The FTSE China A50 futures and Nikkei 225 options traded on Singapore Exchange (SGX) topped the global equity derivatives category between 2008 and 2013, according to the Futures Industry Association (FIA) Annual Volume Survey.
SGX China A50 futures’ volume grew 63894.2 per cent to 21.9 million while SGX Nikkei 225 options grew 4260.9 per cent to 10.2 million.
In 2013 alone, the SGX China A50 futures more than doubled its 2012 volumes, making it one of the fastest growing equity index contracts in the world. Similarly, the Nikkei Options also grew rapidly at 132 per cent YoY.
Overall, global volume growth was 2.1 per cent. However, this headline was impacted by a single contract, the KOSPI options whose volume fell sharply due to the contract size being multiplied by five times. Excluding this effect, global volume would have increased 7.4 per cent and Asia’s volume would have gained 12.8 per cent. SGX’s growth of 39 per cent to 112 million contracts in 2013 remains higher than these adjusted numbers.
From the 1980s to the 1990s, Japan had led Asia's economies in their race to first world status, Singapore, South Korea, Hong Kong and Taiwan were not too far behind. Today, the rise of China as the world's largest trading nation and the modernisation processes in India and Southeast Asia's populous nations make the Asia-Pacific a globally significant region. While the FIA survey found that North America had the fastest growth in volume at 9.9 per cent and now accounts for 36.7 per cent of global volume, the ranking would be different if Asia had adjusted for KOSPI options. Asia’s growth figure would become the highest globally at 12.8 per cent.
Leading Asia’s charge was the trading of equity index derivatives in China and Japan. For China, CFFEX’s CSI300 futures was the key driver for China’s growth in equity derivatives while trading in commodities futures also picked up traction. Furthermore, the rise in open interest for commodities futures suggests more hedging rather than speculative activity.
Riding on this trend, SGX Iron Ore derivatives also continue to do well in 2014 with a record monthly volume of 31.7 million MT in January after another record breaking year in 2013. Meanwhile, open interest has also grown steadily, up 26 per cent year to date to 36.3 mil MT. Increasingly, SGX is now a preferred hedging and price discovery centre for seaborne iron ore.
Going forward, there will be a lot to look out for from China. With further liberalisation of the capital and FX markets expected, equity index and commodity options could well be in the pipeline for the onshore market. In response to strong customer demand, SGX has announced plans to launch CNH FX futures and options on the SGX China A50 futures in 3Q 2014 subject to regulatory approval.
“SGX China A50 futures has become a very relevant tool for market makers of China A-share funds. Closely tracking the performance of the onshore market, the A50 futures provides asset managers with an effective hedging tool to manage our delta risk. We are delighted to hear of SGX’s plan to introduce China A50 options as this will offer us added protection against volatility risks,” says Tony Sun, managing director, Haitong International Securities.