FIA Asia eMarketBeat
Futures Industry Association Asia
Volume 3, Number 3
June 14, 2010
Please direct all feedback on the FIA Asia eMarketBeat to Nick Ronalds.
China’s CSI 300 Stock Index Futures Proves Immensely Popular
The launch on April 16 of the long-awaited CSI 300 stock index futures on the China Financial Futures Exchange is certainly in contention as the most successful new product launch in history. As of June 10, after just 39 trading days, volume was averaging 289,794 contracts per day. First day volume was 58,457 contracts and thereafter never fell below 100,000. On May 7 total volume shot past the 200,000 mark for the first time. Eleven days later it broke through 300,000, and on June 1 it reached a new high of 436,171.
Since launch, the value of the CSI 300 index has declined 20% to 2763 from 3450. That means the value of a contract now stands at $121,000, down from $151,000. Average daily volume has been over 330,000 contracts in June, which translates into daily turnover of almost $40 trillion in notional value.
Open interest shows a somewhat different picture. At the end of day one open interest was at a meager 3590. Since then it has grown steadily, but it was still at only 23,289 on June 10, a modest level compared to volume. The relatively low open interest is perhaps not so surprising given that trading is open to only the most qualified retail customers and commercial firms. The China Regulatory Futures Commission only started to take applications from institutional investors, including qualified foreign institutional investors and domestic funds, on May 24.
The absence of institutional participation in the first six weeks of trading helps explain the low open interest—but it makes the volume all-the-more astounding. The June volume levels would already be enough to put the CSI 300 contract into the world’s top ten equity index futures by contract volume. By value of turnover it could be in the top five already.
The Chinese authorities reportedly are wary of the rapid growth in volume. According to a June 10 report on Bloomberg, CFFEX held a meeting with members to discuss the desirability of increasing commissions to suppress volume. Commissions had fallen to around ½ a basis point (about $6/contract), and the exchange reportedly suggested doubling that rate.
Japanese Parliament Enacts Law Requiring OTC Clearing
Japan’s House of Councillors, the upper house of the Japanese legislature, approved a bill on May 12 requiring central clearing of standardized over-the-counter derivatives, including index-based credit default swaps and yen-based interest rate swaps. Provisions in the new law are expected to come into effect by late 2012. The new law also requires that dealers and clearinghouses maintain trade repositories and that this data be made available to regulators. In addition, the law calls for further research on whether exchange trading of certain OTC contracts should be required. At present, there are no OTC clearing platforms in Japan. However, a year ago Tokyo Stock Exchange and Tokyo Financial Exchange began preparations to launch a solution.
SGX Invests S$250 Million to Offer Fastest Access to Asia
Singapore Exchange announced on June 3 that it will invest S$250 million (US$178 million) to strengthen its technology in terms of both speed and access. One of the core components of the initiative, which the exchange calls SGX Reach, is a new matching engine that the exchange says will be “the world’s fastest.” The new matching engine will be based on the Genium Inet platform developed by Nasdaq OMX as well as technology from Hewlett-Packard and Voltaire. The exchange also plans to build a new “state of the art” data center in Singapore and telecommunications hubs in Chicago, London, New York and Tokyo to lower both costs and latency. The exchange plans to migrate its equity products to the new platform in the first quarter of 2001 and said it will migrate its derivatives products at a later date.
Click Here for SGX Press Release
SFE Now Provides Direct Access from Chicago
U.S. customers now can get direct access to the Sydney Futures Exchange through a Chicago data center operated by Equinix, ASX, the SFE’s parent company, announced on June 8. The hosting solution will provide “the fastest, most direct and cost-effective access possible” to the SFE trading engine from the U.S., the exchange said.
In related news, ASX announced on June 10 that it plans to build a new data center in Sydney. The new data center will be completed in August 2011 and will provide co-location services for both cash equities and futures.
Click Here for Chicago Access Announcement
Click Here for Data Center Announcement
China Proposes Guidelines for Foreign Trading in Stock Index Futures
On April 27, the China Securities and Regulatory Commission released draft interim guidelines governing how foreign institutional investors can trade stock index futures on the China Financial Futures Exchange. Among other things, the guidelines would set daily quotas on the value of positions and prohibit speculative trading by these investors.
The primary channel for foreign investors to make onshore investments in mainland China’s stock markets is through the nation’s Qualified Foreign Institutional Investor scheme, which was launched in 2003 and sets a quota on the amount of money QFIIs can convert into yuan to invest in Chinese securities. As of December 2009, 86 QFIIs had been granted permission to invest up to $16.67 billion in Chinese stocks, according to the official Shanghai Securities News.
