTrader can now also use the BidFX platform for its asset management, wealth management or private banking segments. We can now cross-sell more efficiently SGX futures product.
We can also incubate a primary pool of Asian FX liquidity in this Asian time zone through our ECN. So customers will truly enjoy a comprehensive suite of FX products across different platforms. You can switch between futures or OTC FX. And the switch will depend on what best suits your need as we continue to introduce new products, new functionalities. We’ll enhance it further for better user experience and proposition.
Grateful that our efforts to serve our customers have been recognized. We won and received several important accolades in the first half of the financial year across different asset classes. So Derivatives Exchange of the Year, Asia Pacific Dividends Exchange of the Year, Commodities Exchange of the Year, Asia FX Exchange, Asia FX Clearing House.
And also a few days ago, Scientific Beta was named the best specialist ESG index provider at the ESG Investing Awards 2022. So through innovative products, platforms and services, to robust and resilient trading, risk management and clearing capabilities, we will be able and are committed to delivering more of this as we provide global investors with a trusted platform that connects Asia, in growing Asia an important Asia to global markets and globally to Asia.
Our customers can look forward to new Asian currencies, metals, chemicals, and single stock futures in the coming months. We’ll be actively building more connectivity with marketplaces around the world, a key part of how we intend to broaden our platform. Our clearing partnership with the CME Group was expanded. We added Pan-Asian benchmark equity derivatives under the mutual offset link.
Our collaboration with New Zealand on dairy derivatives really show the positive effects, how global distribution can add to a key product globally. We’ll soon extend our connectivity to NSC in Gift City, India. And in equities, very focused on building the ETF link with Shenzhen Stock Exchange as we meet investor demand for China-related investment products. The link adds to upcoming depository receipt linkage with the Stock Exchange of Thailand.
So as our various business pillars grow and scale, the SGX Group today offers customers a broader, deeper proposition across 6 brands, 6 brands across our multi-asset business: SGX Commodities, SGX Equity Derivatives, SGX Fixed Income, SGX FX, SGX Indices and SGX Securities. And this is supplemented by 10 offices globally and presence in 17 major cities. The SGX Group will serve our customers even better. Our customers will benefit from, one, a multi-asset access solutions to a growing Asian economies on a single platform.
They will be able to access bulk cargo and freight risk management solutions on a single platform. They will be able to enjoy thematic index construction in partnership with us and product listing solutions on the single platform. They will be able to access different liquidity pools in FX across futures and OTC and also digital asset and sustainability solutions across different asset classes. So we surely look forward to giving and delivering more value for our customers, our shareholders and our various stakeholders, not just for FY ’22, but beyond.
So thank you very much for your attention. I conclude my presentation, and I have my colleagues join me for the Q&A segment.
A – Dominic Lim
So ladies and gentlemen, we will be commencing the question-and-answer session shortly. The list of analysts is being flashed on the screen in front of you. [Operator Instructions] So the first question is from Aakash Rawat.
Great. I have a couple of questions. The first one is, I mean, many investors are wondering sort of what level of interest are you seeing from the Chinese homecoming companies that might choose to list on SGX instead of Hong Kong Exchange? And what might be the rationale behind doing so? So that’s the first question, and I’ll follow-up with the second one later.
Boon, you want to take that?
Loh Boon Chye
I guess this is not about commenting on individual situations, but there’s a lot of these discussions ongoing. As you know, I think there is an opportunity for us, Singapore, obviously, offering a neutral venue in light of heightened geopolitical tensions. But above all, I think this is an opportunity for us to also offer the platform for what we’re seeing emerging across the broader region here in Southeast Asia as well. So this is not just about China homecoming IPOs.
Great. And the second question is, so I think since October, if you look at the market share for the Hong Kong Exchange A50 futures contract, I think it’s somewhere around 15%, 16% by value. Do you think this will continue to rise further? And what sort of level are you expecting this to settle at?
