Singapore Exchange Outsourcing to Hewlett-Packard

By Maria Trombly | Securities Industry News | December 19, 2005

By the end of this year, the Singapore Exchange (SGX) will no longer be in the technology infrastructure business. SGX is turning over its data center and its entire information technology infrastructure to Hewlett-Packard Co. As part of the five-year, $56 million contract, about 50 exchange employees will be transferred to HP, though the exact number hasn't been finalized yet, the exchange said. A governance team will be formed at SGX to ensure that service levels are met.

The rationale? If the exchange had not gone the outsourcing route, it would have had to make a significant investment in upgrading its IT infrastructure, said Hong Gian Chew, SGX executive vice president and head of the technology group.

The company expects to save approximately 20 percent of projected IT operating costs annually.

In a deliberate process that began with a feasibility study in the second half of 2004, SGX evaluated vendors on such criteria as service quality, price and ability to offer comparable jobs to the affected staff, said Chew. He pointed out that HP had a track record with SGX--the exchange outsourced its help-desk support to HP in September 2000. Chew declined to comment on how long the transition will take.

More and more exchanges are adopting for-profit models and choosing to outsource to save costs, observed John Cieslak, EVP and chief information and administration officer at the Toronto Stock Exchange, which is also an HP customer, as are the New York Stock Exchange and Nasdaq Stock Market. "HP is probably the leader in providing technology solutions to the major stock-exchange space," said Cieslak.

Experts say that SGX's move is not unusual except for the fact that it turned to a U.S. company--though U.S. computing and services giants HP and IBM are both setting up offshore at a furious pace, while Indian vendors are staffing up in the U.S. and Europe to get closer to their customers. Said Paul Horowitz, a partner with PricewaterhouseCoopers (PwC), "All the service providers in India, China and the U.S. are highly competitive, though each has its own strengths."

"Across financial services, 80 percent to 90 percent of all the investment houses' and investment banks' back-office operations are going offshore," added Horowitz. He pointed to the recent JP Morgan Chase & Co. announcement of 4,500 back-office, operations and accounting jobs going to India as yet another example.

According to a PwC survey in June and July of more than 150 senior executives at financial services firms, about 25 percent currently have 10 percent to 20 percent of their headcount offshore. The number of companies in that range is expected to nearly double in three years.

Stock exchanges are simply mirroring the trend in the rest of financial services, Horowitz said. With so many institutions motivated by cost pressures and recognizing efficiency gains through offshoring and outsourcing, "I think what we're seeing is just the tip of the iceberg in terms of what's to come," he said.

In the survey, among countries where financial companies had the largest share of their offshore headcounts, Singapore ranked fifth, behind India, China, Ireland and Malaysia. China topped the list of countries under consideration for new job placements over the next three years.

Indian vendors are also getting exchange work. Wipro Technologies counts 4 of the 20 largest stock exchanges as customers and has carried out projects in trading, surveillance, clearing and settlement, risk management, listings and other areas. "We also do some work for smaller exchanges, where we pretty much run their operations," said Santosh Nair, relationship manager for Wipro's NYSE business, adding that he sees "high potential" for more offshoring by these entities.

"Exchanges will increasingly be looking at meeting delivery requirements, providing more choices for customers about how many instruments they can trade," he said. "We are seeing a trend to get the technology part done by specialist firms, get it done offshore, and get it done at a lower cost."