Archive for the 'Derivatives' Category
January 12th, 2017 by Tom Minney
Another floor of shouting traders has just closed in New York, after CME Group (named after Chicago Mercantile Exchange) closed its open outcry trading pits. The trading floor still continues in pits on various commodities in the Chicago building that houses the Chicago Board of Trade, in an approach that dates back to when the building opened in 1930, writes The Economist magazine this week.
The Chicago exchange only has 9 pits, down from 32 in 2007, and closed one trading floor in 2015 that used to be very crowded and busy. Like the rest of the hyperactive world securities and commodities markets that used to heave with life, emotion, despair, greed, fear, ambition, deception and many other human conditions, gradually the computers have taken over.
The magazine writes: “In the end it was not scandal or terrorism that undermined open outcry; it was efficiency. Computers turned out to be quicker, cheaper and more precise than humans”.
It notes that CME Group was quick to understand that most business was in interest rates, stockmarket indices and currencies, not in traditional commodities. It picked up good volumes and made economies of scale in trading and clearing and then bought up other exchanges that ran into problems. Volumes continue to climb and a tumultuous year of surprising votes in UK and US have seen a big spike in activity and volatility. It provided US and UK traders with a record December and record-breaking volumes on exchanges such as the CME.
The Chicago Board of Trade was formed in 1848 and moved in 1856 to make space for 122 new members.
Chicago Board of Trade building, the figure on top is the goddess Ceres (photo Wikipedia)
February 3rd, 2016 by Tom Minney
In a step forward for derivatives, clearing and settlement in Africa, the European Securities and Markets Authority (ESMA) has recognized JSE Clear, the derivative central counterparty (CCP) owned by the Johannesburg Stock Exchange. Stephen Maijoor, Chairman of ESMA’s Board of Supervisors, says in a letter to the JSE: “JSE Clear is recognized as a third country CCP under Title III of Chapter 4 of EMIR.”
This means that the European Union’s regulator recognizes JSE Clear as “equivalent” to CCPs in the EU.
The JSE and the Financial Services Board (FSB) worked together closely to obtain EU recognition, says Leila Fourie, Executive Director of the JSE. JSE Clear’s process to securing ESMA recognition was undertaken in conjunction with the FSB, and successfully finished 2 pieces of work:
• Obtain decision from the EU recognizing that South Africa’s legal framework and supervisory practices are equivalent to those contemplated within the EU regulations
• Obtain EU acknowledgement of the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.
Fourie commented in a press release on 1 Feb: “This achievement is hugely important for the JSE, our regulator the FSB and participants in South Africa’s financial markets. Today’s announcement means that EU-based market participants that clear trades through JSE Clear will be permitted to continue clearing for investors trading on the JSE.”
JSE Clear is required to apply for recognition by ESMA (the European Securities and Markets Authority), as a result of the fact that the CCP has Clearing Members that are either branches or subsidiaries of European registered entities.
Fourie added: “ESMA recognition strengthens our global credibility and fulfils a key requirement for multinational clearing members operating in the local market. Participation from these multinationals helps to distribute the credit, liquidity, operational and legal risk on our market – instead of concentrating this risk in a smaller number of clearing members.”
Central counterparty – graphic from www.economist.com
SA rules are globally relevant
“It is vital for South Africa that its rules are globally relevant and consistent with financial centers such as the EU. This milestone demonstrates that our CCP is robust and meets global standards in promoting financial stability and reducing systemic risk. The recognition of equivalence is a significant indicator of the rigidity of SA’s market infrastructures, and will aid in attracting international flows to our emerging market.
“The JSE is grateful to the FSB for their contribution in obtaining this major milestone for JSE Clear and the South African markets.”
“Clearing” denotes all “post-trade” activities from the time a securities transaction is executed until it is settled. A CCP is an organization that helps to reduce risk and safeguard against losses that could be incurred by a default of a trading participant when trading on the JSE’s markets.
JSE Clear was among the first in the world to be granted QCCP IOSCO status, i.e. marking it out as a “qualifying” CCP in terms established by the Basel Committee on Banking Supervision in July 2012. CPSS-IOSCO is a global standard for risk management aimed at any organization enabling the clearing, settlement and recording of a transaction.
The decision from ESMA follows earlier equivalence determinations for CCPs in Australia, Singapore, Japan and Hong Kong.
