Singapore Exchange Limited (S68) Earnings Call Transcript & Summary

Good morning to everybody here today and to those viewing this session over webcast. Welcome to Singapore Exchange Group's FY 2023 full year results. The agenda for today. First, our CFO, Ng Yao Loong will give a financial highlight and performance briefing, followed by a business update by our CEO, Loh Boon Chye. So without further ado, let me introduce to you Ng Yao Loong, who is our CFO, to present the financial updates. Yao Loong, please.

Okay. A very good morning. Thank you for joining us this morning. So let me start with our highlights, our full year financial performance, which has really demonstrated the strength and resilience of our platform in a quite challenging macroeconomic environment. So on an adjusted basis, our group NPAT or earnings, increased just over 10% to $503 million. This reflects the underlying performance -- or business performance as we have stripped off one-off items when we talk about adjusted earnings. Otherwise, on a GAAP basis, the earnings would have been up 26.5% to $571 million. The improved underlying earnings was driven, first, by a revenue growth of 8.7% year-on-year to almost $1.2 billion and a 1 percentage point lower growth in expenses at 7.7%. As a result, our operating profit, our group earnings margin improved by 50 to 60 basis points. Now let me take you through the details of our financial performance. Similar to the first half of FY '23, our Derivatives franchise remained the key driver of our group's revenue growth with a 27% year-on-year increase or $116 million. Revenue from our Derivatives business, which cuts across the different asset classes, contributed about 45% of our group revenues. So it includes both trading and clearing revenue and also the associated treasury income. While the overall Derivative volumes was flat year-on-year, we did see healthy volume growth from commodities and our exchange-traded currency futures. So Commodities daily average volume or DAV increased 35% to reach a new high of 160,000 contracts. Our currency futures volume grew almost 30%, largely driven by our CNH contract setting a record DAV of 152,000 contracts. And this volume growth reflects the strength of our diversified multi-asset business. It has enabled us to cross-sell and also attract a wider range of clients and market makers. Average fees increased 6.5% to $1.61 due to an increase in the proportion of higher full fee paying customers for our key equity derivative contracts. We saw stronger volume growth in iron ore as well that contributed. As for our cash market and capital raising businesses, not surprisingly, we saw a revenue decline from fixed income listings, IPOs and cash equities trading. This is due to the quite unprecedented pace of monetary policy tightening by major central banks and that has affected regional and global stock markets in their level of trading activity and public -- and their listing activities. Before I go into the breakdown of our revenue and expense growth, let me touch on the reconciliation between our GAAP or reported earnings and the adjusted earnings. It's quite a big difference this time around. It's largely due to noncash items, which are boxed in red. In the first half results, we have already recorded $48 million of such net adjustments. For the second half, we're recording an additional $20 million of net adjustments. So let me go through these adjustments. First is a full year fair value gain of about $40 million from our investment in the private equity fund managed by 7RIDGE. It reflects the continued strong operating performance of the underlying asset trading technology. This is a single-asset fund, which invested in the trading software provider, TT in short. As they have continued to perform well in the second half of our financial year, our investment in this fund was further revalued upwards by about $13 million. In the first half, we revaluate upwards by $27 million. So that gave us that $40 million uplift. And this fair value adjustment flows through our P&L given its accounting classification. Next is a $23 million write-back of the forward liability to acquire the remaining 7% stake in Scientific Beta or SB. This forward liability relates to a put-and-call option agreement with EDHEC, which is the 7% minority holder to acquire its stake in about 18 months' time. We are required to fair value or estimate the value of this forward liability regularly. And given the anticipated operating performance of SB compared to the projections at acquisition, the cost of acquiring this stake has actually come down. And so -- and this is, therefore, recognized as an accounting gain and hence, a write-back. I will not elaborate on the other 2 items, which I talked about in the first half, the $15 million and $10 million gain that we had. I'll touch on the green box. Along the same vein, we also took an $8 million impairment of the acquired intangible assets in Scientific Beta relating to know-how and customers. In any case, we have been amortizing this purchase intangibles at about $6 million to $7 million a year. So this is an additional impairment. And then the remaining impairment of $3 million relates to the value of the Baltic owned land in the U.K. due to the weaker U.K. commercial property market. Coming to revenue, and I'll talk across our 3 business segments. Our Fixed Income, Currencies and Commodities business, or FICC, accounts for 28% of our total revenue. It grew 34% to about $338 million from primarily the growth in Currencies and Commodities. And even if we exclude the revenue impact from MaxxTrader, which we acquired in January 2022, so there was 6 months in FY '22 and 12 months in FY '23, the FICC revenue will still be up 31%. And clearly, this has exceeded our mid-teens revenue growth expectation for the FICC segment. We see growing momentum in our FX business both exchange traded and OTC. I mentioned earlier the almost 30% growth in our on-exchange