Loh Boon Chye
Well, I will have Mike jump in. But I think it’s also important to note. If you use, let’s say, just use round numbers, so I just illustrate the point. When you have a $10 million volume, over $10 million, you are 100% share. And when you’re at $11 million, over 12 million, you’re no longer 100% share, but your volume has grown.
And a key point there is the market has grown. So while the — interesting just to focus on about 100% anymore and another product gaining some share, but I think it’s also important to focus on the overall market sizing, which if you look at the October to December open interest, our open interest has grown 10%.
Unidentified Company Representative
Yes, maybe just — thank you for the question. Just build on Boon Chye’s point, which is that since the launch of the A50 contract, the overall offshore volume has grown. Meaning SGX plus Hong Kong Exchange, that number has grown. More importantly, SGX in isolation has grown in absolute terms. Volume half by half by half is 3-8, 3-9-5 4-0-5. Open interest, 7-1-9, 6-9-2, 7-8-6. So the way I would characterize it, and it’s still early days yet is that there is some amount of early interest in the Hong Kong product. And that’s promising to us.
As we’ve been saying for quarter after quarter, half after half, it grows the market. However, there is some hope on our part that the growth of the pie can be sustained rather than be a sort of short spurt sort of thing, which sometimes happens as you saw in MSCI Taiwan, MSCI Indonesia, MSCI Vietnam. We do hope that for once this might be something which sustainably increases the offshore access and offshore liquidity. And anecdotally, we do note that every time there was perhaps some volume trading on Hong Kong Exchange and almost equivalent amount of volume increase on the SGX platform.
So there’s a reliance on SGX perhaps to create other liquidity pools. In total sizing over that period, the onshore, the mother market in China, is still 10x to 11x the size of the offshore market. And I think that it would be reasonable to expect the offshore market to become a greater and greater percentage of this total market as market liberalization happens.
Can I hand the mic over to Rikin Shah, Rikin from Credit Suisse.
I have 3 questions. First one is on the NSC Gift City Connect. I just wanted to get a clarity on when does that become operational? And I believe there were certain regulatory restrictions for the Hong Kong-based investors to trade the contract via the link. Has that been sorted out? And as an extension to that, what could that customer base be as a proportion of our overall customer base who will trade the Indian FD product? That’s question number one.
Second, I just wanted to get some better understanding on the revenue and expenses of the recent acquisitions that we have made. They have become decent enough in terms of size. While we understand that they are lower EBITDA margin contributing of products, but would be helpful to understand the absolute revenue and expense contribution. And lastly, on the SPAC listings, I wanted to understand the revenue implications for SGX. Is there anything beyond the listing fees that we earn from the SPAC listings? And could you share what is the listing fee also that we earn on each of the SPAC listing?
Loh Boon Chye
Thank you for the question. Let me take the first one, and Mike, you can jump in. So first, I think you asked around the timing. I would say we will be launching this year, and that will be the only Nifty product offshore, right, in Gift while NSE and SGX that were trade, which also means participants globally who are already trading SGX while also trading into the NSE in Mumbai itself will be able to participate in Gift. I will have Yao Loong take question 2. But Mike, anything you want to add to question one?
Unidentified Company Representative
Yes. To the question on SFC, I mean, obviously, we want to be slightly cautious in commenting on NSEs recognition status. But we have full confidence that with all the attention that’s being paid to the necessary regulatory applications by both NSE and its regulator [ISCA], and their continued engagement with IOSCO and SFC that they will achieve the recognitions that are required in order to onboard customers.
Ng Yao Loong
For question two, let me just sort of find out the facts and then paint the picture. As you pointed out, both of them combined, the revenue share has gone up by 1 percentage point from 7 to 8. Margins or EBITDA margins combined gains have gone up by 1 percentage point. So looking at the numbers, just looking at these 2 subs, revenue-wise, it was a 20% year-on-year increase from about $34 million to $40 million. This is both entities combined.
Expenses, much lower, increase went up from $32 million to $36 million. So it’s just under 15%. So you see a positive GAAP revenue outpace the expenses growth. And that has an impact on our earnings, which is accretive. So I would say that the subs, I mean, in total, collectively have driven the additional revenue outperformance for SGX as a group.