The JSE is one of the top 20 exchanges in the world in terms of market capitalization and is a member of the World Federation of Exchanges (WFE) and Association of Futures Markets (AFM). The JSE offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management.
October 30th, 2015 by Tom Minney
Nigeria’s booming fixed interest and currency securities exchange FMDQ OTC Plc (“over-the-counter” market) recorded market turnover of NGN93.9 trillion ($471.7 billion) for the 8 months to 31 August. This includes all products traded on the FMDQ secondary market as well as trade executed between dealing members, dealing members & clients, and dealing members & the Central Bank of Nigeria (CBN).
According to a recent report in Vanguard newspaper, treasury bills transactions accounted for NGN31.7trn (34%) of the total trading; repurchase agreement/buy backs were NGN21.354trn (23%) turnover; and foreign exchange (forex) NGN19.84trn (21%). The top 10 dealing members accounted for NGN67trn, 71% of the turnover; 3 dealing members accounted for NGN27.9trn (42%) of the broker trading.
Photo: FMDQ OTC
Major listings in July included NGN26bn ($130m) FCMB Financing SPV PLC series 1, 7-year 14.25% fixed-rate unsecured bond under a ₦100trn debt issuance programme. This came after the listings of NGN4.8trn of bonds issued by the Federal Government of Nigeria (FGN) and quotation of NGN2.8trn of treasury bills. Other key listings have included a NGN30.5bn bond by UBA and a NGN15.54bn bond by Stanbic IBTC.
Other instruments traded in the 8 months to August:
- Unsecured placements – NGN9.2trn
- FGN Bonds – NGN6.1trn
- FX Derivatives – NGN5.5trn
- Money-market derivatives – NGN101bn
- Eurobonds – NGN33bn
- Other bonds – NGN18bn.
The figures exclude primary-market auctions in T-Bills, Bonds and FX.
According to CEO Bola Onadele Koko, revenue in 2014 was NGN1.75bn, compared to NGN155.65m in 2013, based on transaction income only for one month, December 2013. The bourse aims “to be No. 1 in Africa in the fixed income and currency markets by 2019”.
The FMDQ concept was promoted by the Financial Markets Dealers Association (FMDA) in 2009 and sponsored in 2010 by the Bankers’ Committee, chaired by the CBN with the Nigeria Deposit Insurance Corporation (NDIC) and all the banks and discount houses operating in Nigeria as its members. The committee resolved to set up a self-regulated organization licensed by the Securities and Exchange Commission (SEC) to operate all the over-the-counter inter-bank market activities in fixed income and currencies.
FMDQ was incorporated on January 6, 2011 with a NGN100m contribution by the CBN and equal contribution of NGN15m by each of the 25 banks and 5 discount houses to the company’s initial capital. On 6 Nov 2012, SEC registered FMDQ as an OTC securities exchange and self-regulatory organisation. It started operations a year later, 7 November, 2013.
By 31 Dec 2014 there were 26 FMDQ-licensed dealing members made up of banks and discount houses licensed to make markets in debt securities, money-market instruments and currencies on FMDQ. It was due to add specialist dealing members to deal in treasury bills and FGN Bonds. There were 13 licensed associate members, including SEC-registered inter-dealer brokers and brokers, as well as clients including institutional investors/asset managers, pension fund administrators and corporate treasurers.
From 2014 annual report
January 19th, 2015 by Tom Minney
South Africa’s Johannesburg Stock Exchange (JSE) saw the number of equity trades soar 19% for the year 2014, compared to 2013. It also broke records for the highest daily value traded on 18 Dec when R53.7 billion ($4.6bn) worth of equities traded, and it hit the highest number of daily trades was 395,969 trades on 16 Oct.
Johannesburg Stock Exchange (credit: JSE)
There were a total of 24 new listings for the year, which added R86bn in market capitalization, including a record 8 new listings in December. In the same month, the value of trades reached a monthly record of R345.5bn, a 45% increase compared to trading in Dec 2013. In 2014, the net inflow from foreigner investors was R13.4bn.
The JSE Equity Derivatives Market, which provides traders and private investors with a platform for trading futures, exchange-traded CFDs (contracts for difference), options and other derivative instruments, saw value traded up 18% to R6 trillion. This was largely driven by the JSE flagship equity derivative futures products, index futures and single-stock futures (SSFs), which both increased by 19%.
