Singapore Exchange Limited (OTCPK:SPXCF) Q2 2022 Earnings Conference Call August 17, 2022 9:00 PM ET
Company Participants
Ng Loong – Chief Financial Officer
Loh Chye – Chief Executive Officer
Conference Call Participants
Jayden Vantarakis – Macquarie Capital Securities
Nick Lord – Morgan Stanley
Operator
Good morning, ladies and gentlemen. Welcome to the Singapore Exchange FY2022 Full Year Results. We’re very pleased to be here this morning in person to deliver our results to you. Today’s agenda will be as follows. We have the FY2022 financial highlights and performance presented by our CFO, Ng Yao Loong, followed by a business update by our CEO, Loh Boon Chye. So without further ado, let me invite Ng Yao Loong upstage to present the financial performance.
Ng Loong
First of all, very good morning to the people physically in the auditorium. And those online. Thanks for joining us as we take the chance to present our full year FY2022 results. As a Group, the revenue increase 4% or $43 million to almost $1.1 billion highest revenue since listing. And it’s pretty broad base, especially across our derivatives franchise covering FX, commodities, and equities. Treasury income or TI continues to be a drag in this financial year. And if we were to exclude TI, underlying growth will be up higher at 7%. On a headline basis, in terms of expenses, it will 7% year-on-year to $562 million. But on a like for like basis and what do I mean, if we exclude the impact from MaxxTrader, which we acquired in January 2022, and the credits from the one of government job support scheme in the earlier FY, total expenses would have only increased 3%.
On an adjusted basis, which I think gives a better reflection of our ongoing underlying performance, earnings would have increased 2% to S$456 million. Now, let me take you through the details of our performance. Broadly, derivatives trading and clearing revenue across our multi asset platform, and OTC FX were the two revenue, growth drivers or the key ones. Business segment wise FICC grew 19% driven mainly by currencies and commodities, and a non contributes 23% of our total Group revenue, a three percentage point increase from the last FY and even if we exclude the revenue impact from the acquisition of MaxxTrader, FICC revenue will be still up a fairly robust 14%. So in the medium term, I do expect FICC revenue to continue growing in the mid-teens percentage range as we execute on our growth plans.
In the FX space, which comprises both the OTC FX and the exchange traded FX futures, the exchange traded currency volumes increase 10% from higher activity in our flagship contracts, which is the Rupee and CNH and reflects our position as Asia’s largest currency futures exchange. The acquisition of MaxxTrader has further scaled our currencies business. So OTC FX now contributes 5% of total revenue. And I think this is a meaningful number. ADV, or average daily volume increased 64% to almost US $71 billion. And we are on track to achieve $100 billion in the medium term. In Commodities, we maintain our leadership position in the offshore iron ore market. So iron ore futures volumes are up 22% and steel trading, which really measures the success in financialization now contributes 29% of total iron ore volumes, an increase of nine percentage points from a year ago.
And it’s not just about I know, freight derivatives also grew 32%. And moving on to equities, the 22% increase in equity derivatives trading and clearing revenue, I think reflects the value that market participants plays on our platform, notwithstanding the competitive headwinds. So if I just look at the last five years, equity derivatives revenue, and if we exclude TI, grew by almost 50%. So in FY22, we saw not only higher levels of activity, but also higher average fees in the year. So DAV or daily average volume of our key contracts saw robust activity level. So China A50 DAV grew 10% Nifty 50 and SiMSCI or MSCI Singapore DAV is grew 15% year-on-year.
Our average fee per contract for the entire derivatives franchise increased 13% to $1.51. And that’s mainly due to the higher fees realized from our key A50 and Nifty futures. Revenue for cash equities was lower due to a decline in trading value, and also the average fees. DAV declined 5% to just under $1.3 billion, primarily driven by lower trading activity in stocks in a small mid cap segments. Trading activity in wheat stocks increased largely due to the reopening of our domestic economy. Average clearing fee was 5% lower, as we saw a higher participation rate from our market makers. Revenue from DCI was up 3% mainly due to the higher subscription in data and colocation services. Treasury income on a year-on-year basis declined $25 million that was really due to the low net use, it has bottomed out following the start of the interest rate hike cycle by the major central banks earlier this year.
Beyond the recovery of the interest rate environment, I think what is equally important is that we have been able to grow out the derivatives business, which meant a higher collateral balance. So that is something that we can control and influence.