currency volumes. In the OTC space, the FX ADV grew about 7% year-on-year to about USD 76 billion. But if you compare on a half-on-half basis, i.e., second half of FY '23 versus the first half, we will actually see more than 20% growth. So second half was USD 83 billion ADV compared to the first half $68 billion. So this reflects the refocus on client engagement and the uptick in client activities in the second half of FY '23 following the completion of the planned platform migration in the first half of the financial year. Commodities, I mentioned volumes grew 35%. Iron ore continued to be the standout performer. Volumes in iron ore grew 41% year-on-year. And in that contract, we broadened our range of financial clients in iron ore. Proportion of screen trading climbed from 29% to 46%. Now moving on to equities. Equity derivatives revenue increased about 17%. This includes clearly both the trading and clearing revenue and the associated treasury income, although there was a 9% decline in volumes, but this was offset by the higher average fees from our key contracts. A volume in our flagship A50 contract was lower, given the China sentiments and the slower-than-expected growth momentum following its opening. Again, we have seen it across many other markets as well. As for revenue for cash equities, 11% lower, came from both a decline in both trading value and also the average fees. SDAV or the securities daily average declined about 13% to about $1.1 billion, primarily driven by our REIT segment and the small and mid-cap stocks. Average clearing fee declined 0.07 basis points to 2.49 basis points due to a higher participation from active traders and market makers. Revenue from DCI or the Data, Connectivity & Indices business was comparable. So we saw higher connectivity revenue from the upselling of services to existing clients, introduction of new GIFT-related colo and network services, offset by lower revenue from our index business. Our index business has also been affected by the macro environment. The assets-tracking factors generally underperform compared to those tracking technology-driven capped-weighted indices, and hence, have declined against a year ago. Last month, we successfully launched the GIFT Connect, in collaboration with our partner, NSE. So from a financial reporting purpose -- let me just explain why I'm highlighting this slide. So under this new partnership arrangement, the royalties expense for the GIFT Nifty contract will not be applicable, right? It will be replaced by a revenue share arrangement of which the economics are largely similar. So from a financial reporting perspective, what this means is that instead of having the royalties expense in our expense segment, the revenue that we share with NSE will be netted off against our trading and clearing revenue. So I wanted to share the FY '23 numbers to illustrate the point. So the pro forma average clearing fee will be actually just 3% or $0.05 lower at $1.56 as compared to the FY '23 average clearing fee of $1.61. It's a pro forma number, it uses to FY '23 numbers. No change in other variables included in the calculation. So it's just a mere movement of something that was formerly classified as expenses to the revenue line. So as we -- as the new arrangement takes place from FY '24, I'm giving these numbers way in advance so that as you look at FY '24 average clearing fees, you will have a right reference point to compare against and that will be the pro forma numbers, which I've highlighted in the right-hand side of the slide. And this information will be posted on our IR website for reference. And moving on to expenses. On a headline basis, went up 7.7% to $605 million. The additional 6 months from the full year consolidation of MaxxTrader in FY '23 versus FY '22 contributed 2.2 percentage points to this increase. So that's the extra 6 months, right? The annualization impact. And if we take that out, expenses would have grown 5.5%. And where did all this expense growth come from? Staff cost, which is about 45% of our cost base, increased 10%. We saw higher staff costs from the merit increment salary adjustments and also increase in the group head count. Technology expenses was up about 8%, primarily from the full year consolidation of MaxxTrader and higher data center utilities costs. Royalties, not surprising, rose about 5.5%, mainly due to the higher iron ore futures volume. Other expenses similarly grew about 4.5% as we resumed business travel and higher marketing activities. Now looking ahead, FY '24, both for expense and CapEx. Clearly, we will continue to strike the balance between investing to grow our businesses and maintaining the cost discipline. So we expect expenses in FY '24 to increase at a mid-single-digit percentage range. This increase will come from higher staff costs and also investments in growing our OTC FX business. For CapEx, in FY '23, we came in just under $60 million or at $59 million, lower than the initially guided range of $70 million to $75 million. This was mainly due to deferment of about $8 million worth of projects, which was planned for FY '23. We will now defer it to FY '24. And as a result, the guidance for next year looks higher, it is at $75 million to $80 million. But if you average that out over the FY '23 and '24, it will be around $70 million. So the CapEx, again, is to grow our OTC FX business, strengthen system resilience and architecture and also consolidate our office space. Our balance sheet continues to be robust. Absolute debt levels have declined following the repayment of our bank loans. Leverage ratio, very healthy 1.1x on a gross debt-to-EBITDA metric basis. Interest coverage ratio is more than 100x. So the Board of Directors has proposed a final quarterly dividend of $0.085 per share. So if approved at our upcoming AGM in October, this would represent an annualized increase of 6.3%. And with that, let me now hand over to Boon Chye, our CEO, who will deliver our business update.