Growth for 2015
Donna Oosthuyse, Director Capital Markets at the JSE, comments in a press release (not yet available at www.jse.co.za): “Going into 2015, a key focus for us will be to sustain these positive growth levels for the Equity and Equity Derivatives Markets. For the Equity Market our priority will be to ensure that the JSE remains an attractive venue for participation in the capital markets. For the Equity Derivatives Markets, our key focus will be to remain responsive to the needs of the market by offering investors with innovative products that provide global exposure and an ability to weather the prevailing economic environment.”
Looking back on a busy year and particularly December, she said: “The JSE Equity Market is the bedrock of the exchange and we are pleased with the performance of this segment of the market for the year, driven mainly by renewed positive US economic sentiment and a rapid decline in oil prices.
“The performance of the Equity Derivatives Market is also pleasing as it signals to the improving appetite of local and foreign investors to participate in this segment of our capital markets.”
Oosthuyse added that foreign participation in index futures had increased compared to 2013, from 31% to 37%: “This is a promising development as any increase in foreign participation can only breed more liquidity and galvanize our status as a first world exchange.”
The Johannesburg Stock Exchange has operated as a market place for trading financial products for 125 years and is one of the top 20 exchanges in the world in terms of market capitalization. It offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management. It is a member of the World Federation of Exchanges (WFE).
December 30th, 2014 by Tom Minney
The Nairobi Securities Exchange is pushing ahead with plans to launch a derivatives market, including preparing product and contract specifications, and public education and stakeholder engagement meetings.
This follows the news on 19 Dec that the Capital Markets Authority granted NSE a provisional licence to set up and operate a derivatives exchange and approved the NSE’s Derivatives Exchange Rules and related documentation.
According to a press release put out by the NSE, acting Chief Executive Andrew Wachira said: “The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts. The exchange has invested in the development of the derivatives market to ensure that it will meet global standards including mechanisms for trading, clearing and settlement of the instruments traded.”
NSE’s derivatives market is modelled on the derivatives market at the Johannesburg Stock Exchange (JSE), which offers trading in futures and options on equities, bonds, indices, interest rates, currencies and commodities.
The latest move is in line with the strategic plan of the NSE. According to a report on Bloomberg earlier this year in February this envisages market capitalization soaring fourfold to KES 7.2 trillion ($79 billion) by 2023 from KES1.85 trillion.
Nairobi Securities Exchange (credit: Diana Ngila, Nation Media Group)
NSE Chairman Eddy Njoroge noted in the press release: “Derivatives are among the most affordable and convenient means companies can cushion themselves against interest-rate fluctuations, exchange-rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets. The establishment of a derivatives market is a step towards growing the NSE brand and shareholder value and is also in line with Kenya’s Vision 2030 of deepening our Capital Markets and making Nairobi the financial services hub of East Africa.”
According to Bloomberg, a system for trading derivatives has already been installed. The law to allow creation of the futures market was passed in Dec 2013 and rules were submitted for approval by mid-February.
“Derivatives” get their name because their value is derived from another asset class such as a share, a physical commodity or an index. The JSE was ranked the 6th largest exchange by the number of single stock futures traded and 9th by the number of currency derivatives traded in 2012 in the World Federation of Exchanges Annual Derivatives Market Survey, according to the press release.
October 8th, 2014 by Tom Minney
South Africa’s Johannesburg Stock Exchange (www.jse.co.za) has launched currency future instruments which will help investors and businesspeople looking to hedge against African currency movements. The 3 new currency futures are the first to track exchange rate between the rand (ZAR) and Nigeria’s Naira (NGN), Kenya Shilling (KES) and Zambia Kwacha (ZMW).
The move will allow investors, importers and exporters to protect themselves against the currency movement in the foreign country. The JSE has partnered with Barclays Africa and specialist brokers, Tradition Futures, to bring this new offering to market.
A press release from the JSE quotes Andrew Gillespie of Tradition Futures: “It is a groundbreaking development to have a transparent, independent, well-regulated platform to mitigate or assume FX (foreign exchange) risk in these African countries, against any other currency of their choice – that does not prejudice anyone, irrespective of size, domicile or nationality.