Moving on expenses. As I mentioned, it is 7% on a headline basis. But if you strip out the one offs and MaxxTrader is actually 3%. If I can bring the audience back to what we guided a year ago, and even the revision six months ago, the actual expenses of $562 million was actually significantly lower than what we guided. And I’ll add that the lower than anticipated expenses was also partially due to a slower pace of hiring in FY2022, some of which will be carried over to the current financial year. But nonetheless, I would say the overall expense growth reflects our continued discipline in cost management, even in a cost inflationary environment. And this is why you see the staff costs have largely remained comparable year-on-year after we exclude MaxxTrader even as we made adjustments to our staff compensation, in response to the market environment. Like many other financial institutions within Singapore globally, SGX is not immune to this pressures.
Technology costs were up 5% primarily from our investments to enhance our OTC FX platform, processing and royalties rose 10% or $6 million. Not surprising given the higher volumes across our key contracts. Other expenses increased 9% or $5 million due to higher traveling as we recover from the COVID pandemic. There was also a write-off of assets that were no longer in use, and we made higher allowances as well. On an adjusted basis expenses is 3% lower than the reported number. I think this again reflects better the underlying expenses. These are some of the adjustments that we make to remove the one offs and the amortization of purchased intangibles. Margins wise at the Group level it was a decline of 1.5 percentage point, two reasons, Treasury income declined and a larger contribution from our subsidiaries.
So let me just break it down. First at the core operating level, we have been able to maintain our margins at about 58% year-on-year. So the chart on the left shows the EBITDA margin of our core operating level, at the core operating level and that excludes TI and the subsidiaries which were scientific beta and the OTC FX, and if you look at the middle chart, it gives you a sense of the magnitude of the TI decline which we are expecting to recover in FY23. And then the chart on the right looking at the core expenses, which is really the derivatives and securities trading and clearing business, the expenses has largely remained unchanged over two year period.
So second, our investments in growing new businesses, new business pillars like the OTC FX have exerted downward pressure and this businesses even at a mature stage will not have EBITDA margins that are close to what we have at the core operating level. And if you look at what some of our peers operate in those similar businesses, their margins, I guess, you can see that they are not at where we are in terms of the core operating business as well. But what these subsidiaries, or the growth pillars contribute financially to the Group is a faster growth in revenue and operating profit. Just to give you a sense, our revenue contribution has increased to 8.5% of gross revenue compared to 7% a year ago. And this percentage is expected to continue to rise. On a like for like basis for the subsidiaries which has BidFX and Scientific Beta have stripped off things that will not present in FY21, margins are comparable at 37%. I think if I look ahead, clearly, very mindful of the cost inflationary environment. But I do expect again margins to recover over time as we scale our businesses. And also with the TI recovery. Leverage ratio, interest coverage ratio remains same, I will say very healthy levels. On $1 basis, the debt went up largely from a US $250 million that we bond that we issued in September 2021. And the process was used for investment purposes, we acquired MaxxTrader which I’ve said quite a few times and also invested in a closed end Fund, which has Trading Technologies as the underlying asset. Raising external capital, whether it’s in the form of convertible bonds, or plain US dollar bonds, I think the advantage is that it has allowed us to lock-in a low funding costs at below 1%. And that’s very helpful in a rising rate environment. And this also shows our proactive approach towards capital management, such that we will have the financial flexibility to pursue growth opportunities across the cycle. The board of directors have proposed a final quarterly dividend of 8.0 cents per share. This will be subject to approval at the upcoming AGM in October, and if approved, the total dividend per share will be 32.0 cents per share for the year.
Operating cash flow and the adjusted earnings per share, as you can see are more than adequate to cover the proposed dividend. Earnings that is retain will be used to invest in growing our business. Looking ahead, FY23 total expenses on a headline basis, we expect it to grow between 7% to 9%. So I think it’s important again to look beyond the headline growth. And let me just break it down for you. And also the context of the increase. So excluding the full year impact of MaxxTrader, expenses are expected to grow 5% to 7%. So what do I mean, right? We acquire MaxxTrader in January 2021, there was six months of expenses. Now we will have to consolidate 12-months. So even if everything was unchanged, just by the fact that we consolidate additional six months it will mean the two percentage point increase in expenses. So after we adjust for this, our FY2023 expenses are expected to increase 5% to 7% mainly due to higher staff costs, because we are investing in our people. And also to build out our OTC FX business. The proportion of the higher staff cost clearly will be due to salary adjustments, given a competitive market for talent, and the environment that we operate in.
