The second day of company visits began with a visit to SGX where we talked to the CEO of the exchange and got a tour of the facilities. SGX is unique in that it owns its own clearinghouse, which is a profitable area for exchanges. In the US, the Treasury department attempted to make the exchanges more competitive by requiring the exchanges be separate from the clearinghouse. But this just made the exchange business in the US more fragmented. However, since Singapore has many exchanges, the regulatory authority allows SGX to own its own clearinghouse. Lastly, the way SGX makes its money is changing; it is from derivatives trading, not stocks.
The next visit was UBS where we talked about FX trading. Traders are “market-makers” or they trade the flow in emerging market currencies because that is where the money is and the easiest. The greatest liquidity is during the business hours the country whose currency one is trading. During the business day, the greatest liquidity is at the beginning and end of the trading day.
The last visit of the day was to PAAMCO where we talked about the hot and dark money in the Asian financial system. While PAAMCO gets most of its clients from North America, it is starting to get more clients from Asia because of its commitment to the region.