Representatives of JSE, Reserve Bank, Kenya and Zambia open trading in African currencies (credit: JSE)
“The ability to transact anonymously, through specialist brokers such as Tradition Futures, and to have access to full and fair, timeous price discovery is an international benchmark requirement for a developed market. This allows for a level and fair playing field, where the best price is available to all, without bias or favour, which is a significant facet and feature of this market in African FX on the JSE.”
Guide to African currencies (see www.charterresource.org/african-currencies)
The JSE already offers futures against the ZAR in: USD (contracts of $1,000), Euro, Sterling, Australian dollar, Japan Yen, Canada dollar, New Zealand dollar, Chinese Renminbi, Swiss Franc, Botswana Pula and a couple of custom instruments. See the helpful brochure available here
How they work
A currency futures contract is an obligation to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. For example, a futures contract can give an investor the right to buy USD at ZAR10 per USD1 at the end of December. One party to the agreement is obligated to buy (longs) the currency at a specified exchange rate and the other agrees to sell (shorts) it at the expiry date. A futures contract is therefore an agreement between two investors with different views on the way or extent a currency will move.
The underlying instrument of a currency future contract is the rate of exchange between one unit of foreign currency and the South African rand. The value of the futures contract moves up and down with this exchange rate – the level of the exchange rate determines the value of the futures contract. Currency futures contracts therefore allow participants to take a view on the movement of the exchange rate as well as to hedge against currency risk. Currency futures are used as a trading, speculating and hedging tool by all interested participants.
The new JSE futures contracts will provide the market participants with the ability to get exposure on the JSE to the exchange rate between the USD and the Zambian, Kenyan and Nigerian currencies through trading synthetic cross-currencies. For example, investors can get exposure to the exchange rate between the USD and the KES by trading both against the ZAR. To promote cross-currency trading the JSE will charge trading fees on only one of the foreign trade logs and not both.
Boosting African trade
The currency futures were launched on 3 October. The press release quotes Warren Geers, General Manager: Capital Markets at the JSE: “The JSE is very excited about this new groundbreaking initiative as we have been working on this strategy for 2 years. With Africa being a global investment destination it makes sense for the JSE as a major exchange player in Africa to be involved in providing appropriate products to mitigate currency risk and exposure when dealing in Africa.”
Trade statistics from the South African Revenue Service (SARS) show trade between South Africa and Nigeria totalled R34.4 billion, between South Africa and Zambia was nearly R18bn, and between South Africa and Kenya amounted to R4.6bn for for January-July 2014.
For more information, look at the currency futures details on the JSE website.
May 14th, 2014 by Tom Minney
The Nairobi Securities Exchange (www.nse.co.ke) is pushing ahead fast with its demutualization plans and will sell up to a 38% stake in an initial public offering (IPO) in June. According to a report on Reuters, NSE chief executive Peter Mwangi said the NSE will offer up to 81 million shares, subject to regulatory approval.
The offer price will be set by the IPO advisors closer to the offer date. The bourse will use the funds for new products and enhance transparency.
Reuters quoted Mwangi saying: “We want to list through an IPO on the main market. We need to open this listing before 30 June. That conversion from a private to a public company will position us to be a very effective player.”
“We are playing in a sweet spot where the frontier funds think Africa is rising. East Africa is a hot spot on the African map and we are the gateway into that east African region.”
Soaring profits, new products
The NSE’s pretax profit more than doubled to KES 379m shillings last year from 2012. It has been lifted by a surge in trading turnover after the 4 Mar 2013 presidential election went peacefully. The dynamic Nairobi exchange is a mutual company owned by its stockbrokers, and demutualization is the process converting into a private for-profit company, as reported on this blog. The ordinary shares have a nominal (par) value of KES 4 shillings ($0.05) each.
Kenya’s Capital Markets Authority is reviewing the exchange’s advanced plans to offer currency and interest-rates futures and options. The NSE futures market will offer standardized contracts for currency futures that will be traded. Mwangi said: “We are seeing more and more international investors who might want to invest in Kenya and they might want to hedge the currency risk.” Local banks offer foreign-exchange forward contracts, which are negotiated directly with buyers, but they cannot be traded.
Mwangi added that part of the funds raised in the IPO will be used to bankroll new products such as derivatives, exchange-traded funds (ETFs) and Sharia-compliant indexes. The NSE has already led the way with a number of FTSE-branded index products and is working with the CMA and CDSC to introduce a real estate investment trust (REIT) market in Kenya and trading platform and a futures and commodities exchange.