And there will also be some hiring that we carry forward from FY2022. I do not expect these expenses to remain beyond FY2023. I anticipate the overall pace of hiring for the entire Group, including our subsidiaries to slow down. And overall compensation levels or adjustments will normalize. So in the medium term, our expense guidance, we may not change at the mid-single digit growth range. The context that I wanted to give us again, just look at it rather than a year-on-year and perhaps look at it over two year period. As mentioned. If we exclude MaxxTrader and the one offs, FY22 expense growth would have been 3%. But what this chart shows is that we look at it over a two year period.
MaxxTrader acquisition which is an important one contributed two percentage points per annum to the growth. So it’s an inorganic acquisition and it has added to the expense space, but clearly this investment for growth and as for the core, the remaining Group the expense growth, it’s four to five percentage point. And this shows the relative contribution and I wanted to break it down for you to let you know where it is coming from both on an organic and inorganic basis. CapEx for FY2023 is going to be higher compared to the previous years at about $70 million to $75 million as we scale our OTC FX platform, clearly as a critical information infrastructure, we will continue to upgrade our platform and system architecture including investments in cybersecurity. We will also take the chance to improve the efficiency of our office premises as we plan to consolidate our real estate footprint. While the CaPex range that we are given FY23 appears to be a significant increase over the past few years. I think it’s important to view CaPex as a multiyear program across refreshed cycles rather than a year by year increase or decline. So in the medium term, we do expect capital expenditure to remain at a similar level as we embark on the major system updates. And you will see that over a 10 year historical trend, the average CaPex to revenue ratio is about 7%. So there are years in which we will be below or above, depending on the CaPex to be done for the year. So it’s important to look at it across the cycle. And the other point I would like to point out is that business the Group has expanded in the last decade. Although, the absolute amount has fluctuated between $40 million to $80 million per year, the Group revenue has grown almost 1.7x from FY2012 to about $1.1 billion in FY2022.
With that, let me now hand over to Loh Chye who deliver our business update.
Loh Chye
A very good morning again, everyone. And thank you for joining us for this FY22 results briefing. As Ng Loong has shared at the start, we achieve our highest revenue since listing. Let me now share how our global strengths drove the performance. First, our derivatives platform registered higher volumes. You heard it from Ng Loong, well it’s across all asset classes, equities, currencies and commodities. And in FY22 as global participants navigate an even economic recovery as the pandemic evolves, geopolitical tensions, rising supply chain disruptions, inflationary pressure pressures, rapid shift in interest rate policies and recessionary risks. Our clients use more of our multi-asset platform [Inaudible] open and neutral access to manage their portfolios. There was also higher activity in the overnight call T plus one session across all asset classes year-on-year, reflecting the global nature of our product suite.
Let me go through the various asset classes. First, our equity derivatives product suite continues to provide unparalleled access to the largest economies in Asia, with more than US $22 billion in notional value traded every day in FY22. In FTSE A50, there was increased by site participation and overall trading activity arising from the evolving pandemic outlook and developments in sectors such as technology and real estate. Likewise, trading volumes in the Nifty futures rose in response to the evolving macro-economic conditions. Our listed Asian FX futures platform, which is the largest globally provides price discovery and liquid access to the largest and fastest growing economies in Asia. Trading in our key contracts was robust, with total as SGX FX futures DAV up 10% to 119,000 contracts and total notional value for FY22 was up 23% to US $1.8 trillion. There were a few single day trading volume records that was achieved for the CNH futures and INR futures. We also saw meaningful growth in FX block trades that are clear with SGX as global participants seek increased efficiency, and cost reduction driven by unclear margin rule changes. We delivered strong results too in commodities as DAV increased 21% to over 118,000 contracts.
Global participants continue to look to SGX commodities platform for risk management amidst supply disruptions, economic volatility, and shifting macro-economic outlook. Iron ore DAV was up 22% year-on-year to close to 100,000 contracts, made good increase in steel trading volume. Steel trading now accounts for close to 30% of total volumes compared to 20% in FY21, and 30% was across the whole financial year. If we look at the last few months, the percentage is even much higher. Freight also had a strong year with DAV up 32% year-on-year to 8,000 contracts.
