The National University of Singapore (NUS) Risk Management Institute (RMI) and Singapore Exchange Limited (SGX) announced today that they have signed a memorandum of understanding (MOU) to collaborate on financial research. The aim is to create innovative financial products to facilitate risk management and generate additional trading opportunities for investors. Initial research projects include property derivatives, Asian credit derivatives and carbon trading.
This is RMI’s first formal research co-operation with a commercial organization. It is also an important milestone in laying a strong foundation for Singapore to develop as a center of excellence for risk management and financial innovation in Asia.
The MOU was signed today by NUS president Prof Shih Choon Fong and SGX ceo Hsieh Fu Hua, at a ceremony attended by finance scholars and guests from the financial sector.
Prof Shih said: “Teaming up with SGX marks a milestone for RMI in developing links with industry. Leveraging NUS’ comprehensive range of disciplines, this SGX-RMI collaboration offers exciting opportunities to build synergies between SGX’s high practice standards and the University’s multi-disciplinary research. This win-win partnership promises to develop risk management expertise and financial innovation that meets the needs of Asian markets and beyond.”
Hsieh said: “We are very pleased with this MOU as it plays an important part in our strategy to innovate and enhance our product and service offering as a risk management centre.
The growth of derivatives in the past decade has been spectacular. According to the Bank for International Settlements (BIS), the notional value of all over-the-counter (OTC) contracts has grown six-fold since 1998 to US$415 trillion today. The most impressive growth has been in credit derivatives, which are making headway in Asia. It is therefore timely that RMI and SGX are partnering to capitalise on Asia’s vibrant economic growth and to further strengthen Singapore’s position as a regional hub for credit derivatives.
Property derivatives have similarly grown strongly. In the UK, the most active property derivatives market in the world, the size of the property derivatives market has grown from £260 million in December 2004 to £7.9 billion in September 2007. Recently, property derivatives trades have emerged in other parts of Europe, United States and Asia Pacific. We expect this market to gain significance in Asia over the next few years once the necessary benchmark indices have been established for trading and investment. Besides providing market participants with a means to invest in property, property derivatives are useful as a risk management tool. The collaboration between RMI and SGX will provide the necessary research into this new derivatives market.
In addition, Asia’s carbon market potential is projected to grow exponentially in line with its economic growth. Singapore, with its central geographical location and expertise in oil and commodities trading, is well-placed to facilitate carbon trading and to support the region in greenhouse gas mitigation. In collaboration with SGX, NUS researchers who are currently studying carbon trading hope to contribute to the efforts in developing Singapore as a hub for carbon trading.