Thank you, Yao Loong. A very good morning, everyone. Also, thank you for joining us this morning. As you has just heard from Yao Loong, overall, we have delivered another set of resilient results this financial year. Our multi-asset strategy continues to provide market participants with the diverse investment and risk management tools that they need in this challenging macro environment. This is reflected in our diversified revenue streams with strong performance, as you heard, in our Derivatives businesses across equities, commodities and FX, amid lower activity in our cash equities and index businesses. Let me start off by the -- reiterating the prime position the SGX Group is in, which is Asia. The global economy is expected to remain challenging with elevated interest rates, inflation, sluggish demand and geopolitical tensions weighing on global trade. Against this backdrop, Asia remains a bright spot for global investors. China and India, together, are forecasted to generate about half of global growth this year. Southeast Asian countries are projected to remain resilient in the second half of the year on account of the continued recovery in domestic and tourism demand. SGX Group is playing to our strength in this environment. Our multi-asset strategy has enabled us to firmly establish ourselves as the trusted pan-Asian hub for global investors to invest, manage risk and raise capital. In the last financial year, we continued to demonstrate our leadership in Asian derivatives across asset classes globally. I will now illustrate this with a few examples. Our commodity franchise has yet another milestone year. Volumes in the commodity derivatives increased over 35% to a record 41 million contracts on the back of a 40% growth in iron ore derivatives volume. Our efforts to expand the ecosystem to reach more financial participants, such as asset managers and hedge funds, has borne fruit as iron ore has gained global significance as a proxy for Asia's growth. The proportion of screen trading has also doubled in the past 2 years as a result of expanded participation during the European and U.S. trading hours. This is demonstrated in the growth of our T+1 session, which is now at about 18% of the total trading volume. With increased financialization of iron ore contracts, our trading volumes are now more than twice the size of the underlying seaborne physical market, which is a record high. You can see from the slide on the right-hand side for FY 2021, there was just over 1x. Today, it is now twice the underlying seaborne physical market. Our flagship commodity contracts such as iron ore and rubber serve as bellwether for Asian economies, which are rapidly growing and urbanizing. Transport is another core pillar of our Commodities business as part of price discovery for seaborne commodities. We remain the largest clearing venue for dry FFAs. And with Baltic Exchange expertise, we have now expanded into different transport segments such as containers and airfreight. Moving on to our FX franchise. SGX FX has grown significantly in the last few years. We started with just 6 FX futures contracts 10 years ago. Since then, our shelf of FX products has grown 6x. Today, we are the largest and most liquid venue for Asian currency derivatives. Besides our leadership in CNH and INR contracts, we've also established new foothold in Korean won, Taiwan dollars and Thai baht futures. In FY 2023, we achieved record volumes in notional terms of over USD 2.5 trillion. This is up almost 56% from a year ago. SGX FX remains the go-to venue for currencies, especially during volatile markets with regulatory developments such as uncleared margin rules coming into full force, global investors are driving more OTC trading through on-exchange central clearing to enhance margin efficiency. We're also seeing positive traction in our OTC FX volumes across both G10 and Asian currencies. As you have heard, our OTC FX volumes achieved a daily record ADV of USD 76 billion in the financial year, and we'll achieve our target of $100 billion ADV by FY 2025 or earlier. Looking at FX in totality. While making good progress in achieving our vision of an integrated FX marketplace, SGX FX has become Asia's leading and most comprehensive venue for the risk management and trading of major currencies across FX instruments. We are well placed to offer holistic and innovative FX offerings on a global scale in both workflow and trading solutions. This integrated venue that we are building provides a solid foundation for our FX franchise future growth. On equity derivatives business, it continued to be resilient in FY 2023. We maintained our position as the most liquid neutral venue for major Asian equity derivatives in a fast-growing region. Trading in our A50 and Nifty contracts remained strong as we cemented our position as the primary venue for international investors accessing China and India. For the Nifty, we successfully migrated our contracts