Our continued focus on building ecosystem together with key global strengths create reinforcing product adjacencies. Let me illustrate that through two thematic. One that you see on the screen is the steel and related raw materials and two, trade and transport. Iron ore which is a key input to steel provides a close proxy to macroeconomic growth. Having pioneered iron ore derivatives we have seen, we’ve since created a comprehensive product ecosystem around the concept of a virtual steel mill and broaden our client network. The percentage increase in steel trading that I talked about has really come from a wider array of financial participants. And in freight, which is another proxy that serves as a global economic barometer. And as the largest drive bulk freight venue, we provide deep liquidity for our customers in FFAs, which is complementary to our seaborne commodity products and as the leading exchange in freight derivatives, we’re well poised to expand into container and air freight. We will look to participate in the global energy transition with product launches in battery metals in the months ahead. And with increased liquidity in our commodities suite, such as iron more, dairy and freight contracts, they are now included in global commodity indices, which would attract more investors participation. I shared about our SGX FTSE A50 and SGX Nifty performance in the previous slide.
Building on that strength, we have built up a shelf of products covering the ASEAN capital markets of Singapore, Malaysia, Thailand, Indonesia, Vietnam, and Philippines. These ASEAN products have strong correlation with domestic indices, allowing investors broad access to grow economies efficiently across borders. The Regional Comprehensive Economic Partnership, RCEP, which came into effect this year could drive greater trading relationships amongst Asian economies. And global participants can participate in the growth of ASEAN by accessing the respective markets through SGX single country indices as or SGX Singapore, single stock futures. For example, companies in Singapore’s benchmark indices have a strong regional footprint, and SGX single stock futures on these companies provide an efficient access instrument. Investors also have unique Asian time zone access to the fast growing Asian technology sector through SGX single stock futures. FX is another global strength of SGX Group. We now have a sizable and scalable FX franchise comprising OTC FX, FX futures, and an electronic communication network ECM. OTC FX as we heard from Ng Loong contributed 5% of Group revenues and remain on track to achieve an average daily volume of US $100 billion in the medium term building on its platform and product offerings. Our clients can now connect to a combined liquidity pool of over 100 liquidity providers and market makers. They will be well served by our global client coverage Group that operates around the clock and extends across nine locations. Clients will also see enhance workflow and risk management solutions enable by our strong technology capabilities, and we will continue to bring new products and platforms enhancement to address new client needs. And further product offerings in NDF, will be added in the weeks ahead on our FX ECN. This will allow us to offer clients a seamless platform across FX spot, swaps, options, and NDF and futures.
Amidst the shifting economic and market landscape, we see opportunities to continuously provide new investment products for our global participants. In FY22, we saw issuers raising seeing S$1.9 billion, an 84% increase year-on-year. The capital markets initiative announced last September have increased momentum and pipeline for equity capital raising. However, as we’re witnessing market conditions needs to stabilize around valuation. This comes amid concern over the continued rising interest rate globally and high inflation. In recent months, we welcome the listing of NIO, a premium Smart Electric Vehicle maker and Emperador, a global spirits company on SGX’s mainboard. The consistent post listing liquidity demonstrate SGX value as an alternative venue for global companies seeking access to new investors. Through our partnership with US exchanges, issuers can gain round the clock liquidity and a diverse pool of investors with an SGX listing. 2022 marks the 20th year anniversary of the establishment of S-Reits on SGX. The REIT market has grown in international profile, and today more than 80% of S-Reits and property trusts hold overseas assets. The ecosystem has continued to broaden and deepen with more listed products including derivatives and ETFs with REITS underlying, SGX is now home to five REIT ETFs with assets under management close to S$900 million. Our ETF shelf is multi asset. In FY22, total assets under management will up more than 30% to S$12.5 billion, 7 new ETFs are listed in FY22, of which three were powered by index H. SGX owned index business, the eventual launch of the Shenzhen Stock Exchange SGX product link and Thailand Singapore Depository Receipt linkage will further complement our product shelf and connectivity.
In FY22, we added our first catastrophe bonds, innovative asset backed securities and close 220 Green, Social and Sustainability linked bonds in 2022 to our broad and diverse fixed income listening platform. We will complement and enhance the fixed income issuance ecosystem through Marketnode, a digital market infrastructure. Marketnode provides a data powered collaborative workflow tool for fixed income issuance, and further product expansion will be added in this current financial year FY23. This is in addition to the ESG bond information hub that has been introduced.
Partnership is an important channel of broadening and deepening market access as we position ourselves to be the partner of choice for global access to Asia. There were several other collaborations with SGX securities in listings our MOU with NASDAQ, and recently added NYSE provide seamless pathways for companies that are keen to list in either of both markets as they expand their businesses globally and access global investors. We also enhance our data distribution network in China to distribute SGX securities data. Domestic issuers and investors now have expanded access to data for insights for SGX securities products, including REITs and ETFs to add to existing channel of market data distribution for our derivatives offering.