And we will continue to invest and see a share of our revenue growth as a result.
Loh Boon Chye
On your third question on SPACs. If you look at the first 3 SPACs that have been listed, call it circle roughly SGD 200 million. And in market cap, they raised about roughly close to $0.5 billion in total. I think key is in the business combination. And if you just look at the size itself, I think that depending on the pipes that will come, such business combinations could result in market cap of an IPO anywhere between $0.5 billion to maybe up to $2 billion.
And depending on the sectors, if they are in the new volume sectors and you look at some of the examples that we have, those generate a turnover velocity of closer to 100% versus, let’s say, in the main index stocks. And depending on the size, you can expect a certain SDAV. So clearly, the trading volume is what we hope, given this expanded investment choices, investors will participate. And they’re obviously is in addition to the listing fees. I hope that answers your question.
Unidentified Company Representative
Maybe, Boon Chye, if I can add the question was what the listing fees are for the SPAC. And they are the same for a regular IPO, so that is between 100,000 and 200,000 and for the SPACs that we’ve seen in the size buckets in the last couple of weeks that will be on the lower end of that range.
I invite Robert Kong from Citi for the next question , please.
Apologies, these are very mundane questions for Yao Loong, so just some numbers questions, if I may. The first one is, could you break down the improvement in the average fees of — on the total derivatives contracts. I think you mentioned the number, I didn’t catch it. I apologize. But you mentioned an average derivative fee.
And I believe that has improved both year-on-year and also half-on-half. So it’d be interesting to get that breakdown as to how that has improved, particularly, I think there’s been a change in mix towards the FICC and maybe away from the equities, and that’s driven that. But getting some details around that will be helpful. And I’ll ask my other questions after that.
Ng Yao Loong
We’ll provide the numbers, and then maybe Mike will jump in and provide some of the color around the increase. You’re right. On — for the average fee, it has increased year-on-year, almost. I think it’s about almost 20%. It’s about 150 for this half. And clearly, on a — even on a half-on-half basis, it has gone up. I think where we see the fee increase, I think it’s pretty broad-based. I think it comes both from the currencies franchise and also the equity derivatives. So we see pretty broad-based increase. And then we also see a higher proportion clearly of the full fee paying clients.
Unidentified Company Representative
Robert. So the major factors in terms of attribution would be, number one, if you look on the year-on-year, it’s particularly large. But actually, half-on-half, it’s up at USD 0.07. And that’s primarily 3 factors, right, the attribution. Number one, we had more full fee customers particularly in the China franchise. And this is correlated also to the increase in open interest. Meaning we have more end customers trading China and keeping open interest.
Secondly, this is the lagged effect of the recovery of our Taiwan business back to a more normal condition. Because up to a year ago, we were still running 2 contracts, right? So one, the MSCI had charged a fee. The new contract, we charge 0 because the idea was, if a customer wants to switch, they shouldn’t pay 2 fees. So when you look at the fee per contract, actually, you’re averaging across 2 lots.
So as we now head into a steady state, the Taiwan fee rebound is actually due to the fact that we are comparing it to a period where we ran 2 side by side. And I would say, maybe as a third point, for the half and half, because of the nature of the allocation through our products, open interest increased across all our major products. And I would call out SiMSCI, India and China. And you know that when we have higher open interest, we also have higher monthly roll. And those also tend to be full fee. So those 3 factors would be the major attribution as to why half-on-half we also saw higher fee per contract.
Okay. That’s very comprehensive. I just want to add a little bit. On the China A50, it appears that you didn’t have to maybe offer higher discounts. You lost — as you said, the overall market was big enough that even though you may have lost the percentage share, you’ve obviously increased. So — you didn’t have to suffer any additional discounts to maintain share. Is that a fair way to think about it?