to the GIFT Connect and kickstarted it with an open interest of around USD 9 billion. This paves the way for both SGX Group and NSE to deepen our collaboration to drive mutual success and to capture more growth opportunities. We continue to work closely with our members to increase trading activity in the GIFT Connect. There was also positive momentum and growth of liquidity in other key Asian contracts. The trading volume and market share of our FTSE Taiwan futures contract continued to grow. We will leverage the momentum together with the recent launch of SGX FTSE Taiwan futures to deepen our Taiwan derivatives franchise this coming year. Further, the MSCI Singapore contract saw heightened volume from greater volatility and increased adoption. In the past 2 years, we have accelerated our efforts to expand our sustainability-linked derivatives to capitalize on evolving investment mandates. Estimates indicate that more than 1/3 of all equity capital is passive. This makes benchmarks a powerful tool for climate transition. Earlier in June, we launched the first global shelf of futures tracking, the MSCI Climate Action index, covering 5 geographies: world, Europe, U.S., Asia ex Japan and Japan. The index facilitates real-world decarbonization through a sector-diversified bottom-up and forward-looking approach. We are building a new global ecosystem around climate action indices and plan to include ETFs in the near future. Our climate action derivatives complement our existing sustainability-linked derivatives shelf. As investors allocate more capital to transition finance, they will need similar tools like the ones that they are used to. For example, our SGX FTSE Blossom Japan Index Futures, which allows investors to access Japanese companies with strong ESG practices, continue to grow steadily. In addition, we have added a climate option to our Nikkei 225 futures contract. The Nikkei 225 Climate Change 1.5° Target Index futures offer a seamless liquidity option for investors to enhance exposure to Japanese companies committed to climate transition. Moving on to the Data, Connectivity & Indices or DCI. Our Data and Connectivity business continues to enjoy stable growth. Our Connectivity business grew from offering more value-added services to existing clients and new GIFT-related colocation and network services. Our Market Data business grew due to an increase in nondisplay usage licenses and distribution of commodities data. This growth was slightly offset by lower revenues from our Index business. We continue to believe that the index industry remains an attractive sector and are, therefore, committed to capitalizing on our differentiated strengths in indexing to strengthen the business. Notably, Scientific Beta's research expertise and IP creation remains a key lever in building cutting-edge risk management index solutions. A case in point is Scientific Beta's climate impact solution, which ensures a robust decarbonization approach. Notwithstanding the current macro environment, we believe there are still opportunities for smart beta indices to help investors diversify and balance their portfolios. In the past year, SGX Index Edge has stepped up efforts in co-creating indices with a large focus on sustainability. There's also been an increase in adoption of our iEdge indices in partnership with leading structured products issuers in Europe. Partnership remains an important aspect of the index ecosystem and will be a focus for our index business as we look to raise commercial and realize these opportunities. We are focused on creating growth and scale through partnerships with customers, data providers and distribution channels. So putting all our assets together as one single business and ecosystem, we are advancing from a position of strength as Asia's leading global exchange. Asia is at the center of global economic growth, and SGX Group is at the heart of international capital flows to this part of the world. To pursue, grow further, we are scaling our multi-asset offering globally through our network, our partnerships and geographical expansion of client coverage. Where we have done well, we will enlarge and consolidate our position to derive greater network effect. Where we have room to do better, we will push [ towards ] better performance. We have made good headway in becoming a global transition finance hub in Asia, and we'll continue to strengthen our position as a [ thought ] leader in this space and build up our portfolio of sustainable and transition finance solutions across asset classes. Our aim is to achieve high single-digit revenue growth while keeping our expense growth in the mid-single-digit range, so as to reward shareholders with a mid-single-digit percentage increase in our dividend per share over the medium term. I hope you are as positive as I am about SGX Group's prospects. With this, thank you for your attention and we'll be happy to take your questions. Thank you.