In commodities, we went live with the trading and clearing of New Zealand exchange suite of dairy derivatives exclusively on SGX commodities that happen in November of 2021. And please to report that the mutual partnership saw open interests of the product and volume of several dairy products achieving record levels. In equity derivatives, the NSE IFSC -SGX Connect, or in short, the Gift Connect was launched by the Prime Minister of the Republic of India, Narendra Modi in July. The Gift Connect presents an innovative pathway for global investors to participate in India’s growth story. This mutual partnerships which combine the strengths of these partners serve to provide clients with better access and connectivity. And we look forward to expanding our partnership arrangements. Our financial performance in FY22 reflects the value that investors place in SGX Group’s multi-asset businesses, through this platform registered higher volumes across all asset classes. Our OTC FX pillar, which mainly comprises BidFX and MaxxTrader now contribute a meaningful 5% to the Group revenue. We are maintaining our medium term revenue growth expectation of a high single digit percentage range. Even though downside risks to the global economy have increased. We will capitalize on our global strengths to deepen our scale in FX and commodities, broaden our product range and grow our client segment. Our fixed income currency and commodity segment is a key growth engine with an expectation of mid-teens percentage revenue growth in the medium term. We expect equity and bond listings to grow as our capital markets ecosystem deepens, and service Asian growth companies mature. We’ll build on the momentum of our growing equity derivative suite, scaling the business by increasing our customer base through our global distribution channels, we will also continue to expand and reinforce our equity derivatives product shelf. Looking forward, on building what we’ve achieved collectively on FY22, and delivering importantly for our customers, shareholders and stakeholders in FY23 and the years ahead. With that I conclude my presentation, I invite my colleagues to join me for the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]
Any questions from anyone? Yes. And after that, I guess, Nick.
Jayden Vantarakis
Hi, thank you. This is Jayden from Macquarie. Thanks a lot for the presentation and the opportunity. Just two questions. One of the areas that you didn’t talk about strategically, Boon Chye was scientific beta. And if I look at the beta and connectivity revenue, it looks like it grew quite modestly. What’s the outlook for their contribution going forward? Do you see a lot of potential for that to sort of pick up? Or should we sort of expect it to remain relatively steady?
And my second question is just around the dividend. I think it’s been about 12 quarters or so we’ve had 8.0 cents per share. And there has been a record year revenue, as you said, and prospects do look good. So just wondering when we should expect to see dividends increase? And what’s the thinking around that? Thank you.
Loh Chye
Thanks, Jayden, with regards to scientific beta, really have provided the adjacency to our SGX Index Edge business, it had a steady performance, I would say, over the last two years as the pandemic had clearly slowed marketing efforts. So they had a steady performance with the reopening that was seen in US and Europe, which is the key clients of the business, we’re beginning to be back marketing and engaging clients. And we’re put in place, in fact, to further expand the marketing and sales coverage. So over a medium term outlook, we think the business will continue on this original track.
As regard to the dividend, as you’ve seen our track record, we’ve always steadily increase dividends in line with sustainable performance. We are still investing for growth. And we look towards rewarding our shareholders as our performance sustained at the highest level.
Ng Loong
Maybe if I could just clarify, Jayden, you kind of mentioned 12 quarters, I think, probably it is eight quarters rather than 12. I just want to clarify. I think the last time we raise was in Q4 FY20. So that’s two years ago, and that was 0.5 cent. I think clearly the other message I think we would like to get through is that we are looking at total shareholder return. Dividend income is clearly an important part of that. Our earnings growth is also a key component of total shareholder return.
Nick Lord
It’s Nick Lord from Morgan Stanley. And I just wondered if you could elaborate a little bit on that connectivity point that you had a slide on and obviously recent announcements have been around the US link up and also the launch of the NSE IFSC. Can you talk a little bit more in terms of specifics so for the NSE and Gift link up, I mean, what timing are we on in terms of product launches? What type of products do you think we’re going to see from that? Do we see sort of revenue share? I mean, I just want a little bit more detail on where we are on negotiations there.
And then in terms of the US tie up, I just want to try and understand how you see that is done, more of a venue where US listed companies can get access to overnight trading their time on the SGX or is this a way in which SGX listed companies can get access to investor pools in the US?
Loh Chye
I think on the Gift connect, Nick, the ability to now combine the two pools of liquidity into one eventually, really helps to further enhance the liquidity, we clearly hope to look towards a one plus one being more than two. And in that kind of scenario as the market grows, and I think the commercial for both partners will grow in tandem. But I think what is also important is, we see that as a first step, because India being the fifth largest economy globally today, will become probably the number three, economy by size by 2030. And that’s clearly an important market were based on a multi asset platform, we want to look beyond just the Nifty futures.