Unidentified Company Representative
Correct. So let me give you the half by half by half number again. Volume was 3-8, 3-9-5, 4-0-5. Open interest was 7-1-9, 6-9-2, 7-8-6. So I would say in absolute terms, SGX’s volume and open interest was steady, in fact, went up. And the full fee component of that also went up. So it’s just a testament to the fact that customers use products because they have price risk management needs and counterparty risk management needs. And that, however, the pricing or competitive dynamics are for China access products. These things are still rare as sensitive and customers value liquidity. They value operating track record. They particularly value the fact that there is a service which runs for 23 hours a day, 5 days a week, on holidays and not on holidays.
Okay. My second and final question, again, sorry, Yao Loong, it’s a very boring question. Your gross debt-to-EBITDA 1.4x. You’ve got $843 million of debt. I just wanted to understand what the headway you have left before — I know you will be very concerned about credit ratings, et cetera. What is the headroom you still have? And maybe if I can just add to that, what other opportunities could you then use that headroom to go into?
Ng Yao Loong
Well, I think we have always talked about a headroom of up to around 2x EBITDA. So right now, we are, as you say, about 1.4x. And clearly, that’s also tied to where we are in terms of credit rating. So that gives you the sense of the headroom. And I think what is also something that we would like to point out is that we are generating sufficient operating cash flows more than enough to offset the current level of dividends and CapEx and investments. And again, those are additional resources that, while not counted in as a gross debt capacity, but they do also play a part in our internal resourcing that can be used for investments.
Okay. Any sort of thoughts on how you might apply that headroom? What sort of areas? You’ve obviously done a lot on the FX side, but is there any other broad guidance as to what you may be considering?
Loh Boon Chye
Well, I can take that, Robert. Thank you for the question. I mean, as I said, we’ve done a lot in FX. We have also done the index. We also invested in trading technology. So I think in areas where we can scale further, whether there’s bolt-on, but I think importantly, organic is also key. So fixed income, this is clearly another pillar. Digitalization of similar asset classes is where we’ll go into too. So it will really have to fit our multi-asset connecting global participants to Asia. And Asia is growing.
We’re excited about being in this part of the world. So the headroom, as Yao Loong said. But also not forgetting that it’s also a very cash-generating business. So it really depends on the opportunity that come across.
Maybe I can invite Thilan for the next question, Thilan from CLSA.
Thilan from Maybank. Just a quick question on treasury income. How should we think about it going forward? I do get the fact that it does reprice with a lag. But we’ve had interest rates going up since the fourth quarter of last year, but it has still come off. So can you give us a little bit of guidance in terms of when we can see a repricing upwards?
Ng Yao Loong
I think when I show you the charts, I think, in terms of the decline. One, I think looking forward out in the next 6 to 9 months, we do expect treasury income’s pick up to be modest or pretty measured, at least for the next few months. And it will take another few months before you see a material uptick in the treasury income. That’s, of course, clearly based on the assumption of the various rate hikes and the magnitude of rate hikes that are coming in the first half of this calendar year.
Can I invite Jayden for the next question, please? Jayden, go ahead.
Yes. Sure. I have two questions. The first is just some further color around the OTC FX business. I can see on Slide 18, which says that ADV is up 46%. What is the increase of MaxxTrader due to this? And then once the businesses are combined, what sort of growth can we look forward to? That’s my first question.
Loh Boon Chye
[indiscernible] will take that.
Unidentified Company Representative
Sure, Boon Chye. Jayden, on the OTC FX, clearly, I think Yao Loong has mentioned the strong performance growing for the whole complex $39 billion to $57 billion, 46% growth. Based on what we are seeing on the MaxxTrader performance so far, that will add another 20%, 25% to the whole total number, bringing us closer to $70 billion plus minus, depending on market conditions. I think the exciting opportunity for us is that beyond the buy-side focus that BFX had and the multi-dealer service that BFX today offer that inclusion of our MaxxTrader capability will further allow us to extend our service to also sell-side clients, both global but also more importantly, regional and also brokers.