Yes, Jayden?

Okay. Well done on that solid result given the backdrop. A couple of questions for me. Just wanted to have an update on the IPO pipeline, if there's any signs of any turnaround in the securities market. And just secondly, more of a mechanical question on the expenses guidance. I understand that we will no longer have the royalty expense for the GIFT partnership. So I just want to understand if it's an equal and offsetting sort of number versus revenues and if that's already factored into the expense guidance, I think, because you have like a mid-single-digit expense view for the next couple of years. Those are the first two questions, if I can.

Yes. I will take the second question first. You're right, Jayden. So our FY '24 expense has taken into account the impact of not having to pay that Nifty royalties, yes. So that is covered in the mid-single-digit expense range.

So on the IPO pipeline, I guess, hazy crystal ball, but we've had a hazy crystal ball for, I guess, the last 1.5 years. Pretty unprecedented environment where essentially the IPO market has been shut globally for new issuance activity. And I think I'm going to say pretty much the same as what I said at this time 6 months ago that, for the near term, it still looks difficult, but we're seeing some early signs of global activity resuming. And frankly, I think we're going to see that, first and foremost, with some of the highest quality issuers, perhaps also more in the developed markets. But having said that, it keeps me cautiously optimistic for, I guess, the medium term. And if we look at 2024, calendar year 2024, there is after 1.5 years, pent-up supply building up. Companies still need to grow. A lot of companies that have been privately capitalized for a long period of time now are going to need liquidity for their shareholders. We continue to have very good dialogues with issuers from the region, and we believe that activity will pick up as we see the momentum kick off with a gradually improving environment. Rates outlook has stabilized a bit. Valuations have increased over the last couple of months, important for confidence. And so hopefully, with that, we're going to see in the next period activity on the global level and also here in Singapore resume.

This is Yong Hong from Citi. So maybe just following up on Jayden's question and just to be more direct. So following that Nifty contract migration, what is the impact to your bottom line. And for your money statistics, when can we expect changes to DDAV, for example?

So 1 calendar month into full-scale operations. The reason we embarked on this journey -- I mean there is a constancy to what we do across this waterfront. Everything that Boon Chye presented wasn't done in 1 day. This has been done over 30 years. There's a constancy to the way that we have approached the need for the clients to access the Asian capital structure. Again, as Boon Chye alluded to, right, in 10 years' time, 4 of the world's 5 largest economies are right here. It's India, it's China, it's Indonesia, it's Japan. So that is covered in our Derivatives waterfront. And the move that we have taken in India is to say that because the opportunity was there to work with this partner, NSE, to build this Connect, the clever and opportunistic way to do this is to do it as we have done, which is to move our clients into a joint liquidity pool with the NSE, where they are already the world's largest derivatives exchange. We're trying to create value by bringing their liquidity pool together with our liquidity pool. So I am confident. I think our cadence is good and our visibility is clear that with the delivery of full-scale operations, we will see more than we used to see. It starts with more participants. It moves on to more products. There are now 8 products on the Connect. And of course, as you've seen in China, we've done the full waterfront, iron ore, CNH, A50, H50, Climate Action. Of course, our ambition is to go that way as India's capital structure also evolves, right? But there's a constancy to the way we do this, which is you have to come with us on this journey. Everything we execute creates incremental network value, portfolio value with the customers. And I think it's underlined with the confidence that the customers carried with us. We've done such migrations or liquidity switches a couple of times. So when we went into Taiwan, MSCI to FTSE, maybe people asked a lot of questions about, are you sure you can do this? I think as we approach this particular migration -- I mean you can ask your internal clients, too, right? The general feedback is we'll go with you because you've done this before. We understand the journey and we have the special blessing that the tailwind of India capital markets is very, very strong, right? So I hope that's a complete answer to your question.

Yes. Just one more question. I think on your treasury income, I think there's a way ahead of what we are modeling and how sustainable that is given that, I think, Hong Kong EX, for example, they have been guiding down debt. So how should we expect that going forward?

Forecast on interest rates.

Yes. That's the million dollar question. Yes, I don't know. I mean Pol had a hard time forecast IPO. I cannot do with the Fed. Look, I think the, for the last 12 months, the rate hike has been quite unprecedented, the pace at which you went from practically 0 to just over 5%. We don't think -- I mean the market doesn't think that we are going to see a repeat of that cycle. I think, markets, in fact, whether they are ahead of themselves, do expect to see some form of cuts in '24. So these things are exogenous. We will have to deal with it as they come. What we can do is to continue to drive our Derivatives business. There's a yield impact and there's a collateral balance, right? So as we do more business and customers leave more overnight interest with us, that's where we can drive the growth of our business and then the associated treasury income. The yields will come up, they will be up, they'll be down and we'll manage it along the way. Priority still is to make sure that customer collateral money is safe. When they park their open interest with us, they have to risk manage and we make sure their collateral parked with us is in the safest way that we can do so.