On the connectivity with US exchanges, I think it serves two fold, I mean increasingly, we’re seeing and hope, not any quicker pace in terms of de-globalization challenges to that. So being able to create the kind of linkage not only for investors, but for companies that could be listed on two exchanges, and accessing a wider pool of investors and round the clock liquidity. And it can work both ways for companies that are listed in the US that may want to expand in to this part of the world and follow even regional companies in this part of the world listing on SGX, and at the same time on a US exchange.
Nick Lord
Thanks very much. So just coming back to India, I mean, at the moment is just incorporates for Nifty is that right? Or will it incorporate Indian single stock futures as well.
Ng Loong
So to unpack this, the bedrock of the relationship is settled, it is a partnership. The initial execution phase is about making sure that this novel infrastructure, which is the combining of the trading networks, but only an alignment of the clearing network, because that’s always going to be harder. So the novel engineering is to make sure that the trading networks of India onshore, Indian participants in SGX offshore SGX participants that gets merged, I would expect that for the next six to 12 months, the focus is on seeing that success in Nifty 50, which after all is the benchmark product, it is most likely to have this sort of elasticity to when you bring two pools together. But it is entirely envisaged that as time goes on. And particularly as participants demand more and more Indian derivatives markets are still in the very early stage of expansion and growth, right? If you compare the complexity of products, I’m sure it still has a long way to go to fill even the products lots of what you see in the US and China. But what they do have is very high liquidity. So this is a happy place to be focused on one product, make it big.
Nick Lord
And so would there be a margin decline on the Nifty future that’s offset by volumes or does the margin for you remain the same?
Ng Loong
So it’s hard to really tell but I think you can see from our realized results in the past year. That Nifty is one of these products that when flight to quality occurs, volumes and margins improve. When equity risk premiums heading at 30% nobody minds paying $1 per lot to an exchange program.
Unidentified Analyst
Thank you, this is my Mariko from Nikkei. Can I just have an update on the battery material product launch? If I’m not wrong, it was planned to launch earlier the first half of 2020. Is there any issue on the launch? When is it going to be launched and then what is the, in a mid to long term, what is the sort of market share that you want to achieve in globally? Thank you.
Loh Chye
On the EV metals, I think we are still going through the regulatory approval, engaging the market participant for the launch. We are very excited of the opportunity for us to complement our steel value chain by adding a new component EV metals and we are already looking at two main category cobalt and lithium. I would say that we are not the all that we do around greening the street that we have, something potentially in the pipeline really is looking at new, greener commodities for us to launch. In the past we have launched, for example, the 65% iron ore, we have also launched the low Sulphur fuel oil. So really, I think the demand from the market. And we are working actively with the participant to continue to grow the suite. Potentially, I think towards next year, something that we’re thinking about is broader around the carbon offset. You might be aware that we have a joint venture that we have announced in February last year, Climate Impact Change, which is a four way JV between us, Temasek, DBS and Standard Chartered. And really, I think it is four partners coming together to try to create and channel capital to really come up with more capital into the nature base, carbon offset market. So within that, I think you can expect that as climate impact change roll out products, they have roll out a marketplace, they have launched option. We will be working with them then to correspondingly launch carbon related futures, to enable clients who want to channel capital into the market or hedge their carbon offset risk to also have the instrument to do that.
Operator
There are some questions.
Unidentified Analyst
There’s a question or several questions from Goldman Sachs. First one is as we build our OTC FX, business and other businesses, we heard earlier that EBITDA margins will be lower for the Group. Perhaps you can share how low do you expect it to be? So that’s the first question.
The second question is with the medium term note issuance. What is your appetite for M&A? And which space are you looking at?
Ng Loong
I’ll just talk about margins. And I think [Siew-Koh Puay Eng], so just give an illustration of the growth potential business. So we have mentioned OTC FX down contributes about 5% revenue number is about $58 million. And the maturity or when it’s more stabilized, margins of the OTC FX is expected to be about 40% to 45%. And so if you are able to look at how we scaled the business $70 billion ADV right now going up $100 billion ADV. So clearly, we are looking at quite a significant increase in the contribution. And the relative contribution between the core and OTC FX will then determine the impact on the overall Group EBITDA margins. So wouldn’t want to sort of give a specific number at this stage. Again, it depends on the relative growth of the business. But what OTC FX brings to us is the additional revenue driver. And then also the faster operating profit growth that we can see as a Group.