The CSRC’s proposed guidelines were issued a few weeks after the long-awaited launch of stock index futures, which are based on an index of 300 leading Chinese stocks. This index covers about one fifth of all stocks listed on China’s stock markets and represents about 60% of the total market value.
Under the proposed regulations, QFIIs are one of three types of investors permitted to trade stock index futures. The CSRC proposed that QFIIs only participate in index futures for the purpose of “hedging.” In addition, the regulator proposed using the QFII investment quotas set by China’s State Administration of Foreign Exchange as a limit on the size of QFII positions in the index futures on any given day. The proposal would limit the value of futures positions to this quota, with no adjustment up or down to reflect the change in the value of the underlying investments over time. The proposal also would require QFIIs to reduce their futures positions within 10 trading days if the value of their short futures positions exceeds the investment quota due to price fluctuations in the futures contracts. The guidelines also state that each QFII can appoint three local futures brokers to trade the index futures on their behalf.
DCE Announces Rule Changes, Calls for Product Development
The Dalian Commodity Exchange announced a number of technical changes in the language of its rules on June 6. The exchange also said it is developing a coke futures market and stepping up research on commodity index futures and options products.
Click Here for DCE Announcement
HKEx to Expand Its Custody and Nominee Services to OTC Structured Products
Beginning April 26, Hong Kong Exchanges and Clearing will accept over-the-counter structured products such as equity linked investments and equity linked notes into CCASS, the Central Clearing and Settlement System, for HKEx’s securities market. “The changes will enable HKEx to extend its custody and nominee services to OTC securities and provide access to other new business opportunities in the OTC market,” said HKEx’s head of clearing, Derrick Fung.
Click Here for Press Release
India’s USE Gets Approval for Currency Futures
The United Stock Exchange of India obtained final approval from the Securities and Exchange Board of India to start trading currency futures in four pairs of currencies. Following SEBI approval, USE has launched a membership drive and over 150 members have submitted their applications. The exchange has tentatively planned to start operations in June. Trading membership is initially free. At present Bombay Stock Exchange is USE’s largest shareholder, with a 15% stake. The exchange is set up as a public-private entity, with 21 Indian public sector banks as investors as well as corporate houses such as Jaypee Capital.
Click Here for Press Release
Bloomberg: India Commodity Exchange Planning Iron-Ore Futures
The India Commodity Exchange, a new Indian commodity exchange that started last November, plans to list iron ore futures, according to a June 8 Bloomberg story. No date was announced but the exchange said it would launch two months after approval by the regulator, the Forward Markets Commission. One of the exchange’s founding companies, MMTC Ltd, is India’s largest iron ore exporter, with a 15% share of total Indian iron ore exports, the article said. The contract will be denominated in units of 100 tons and would be settled in cash initially, according to an exchange spokesperson quoted in the article.
Bloomberg: NSE Plans Short-Selling System, Other Initiatives
Bloomberg reported May 27 that the National Stock Exchange of India would offer a new system for short sales sometime in June to lure investors to the local market. The article quoted NSE CEO Ravi Narain as saying the company will introduce the short- selling platform to meet a “huge demand.” The article said Bloomberg data show foreign investors have poured $4.3 billion into the Indian market this year, 18% more than the comparable period in 2009 despite a 13% market decline. Other initiatives include plans to reduce latency by the end of 2010 to less than a millisecond from five today, and the introduction of an intraday volatility index.
Reuters: Indian Regulator Favors Foreign Access to Commodity Markets
Reuters reported April 19 that India's commodity futures market regulator has recommended to the Federal Trade and Industry ministry that foreign brokers should be allowed to trade in derivatives and that a ban on rice and sugar futures is being reviewed as the supply scenario has improved. B.C. Khatua, Chairman of the Forward Market Commission, said foreign participation would bring better market practices and help the market grow. India currently doesn't allow foreign brokers, banks and funds in commodities futures. Parliamentary approval of an Amendment to the Forward Contracts Amendment is needed first to strengthen the powers of the Commission, Khatua was quoted as saying.
Sebi Reportedly Seeks Views on Exchange Ownership Limits, Listing
A Securities and Exchange Board of India-appointed panel has sought views from market participants on a range of issues relating exchange market structure, according to an April 27 story in the Business Standard. Among the questions were whether the ownership share by foreign stock exchanges should be allowed to rise to 15%, whether dual listing should be permitted, whether restrictions on ownership structure should be relaxed, and whether foreign institutional investors (FII) participation should be reviewed.