Thilan from Maybank. Just a couple of questions. One is on your derivative fees. We saw it improving this half. Can you give us a little bit of color on how you're thinking about the outlook for that? I mean how much more can you kind of squeeze out from the client mix there? Are there any more sort of discounts and things like that, that are still in there? And how should we think about that going into the first half? And my second question is on your cash equities business, you've got the Thai ADRs that have been put in place. How are you kind of thinking about the success of that? And how are you thinking about the sort of pipeline of new products there coming through?

So on the first, I think I want to emphasize, as we have done before, that we don't drive this as a specific outcome. The realized return per contract is a consequence of client mix and volume mix, and importantly, product mix. So if you've seen, the most successful growth products are iron ore, which is naturally a premium priced product. So that is one primary driver. The other one also is that if you look at the equity derivatives franchise, it was a slightly lower volatility environment, which tends to mean that our short-horizon traders did a little less, but our long-horizon customers did a little more. And those guys, again, are naturally more premium paying customers. So it's the custom mix and the product mix that's approximate driver. And I think you have to feel comfortable that there's a natural elasticity that when volume appears to come down a little, premium pricing appears, right? So there's a natural elasticity to the franchise that says that as volume goes up, there's a rebalancing because there's a natural return to customers who need to trade more, but they tend to keep less overnight interest with us. So that's a sign of a healthy multi-product franchise. With respect to the depository receipts, it is part of a program that we're trying to think through for the cash market to say, what were some of the things and some of the lessons that we may have learned in the DT franchise that we could usefully apply to in a securities format? So you'll probably see that across the board we're trying to productize a little more, which means that we bring instruments, which are of interest in a securities format, which covers the Pan-Asian waterfront. So this covers things from DLCs to structured certificates, which are coming up with a very wide range of ETFs. Now SDRs are very interesting because they are, in our context, backed by statute meaning they're recognized in the Securities and Futures Act as a thing where they previously weren't. So the body of work begins with making sure that the stack, the regulatory stack, technology stack, the customer stack that supports the DR framework in Singapore is well entrenched. The second step, therefore, is to work with a partner where there is the potential for value creation. Our stuff trading in their market, their stuff trading in our market. This, we hope is the beginning of some kind of federation of exchanges in Asia where the win-win outcome is very clear. As you know, a lot of the challenges in working through collaboration is share of pie versus size of pie. We believe that with this format, it is 100% clear that when the pie grows, there is no need to fight over the pie. So for example, as Thai companies are brought into our market from Thai baht into Sing dollars, the U.S. dollars, distributed through our customer network, this is natural value accretion because we have completely segmented networks. It's capital control there. It's a DM here. So if we create value and we create -- and they create value when hopefully, in the coming year, we bring some Singapore shares into the Thai market, with that useful example, we think we can create a, hopefully, this is forward-looking, a federation of interested partners. And the market structure of our part of the world isn't going to change anytime soon. Capital controls, local currencies, EM versus DM. For a long time to come, we'll be the only DM in this region. So we think there's natural value to be created, but the plumbing needs to be put in place. And we think the SDR is a very good way to start. Twelve months ago, we'd have called it a token because that's precisely what it is. It's a token recognizing statute, but we'll call it an SDR.

Dominic, any questions from the webcast audience?

So yes. There's one question from Paul Chew from Phillip Securities, it's on our OTC FX business. In order to hit USD 100 billion ADV, what are the key drivers apart from market conditions?