Unidentified Company Representative
Yes, to add to Ng Loong, I think if we take a step back and look at the FX market, while we are now $70 billion of the key players globally, if you then contextualize that, to the total size of the market is a $7 trillion market. And we think that there’s about $2 trillion, $2.5 trillion of addressable market for the service that we provide. So clearly, we are expecting and Ng Loong has mentioned, CFO has mentioned a medium term goal for us to hit $100 billion. But I would say that $100 billion is just the start. And the happy problem for that is from a Group perspective, as we continue to grow [Inaudible] the FX service that we provide, we will continue to expect that there’ll be some impact on the overall margin of the Group. But from a profitability standpoint, from a growth standpoint, I think it will be a positive contribution. The other part, I guess from FX vertical is that I think a big key themes that we have seen, it’s really an increased demand across the board, across the industry across the economy, around digitalization automation, the services that we provide will play very well into the ability for us to scale to serve and to service the ecosystem that we have. And to add to that, the exciting part about extending the SGX franchise beyond just Asia. And if you look at our FX franchise today, to what Boon Chye has mentioned we are available in the three main data centers, we have round across services, we have big client segments that is using our service globally 24×7, 24×5.5. So I will say that from the different angle that one, it’s a massive market. We are just starting we are expecting massive opportunity and demand for the service and we are looking at ways to better serve that demand.
Unidentified Analyst
The second question were around appetite for M&A.
Loh Chye
And which area are we looking at, I think we have grown. If we look at it in the last three years, the multi asset platform is really coming together, we are clearly focused on execution. But that said, as I commented in my remarks, we want to invest for growth. And I think they are clearly opportunities out there. And while I talk about the market valuation gap has to narrow I think in a market conditions like that, probably, you can see more opportunities. And if we can add to some of the global strengths that we’re building up, whether that is in commodities, and it doesn’t necessarily need to be in trading platforms. You’ve heard us talk about ecosystem building. If you can extend the ecosystem in commodities, you can extend the ecosystem in FX, that’s clearly what we’re looking at. You heard me talk about partnerships, we had an investment in trading technology together with CBOE that helped us to really gain growth to the investments as markets grow, and the participants’ increases and the investments will clearly lead us to potentially more client acquisition or more partnership. So capital markets, technology is potentially another area that we’ll look at. But I think more importantly, in market conditions like that, you may be able to seek out better opportunities.
Unidentified Analyst
Hi, good morning. I am Jovi from Singapore. I have two questions about listing. So the first one is FTE story that SGX is in talks with GRAB and SE to consider Singapore, perhaps for dollars thing, so can SGX confirm efforts to convince this Singapore headquarter companies that are currently listed elsewhere?
And the second question I have is some brokerages here have expressed interest in revitalizing S chips. So what is SGX’s view on this? Thank you.
Loh Chye
Sorry. Could you repeat the first question? It’s bit, can you slowdown a little bit.
Unidentified Analyst
Hello, okay. Yes. So the first one is about FTE story that says, SGX is in talks with GRAB and SE to convince them to consider Singapore for dollars thing. Can SGX confirmed if it is in talks or are there efforts to convince these companies to consider Singapore?
Loh Chye
Well, we wouldn’t clearly comment on the specific companies. But if you look at in the recent months, having NIO being listed here and Emperador being listed here clearly the platform thus create value for companies that they see. So companies will have to make the unnecessary choices. And I think SGX, as I said, around the global liquidity exchange, partnership and access into this part of the world thus clearly gives the value proposition for companies.
Ng Loong
Yes, I mean, clearly we’re excited about the secondary listings that we’ve attracted in the last couple of months with NIO and Emperador and then of course, lifted the momentum around some of these discussions. Everybody looks at this from an issuer perspective with different objectives. But the considerations for both Chinese issuers as well as issuers from other parts of the world, particularly Southeast Asia, Singapore itself, remains strong in our view.
Loh Chye
Do you have a second question, I think.
Ng Loong
S chips, China’s — Chinese companies.
Unidentified Company Representative
So I would say on the Chinese issuers. Again, this is also driven by the momentum boasting the NIO listing, clearly strong pickup in discussions around that. We all know that Chinese ADRs continue to consider their options. Depending on where the US regulatory and political pressures are headed. Our focus is on those issuers that continue to value overseas listings, for example, because they have overseas presence, or ambitions and that’s where a Singapore secondary listing can add value for these issuers. We’re really focused on what is within our control and that’s really to make sure that we’re now considered as the right venue for these type of players. That is offering global and regional incremental investor access for Chinese issuers that is permanent through a listing in Singapore, on an international level, that helps if they think about expanding their profile and their business, in Asia or beyond. And it’s of course, also making sure that our processes are as efficient as possible to cater to these issuers. And that’s where I believe that we’ve made a lot of progress.