So really, I think allowing us to connect the full suite of buy side and sell side and different segments of that. Furthermore, Boon Chye has also mentioned that in November, we have launched a marketplace for OTC, core currency note in November. And that is based on the MaxxTrader technology. So I would say that there are 3 main impact or positive impact with the addition of MaxxTrader. First, we are able to accelerate the launch of our ECN using the MaxxTrader technology.
Two, we will be able to provide a full suite of FX OTC solutions, both workload, execution, risk management, but also prices [indiscernible] to both buy side and sell-side client. Three MaxxTrader, I think beyond the OTC FX also has technology capability around futures. The plan for us is to leverage MaxxTrader capability to further enhance the ability for clients who are trading through the SGX Group platform to hedge in a fungible manner on both OTC and futures.
Loh Boon Chye
I mean Jayden, broadly speaking — sorry, go ahead.
Yes, please go ahead. You first, Boon Chye.
Loh Boon Chye
I mean, broadly speaking, I mean, the additional MaxxTrader adds stood to circa maybe 70 plus minus depending on the market condition. Key is really market share by new client acquisition, cross-sell. So we will be disappointed if this doesn’t get into a triple-digit ADV. Question is obviously the tangible addressable market, which obviously we have our plan, and then at what time line do you acquire that.
It sounds really interesting. And how much would this sort of contribute to revenues, we saw that FICC revenue had some nice growth –– how much of it is from this OTC platform in totality? And will it grow in line with that ADV assumption?
Loh Boon Chye
Well, sorry, who was that? Is it you [indiscernible]
Unidentified Company Representative
Yes, we’ll take sorry.
Loh Boon Chye
Well, you heard Yao Loong, FICC in the first half ’22 is 22% of our revenue. I don’t really want to provide that guidance because we got other moving parts and all parts could grow, right? So we think our new businesses, the various subs, they will continue to grow over a period of time, whether the combined is the third, 40% will grow. I mean, we’re confident of the overall pie growing in our various revenue pillar.
Ng Yao Loong
Yes. Maybe to add to Boon Chye, we have a transaction volume-based revenue. So given we tag projection of triple digit ADV, that’s began indication of where we think things can go. But more from a macro perspective, we think that this is a double-digit growth opportunity for us.
Okay. Great. I have one additional question I wanted to ask, just quickly on the dividend. Yes, Yao Loong, you mentioned that you’ve passed the scrip idea for now. Just want to check in, what was your latest thinking around this, and what conditions would you need to see to lift the absolute DPS because we’ve been at a steady level now for a few quarters.
Ng Yao Loong
Are you’re referring to the scrip dividend, right?
Ng Yao Loong
Right. I think I’ll be upfront, I think we have stated that we are not planning to do in this financial year. And of course, these things, including many other things that we do, we will review on a periodic basis. And that when the time is right or when the circumstances are more appropriate, we will rethink. And before then — and if we decide to do anything, we will, of course, inform the market.
And just the second part of my question, Yao Loong, what would be the conditions you’d want to see to lift the DPS? Has there been a $0.08 a quarter now for a few quarters in a row?
Ng Yao Loong
Okay. I think this is — now we’re talking about the cash dividend, right, so we need to park the scrip dividend. Both of them are not linked. I think it’s now premature to talk about where we are likely to end up in terms of total dividends for this financial year. We are only at the half year mark, we are reporting our first half FY ’22. Come the second half, I think we’ll be in a much better position to talk about capital return to our shareholders.
Loh Boon Chye
All right. Thank you all. Appreciate you joining on a Friday evening. Let me just quickly reiterate. Excited about the opportunities we see ahead of us. I think our multi-asset access solutions, with the reopening of economies, clearly provides not just opportunity for us, but also for investors and risk managers. We see growth areas clearly in commodities, including freight. FICC will continue to provide further growth into our overall revenue. Our all China excess suites across different products and our gain in market share providing access into China. And also you see in some of the contracts we have in equity derivatives clearly put us in a very good state to continue to offer and widened products and obviously not forgetting connectivity with like-minded market platforms. So thank you very much. Have a good weekend ahead.