AFR: What next for Magnus?

Australian Financial Review, April 5 2011

So what now for Magnus Bocker and the SGX?

The first thing the exchange did on Tuesday was to work out whether the coded language from the Treasurer’s office was a flat no or an invitation to revise the terms of the deal to turn it into a yes. SGX insiders say there will be no further move until a more detailed final decision is made by the Treasurer and communicated officially to the SGX. But it doesn’t look good: Bocker noted on Tuesday evening that the objections did not appear to be structural, and if that’s the case, it moves the problem into territory he can’t do anything about. Tweaking the deal with board seats and governance structures is fine, but it’s not going to make a difference when the substance of the problem is political expediency and the national interest.

Some who have worked with him believe that, from day one, Bocker will have pitched up in Singapore with a list of potential deals for SGX upon which the ASX just happened to be number one. They feel that he’ll simply turn to another target to bring about the exchange consolidation he sees as inevitable in Asia.

But it’s not really that simple. There are not obvious combinations among Asian exchanges in the way that there were in single-currency Europe. Tie-ups and alliances, yes – why not cement ties between Singapore and India, in order to make Singapore a safe and steady entrepot for capital into that vast market in the same way Hong Kong has done with China? But in terms of full mergers, the candidates are not so compelling. Hong Kong is a competitor. Tokyo and Seoul are too far away, physically and culturally, to have much relevance as a combined entity. And any sense of Singapore taking over a southeast Asian peer such as Kuala Lumpur or Jakarta would be politically nightmarish, as Singapore’s sovereign fund Temasek found out some years ago when buying a majority stake in Thailand’s Shin Corporation (the resulting political fallout was a large part of the reason the Thai government fell). If anything, dark pool liquidity providers like Chi-X, seen as competitors to exchanges, would be an easier route of combination.

Instead, Bocker is likely to look on a different scale altogether: integrating Asia into global capital flows, and making Singapore the hub through which that happens. And the most obvious way to do that is to go back to his old employer, Nasdaq OMX, where he was president before moving to SGX.

Bocker has seen first-hand the benefits that can come from binding a smaller partner in with a global network of capital infrastructure, because that’s exactly the deal he secured for the sundry Scandinavian and Baltic exchanges that were folded into OMX under his watch.

Singapore is no Finland or Latvia, though, and would expect a central seat in any global exchange alliance: as Bocker has consistently pointed out, Asia could account for half of all global financial markets within a decade, so simply being eaten by a global exchange will not be an option. So if this is the way that Bocker wants to pilot the SGX, the first thing he will have to do is see how the dust settles on the Nasdaq OMX, NYSE Euronext and Deutsche Borse farrago; and then to work out the best possible deal that could be struck in this new world of global exchanges. In this respect, he is in somewhat more familiar territory: helping a smaller exchange to punch above its weight within an international alliance.

In the meantime, he will wait for the Treasury to spell out formally just what its problem is with the SGX bid, in the unlikely event that the situation can be retrieved. But Plan B will already be gathering pace.