Singapore Exchange introduces dual-currency trading
The Singapore Exchange (SGX) has introduced a function allowing investors to trade in two different currencies for a listed security with greater transparency and potentially greater cost efficiency.
Under dual-currency trading, a company is able to permit its listed security to be traded in any two different currency denominations. Investors will be able to buy and sell these securities in either currency, regardless of the currency in which it was first bought or sold. “Dual-currency trading will benefit investors, who can now choose to trade in their preferred currencies, while companies and issuers can enjoy the flexibility and potential added liquidity of having their securities trading in two currencies,” says Magnus Bocker, chief executive of SGX.
Previously, investors trading in a USD-denominated asset that wanted to settle the trade in another currency, such as SGD, would have had to go through their broker, who would provide the exchange rate for the FX settlement.
With the new service, investors can directly buy – or sell – securities in say SGD, if the price quoted on the exchange is lower – or higher – than the converted amount their brokers would charge. The option also means investors will not have to wait until date of settlement to know the converted amount.
The dual-currency listed securities will be consolidated in investors central depository accounts so that the total number of contracts, held in both currencies, will be viewable at a glance.
While an asset’s tradable prices in the two counters will, in most cases, be roughly equivalent, taking into consideration the prevailing exchange rate, SGX warns that dual-currency trading is not without risk.
In some instances, due to other market supply-and-demand factors in the respective counters, the price relationship and difference between the two counters of the listed security might not necessarily be the foreign exchange rate between both counters.
SGX said this could be possible in illiquid stocks and in the absence of market makers to provide competitive quotes.