FT: Temasek Buys NYSE’s Stake in NSE
Singapore’s Temasek Holdings has agreed to buy a 5% stake in the National Stock Exchange of India from NYSE Euronext, just over three years after the U.S. group invested in the Mumbai bourse, according to a May 4 Financial Times article. The price was not disclosed but according to the article was “understood” to have been over $150 million. An official of Temasek was quoted as saying the investment was seen as a good proxy into India’s growth.
BNP Paribas Joins SGX as Derivatives Clearing Member
BNP Paribas Securities Services has become a clearing member of the derivatives market operated by Singapore Exchange. SGX said its derivatives market now has 26 clearing members and 30 trading members. "This important development further strengthens our listed derivatives offerings in the region, complementing our global offerings in this space,” said Arnaud Claudon, chief executive officer of BNP Paribas Securities Services in Singapore.
Click Here for SGX Press Release
SGX Plans to Expand Clearing to Financial OTC Contracts
Singapore Exchange Derivatives Clearing issued a consultation paper on April 21 seeking comment on its plans to introduce central clearing services for over-the-counter interest rate swaps and Asian foreign exchange forward contracts settled in U.S. dollars. This would expand OTC clearing beyond SGX’s current clearing offering for commodity-based swaps.
Click Here for Consultation
WSJ: SGX to Diversify Services with Derivatives, Market Data
Singapore Exchange said it wants to increase the revenue contributions of its derivatives and market data services as part of an effort to diversify its business, according to a June 8 article in the Wall Street Journal. Magnus Bocker, SGX chief executive officer, was quoted in the article as saying, “We’re cooperating with some partners, but we also compete with some,” adding, “we see a lot of interest in the derivatives markets. So that's where you'll see a lot of our focus on bringing more members in and increasing distribution.”
Bursa Malaysia COO Steps Down
Omar Merican, the chief operating officer of Bursa Malaysia, has resigned from the exchange effective June 1. Merican, who joined the exchange in 2005, was quoted in a news report as saying that his departure was “friendly.” The exchange has not yet named a replacement.
FT: Malaysia Bourse Plans Derivatives Boost
The Bursa Malaysia is aiming to grow the share of its derivatives business to half the exchange’s total from between 5% and 10% today, according to a an April 27 article in the Financial Times. The exchange’s CEO, Yusli Mohamed Yusoff, said, “We expect the contribution from our derivatives business to grow substantially in the coming years,” from listing products such as foreign exchange futures and options. He said a recent deal with the CME Group whereby a dollar-denominated version of Bursa Malaysia’s palm oil futures contract will be listed on CME’s Globex will help drive their expansion plans.
Tocom and SMX to Explore Partnerships, Business Development
Tokyo Commodity Exchange and Singapore Mercantile Exchange announced on April 23 a memorandum of understanding to explore co-operation and a partnership “mutually beneficial for both exchanges.” Under the terms of the agreement, both parties will work together with a view to explore mechanisms which will enhance market liquidity and system efficiencies within each exchange, including the joint development of new business opportunities.
Click Here for Press Release
Bloomberg: Morgan Stanley Expects to Double Commodities Business in Japan
Bloomberg reported May 20 that Morgan Stanley, the sixth-largest U.S. bank by assets, expects to double its commodities business in Japan within two years because of increased demand for hedging and risk management. “The domestic market has growth potential,” Hisaki Endo, representative director at Morgan Stanley Capital Group Japan Co., was quoted as saying. “The commodities sector is lagging behind Europe and America, given the economy’s size.”
FIA Asia News
HSBC Becomes FIA Asia Member
FIA Asia is pleased to welcome HSBC Futures and Options Asia as its newest member. This brings the total number of FIA Asia members to 41. “FIA Asia is delighted to welcome HSBC, one of premier financial institutions in Asia,” said Nick Ronalds, Executive Director of FIA Asia. “We are gratified HSBC recognizes the value of FIA Asia to the industry, and feel confident all our members and the industry in general will continue to reap the benefits of FIA Asia initiatives.”
FIA Asia Holds Beijing Conference
FIA Asia and the Beijing Futures Association held their second joint China (Beijing) Futures and Derivatives Forum on April 17, one day after the launch of the CSI 300 stock index, China’s first financial futures contract. The event was the fifth annual CFDF forum and the second consecutive joint forum held with FIA Asia, and by far the most successful in terms of attendance (450) and media interest. The CME Group was platinum sponsor and Leo Melamed, CME Chairman Emeritus, gave the keynote address. His third book, For Crying Out Loud, was published in Chinese by Peking University on April 18.