We are excited about the long-term prospect for foreign exchange within the SGX Group, I think Boon Chye shared. I think, 2 external driven secular trend in the medium, long term. I think one piece is within Asia itself. We are a growth region, and we will continue to be a growth region. When we look at the positioning, clearly, SGX FX is a global service. We have clients throughout the world, but we are the biggest platform when it comes to Asian currency. So one, our dominance for our OTC FX technologies franchise within the Asian within -- solving illiquidity challenges for clients assessing the region is going to position us well as Asia continues to grow. Two, we think that we are in a secular trend around more digitalization. We are seeing more clients across buy-side and sell-side clients, looking at more solutions to digitalize. And more recently, I think the hype now is AI automation. And within that, when you think about what is the criteria or foundation for you to automate, to use all the technology that's out there or the new large language model that you can apply to different client service that you have, right? The fundamental building block is a solid partner, robust partner for you to digitalize right? How information is transferred and how you send orders and how you execute efficiently. So the technology platform that we have built up over the years, BidFX on the buy side, MaxxTrader on the sell side, is going to give us a very strong foundation as the industry looks towards more digitalization, more automation and having a partner with a global network to help them engage the rest of their global [ next ] clients in a more efficient way. So I will say that, clearly, there will be an external secular tailwind for us. But more importantly, I think within the franchise, Yao Loong briefly mentioned that first half last year compared to first half this year, I think second half of this year I think we have accelerated the growth. Part of the reason is that I think we had a 12-, 18-month migration process where we were moving BidFX out into a new infrastructure. What we have also done is that we have also upgraded the BidFX system with new functionality and on a new HTML5, more accessible client trading platform. So a lot of the investment, I would say, that we have done for both Bid and Maxx are around technology that we have done in the last 12, 18 months, I think, will bear fruit for us and we'll continue to invest in this very exciting vertical.

Harsh.

I had 3 questions, Boon Chye, if I may. First one is the guidance on cost and revenue growth over next few years. Medium term, mid-single-digit cost growth, high single-digit revenue growth. Now one of the big tailwinds in last 12 months have been rates. So as rates normalize, whenever it does, '24 -- FY '24, FY '25, have you factored that in, in your guidance of high single-digit revenue growth? Or can there be a period whenever the treasury income normalizes that you may probably not get that kind of revenue growth in next couple of years.

Projecting that associated treasury income, we are not in the business of forecasting forward. So generally, we will see what the market consensus is out there in terms of the forward rates and just use that as an assumption in our planning parameter when we do some of these projections that we have shared, the review and the end market.

Right. So on that, if I look at the Fed fund futures being priced in about a couple of hundred bps of rate cut same time next year, that's already factored in your high single-digit revenue growth guidance?

Well, when we look at our medium-term plan, it all centers around our initiatives, right, our portfolio of asset classes. The region that we're doing well, where we want to now penetrate further upsell, regions where we can really expand more and then obviously gaps in our products to fill the shelf. I talked about transition finance, right? 1/3 of equity capital is passive. We are now in the preferred venue for Asian equity derivatives, investors would need similar tools. So those are medium-term pathways that we plan for. And as Yao Loong said, yes, there will then be assumptions on growth of how we see in our underlying businesses and the associated margins and what [ forward ] markets are pricing in.

Right. So then I should think of the guidance as more bottom-up business guidance and the treasury income goes up or down, that will be a fluctuation. Okay. Okay. Second question is around your debt-to-EBITDA, 1.1x. It was 1.2, it has improved. You have in the past stated ambitions to use organic and inorganic means to broaden the franchise. You have done a lot of deals in last 5, 7 years. What is the max debt-to-EBITDA you think you can get to in -- and what are the time line that you are thinking about getting there? And some of the gaps you talked about in your portfolio, what are those gaps? Effectively, I'm trying to figure out what can you buy and when can you buy and how large is that acquisition or those series of acquisitions? Any guidance around that will be very useful.

Well, something that's not visible today may be visible tomorrow. Something that are visible today may be less relevant tomorrow. But let me try and answer your question, Harsh. I think what is important is we have a very strong foundation, I think, in our portfolio of multi-asset today, I mean, if you look at the environment they will operate through and how we have delivered a resilient set of results. And with Asia being the center of global growth, multi-asset platform hub here is our strategy continuously going forward. First, we will improve on it through geography partnership networks and clients. Two, as I said before, I think fixed income is still a market that is important. It does not necessarily mean that we will have to acquire. I think we have shown a history of being a good partner. Mike talked about share of pie versus size of pie. Grow that pie, I think both sides will win. As to as and when, which I think the underlying importance is does an asset really fit into our strategy, and if it does, it is then incumbent upon us to put through the lens of our investment framework and be able to explain to our stakeholders, including shareholders, even if this would be debt funded. And I think that's the way we'll look at this. So I wouldn't want to really focus around the boundaries of the leverage. And that will also be guided by obviously having a very strong and robust clearing house. And at the same time, we have now laid out also the way we want to think about rewarding shareholders as our business grow.