So maybe Jovi just to touch on real brass tacks right things we do. We exist as the market infrastructure, national market infrastructure of Singapore and Singapore stack serves issuers and investors. So some of these examples that Paul was referring to, for instance, two large components of MSCI Singapore GRAB and SE, or NIO, which is realized, and per dollar realized, they each find value for themselves in using our option platform. So an example of say specifically GRAB and SE, they get evening liquidity from our derivatives, no other derivatives market, MSCI Singapore, they get evening liquidity from our derivatives, because we are the home of MSCI Singapore futures. And we trade the longest trading hours in Asia, 22 by five, we have listed single stock derivatives to allow risk managers in the Asian time zone before the US open to transfer risk in a safe way, in a practice way, when they want to exchange risk on say those names. So the value proposition that they would need to find for themselves. The examples of NIO and Emperador already shown this is how do I as a listed company, serve my issuer base better, and expand my capital markets efficiency better by using the market infrastructure of choice. And there is a natural right for us to offer our services because we pride ourselves on being a fully verticalized and horizontalized market infrastructure. And it’s really interesting to see the value that many of these secondary listings find in this. So an example would be if you’re an issuer in a capital controlled country, let’s say your home currency is peso, you might come to Singapore, because we operate in hard currency, you might come to Singapore, because we are a DM, developed market with a different pool of investors than an emerging market. So that you could consider to be the Pan Asian pool. But even if you’re a hard currency issuer in a different time zone, you might say there is a pool of people in our trading network in the Singapore stack that incrementally is important to you in fundraising.
Unidentified Analyst
Hi, I think, sorry, Julian from the Business Times. So I think recently, there some reports about lower trading volumes. I think in July, year-on-year trading volumes fell, I think 28%. Is SGX concerned about that, and what is it doing about it?
Loh Chye
I think it’s all relative, if you look at market volumes, value traded across the globe, they’ve all been lower in July and perhaps of August, and as you seen from the Fed minutes that was released overnight, I think the market needs to find some visibility on where inflation would settle, and where rates would settle. And I think markets, as I’ve said many times before are cyclical and being a multi asset exchange. I think they also clearly come through in the year FY22, where the block platform was able to perform.
Unidentified Company Representative
Actually in the year FY22. I think Ng Loong may have shown the breakdown. First half of the year 1.17, second half of the year 1.37. So what is done in what is up I would say the outlook is very strong. I mean, for the secondary listing of NIO, as an example, it’s listed here hasn’t even raised funds, it trades $5 million to $8 million a day, because our regional retail and institutional pool find it interesting to trade NIO on SGX. And the volume is not that far from what actually trades on Hong Kong.
Operator
Maybe one other question in there.
Unidentified Analyst
Okay, well, question from Phillip Securities. Can you remind me how Treasury income is computed from margin balances? How much is returned to members? Treasury Income?
Ng Loong
Yes, I’ll take this question. I think the underlying question is, where do we think TI will end up in FY23, right? So the way we calculate I mean, we can clearly explain by TI is a function of currency mix the sort of collateral, and also the liquidity that we have to put in place to meet any kinds of situations. So there are a lot of factors involved. So I wouldn’t try and hazard sort of a guidance on TI right now. But clearly, I think two points that I want to make. First, if you’re looking for historical periods, where you can do a comparison, I mean, clearly, we are looking at LIBOR rates for the six months, going up quite rapidly over the next or has risen and expected to increase over the next six to 12 months. I think 2017 to 2019 is probably a period where you can compare and you will see where the net use have gone up relative to the increase in LIBOR. I think that will give you a good sense of the potential for Treasury Income. And then secondly, I think the other point that I want to make is that we have shown you that excluding TI for FY22, the underlying businesses across the franchise grew 7%. So that’s the growth of the business and the Treasury Income adds to that as it recovers and clearly, as we look ahead for FY23 and beyond, then we are looking at the business growing at a faster pace. And as Boon Chye say, we are looking at a medium term, high single digit revenue growth.
Operator
Okay, thank you all for participating and for those of you in Singapore. If you have other questions, we’d be happy to take them outside the auditorium. Thank you.
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