It has been just over a year since the Singapore Exchange (SGX) acquired the Baltic Exchange. Baltic Briefing meets SGX Executive VP Michael Syn and Baltic CEO Mark Jackson to discuss progress so far.
There is no magic formula to making a success of a company acquisition. However, a willingness on the part of both parties to learn from each other is always critical. 7,000 miles might separate the Baltic Exchange and Singapore Exchange (SGX), but meeting around a table in London with Baltic CEO Mark Jackson and SGX Executive Vice President Michael Syn, it’s clear that there is little distance between the two organisations.
“We’re learning exactly why the Baltic Exchange has such a seasoned relationship with market participants, how it builds consensus and why it’s perceived as such a fair and trusted actor in global commerce,” says Michael Syn. “These are important lessons for SGX to learn.”
From the Baltic’s perspective, Mark Jackson says that it is SGX’s regulatory experience which is adding a huge amount of value to the quality of its freight indices and assessments.
“Of course regulations are often seen as intrusive in any marketplace, but they are designed to keep participants safe. We need to ensure that the shipping markets have the market infrastructure they deserve. This involves the Baltic developing better tools to monitor our index production process and offering greater transparency. The SGX investment allows us to deliver good governance, a base level of regulatory hygiene and invest in technology,” says Mark Jackson.
Mark Jackson took up his position as Baltic Exchange CEO in January 2017, having already served as Chairman 2009-2012. He clearly remembers his first thoughts on being appointed: “Make sure it’s business as usual, don’t break anything and deliver change.”
“Make sure it’s business as usual, don’t break anything and deliver change.”
11 months into the job, and this rule still applies. The focus in the first year has been on integrating the two organisations, whilst the push for 2018 will be on projecting the Baltic into Asia. “We want the Baltic to have the same level of brand recognition in Singapore as it does in London,” comments Michael Syn.
Cargo plus freight
The combination of SGX and the Baltic Exchange is very much about bringing together the risk management of cargo with its freight counterpart. SGX is already at the heart of a highly liquid global seaborne iron ore market, clearing over 90% of all iron ore derivatives. It is also the leading clearer of dry freight derivatives with a circa 50% market share and has developed much needed price benchmarks for LNG in Asia as the foundations for an LNG futures market. Iron ore has already seen a seen a shift from spot trading to indexation and SGX acts as an intermediary, providing a credit risk mitigation role, increasing liquidity and the pool of available counterparties. SGX has similar plans for LNG cargoes, with the Baltic Exchange’s proposed new LNG assessments an important part of this.
But cargo prices are not traded in isolation: freight volatility impacts cargo profitability. A successful Baltic/SGX partnership is building awareness of these linkages and developing products to allow for the more effective management of global bulk commodity supply chains. In an increasingly balkanised world, providing solutions which are globally applicable, is a huge opportunity for SGX and one which can only be delivered in partnership with respected organisations like the Baltic Exchange.
Surprisingly, Mark Jackson has only been to Singapore twice since his appointment. “People think that I’m in Singapore all the time, but this really isn’t the case,” says Mark Jackson.
Michael Syn explains that the SGX investment is not about changing the Baltic Exchange, but about working with an organisation with a high standing in the global market place and allowing it the space to continue to do what it does well and grow. He sees an important part of his role as “protecting Mark from the worst excesses of SGX and blocking and tackling the compliance organisation that is SGX.”
According to Michael Syn, SGX does not generally invest in companies outside of Asia. However, thanks to SGX’s relationship with the Baltic Exchange through its FFA clearing services, coupled with SGX’s recognition that in a world of big data, index providers are a critical asset, when the opportunity arose, SGX made its move.
“On the minus side, the Baltic Exchange is a long way from Singapore and we’ve never had any experience of operating assets outside of Singapore. On the plus side, it was a fantastic opportunity to do something in Europe with a renowned organisation with brand recognition. The synergy from the relationship that the Baltic and SGX have with principals and brokers is already playing out,” says Michael Syn.
SGX is an organisation with long term ambitions. “Transport by sea is here for the long term and gives us a stable basis to invest. We are in the market infrastructure business, and we see London and Singapore as places with good governance and good technology. London is both a technology and maritime hub.”
The acquisition of the Baltic by SGX has come at a time of change for the shipbroking industry, with automation technology having an increased impact on the day to day operations of many brokers, owners and charterers. “Technology can often be a solution looking for a problem,” comments Michael Syn. “However, there are clearly elements of the shipbroking process which can benefit from the use of technology.”
Both Michael Syn and Mark Jackson see the role of the Baltic Exchange developing by setting information standards and playing a role in developing tools which support brokers in the pre and post trade space.
“The bulk freight market is made up of an enormous number of actors, using a range of software solutions and information standards. The Baltic is a trusted central body and a place where consensus can be found,” says Mark Jackson.
Both Mark Jackson and Michael Syn bear a heavy weight of expectation on their shoulders.
“We’re a publicly listed company,” says Michael Syn. “SGX investors are very interested in the Baltic Exchange and there are always questions about what the Baltic is doing in Asia.”
From the Baltic Exchange CEO’s perspective, leading an organisation with a proud, independent history dating back to the 1700s, the challenge is to ensure the organisation stays true to the consensus-led ethos whilst delivering change. Both want to build the link between cargo and freight and both want to add value to all members’ businesses. An exciting future beckons.