The 60-year-old Nairobi stock exchange has been diversifying through new sources of revenue including sales of publications, provision of services through the Broker Back Office (BBO) and data-vending. It bought a prime commercial property in Nairobi’s Westlands area to tap into rental income, according to a report in Standard Digital.
The region is enjoying many benefits from increasing regional integration under the East African Community (EAC). The Nairobi bourse is a key player in the East African Securities Exchange Association (EASEA), which aims to standardize regulations and operations within the region to make cross-border investing easier. Members are the Dar es Salaam Stock Exchange (DSE), the Rwanda Stock Exchange (RSE), the Uganda Securities Exchange (USE), and the Central Depository and Settlement Corporation (CDSC). It also has a memorandum of understanding with the Somalia Stock Exchange Investment Corporation (SSE) under which it will have primary responsibility for the technical development of the Somalia Stock Exchange including identifying the most suitable partners and expertise.
Regional integration has also boosted expansion among listed firms and investor confidence after the discovery large quantities of gas and oil across several east African countries. There are many cross listing between the exchanges.
Mwangi said they wanted to attract more listings on the NSE’s Growth Enterprise Market (GEMS) which is aimed at small firms wishing to list their shares. There is only one listing, property developer Home Afrika so far. The NSE hopes to attract more listings through easier listing terms such as allowing business owners to offer a minimum of 15% if the shares in the market. Mwangi told family business owners who may be reluctant to lose control: “With 85% you have effective control of your company but you enjoy all the advantages of being listed. We are in a sense offering the best of both worlds.”
The NSE is a key member of the African Securities Exchanges Association and an affiliate member of the World Federation of Exchanges (WFE) and intends to become a full member.
November 4th, 2012 by Tom Minney
South Africa’s JSE Ltd (www.jse.co.za) continues to expand its commodity derivatives range. It has added silver and platinum “quanto futures” to its existing gold, copper and Brent crude quanto futures launched earlier this year. It is also helping develop the South African grain market by allowing Safex silo receipts to complete a futures contract, so that producers and buyers can trade grain with a bid or offered premium depending on location, for instance if a buyer wants grain in a particular location.
The JSE has partnered with Rand Merchant Bank, which is the initial market maker. The commodities are referenced as part of the JSE’s existing licensing agreement with the CME Group.
Commodity gain, without currency pain
According to a JSE press release on 1 Nov, a quanto future is a derivative instrument which, on the JSE, is a ZAR-denominated commodity investment product which delivers the same payoff as a pure USD-denominated commodity investment. This lets investors gain exposure to the foreign underlying commodity without being exposed to the USD-ZAR exchange rate. It simplifies decisions and allows investors to focus only on the returns of the underlying commodity.
Chris Sturgess, Director of the JSE’s Commodities Division, says: “We have seen keen interest expressed in the new Quanto Futures we offer and by adding silver and platinum to the product offering, we continue to provide derivative market participates with opportunities to easily access the international commodities markets.”
Growing grain markets
Trading in grain silo receipts to settle grain futures contracts is likely to benefit both producers and buyers, according to another JSE press release. Producers can negotiate a better price for stock in the specific silo represented in the receipt by placing an “offer” onto the system for a premium over and above the Safex price. Buyers such as millers and processors will benefit through access to bid at all registered delivery points at a premium per ton, regardless of whether or not physical grain is on offer. Buyers will be able to bid for preferred delivery locations. Previously no bids were permitted without available stock on offer.
There are more than 200 registered delivery points. The silo owner continues to guarantee the quality and quantity of the physical stock on the Safex silo receipt. However, the JSE guarantees the cash-flow process and settlement, so there is no risk of counterparty default. Settlement will take place over a 2-day cycle, meaning a trade is settled the next business day after trade, eliminating the delayed payments generally associated with cash market transactions.
The price when making physical delivery is a function of Safex’s mark-to-market price on the day, less the location differential (indicative transport cost) to the registered delivery point. With this new functionality the value of grain at each delivery point can be negotiated transparently between buyer and seller and included in the final settlement price.
The JSE says it offers a first-world trading environment, with world-class technology, surveillance and settlement, in an emerging market context. It is among the world’s top 20 largest equities exchanges by market capitalisation.
April 24th, 2012 by Tom Minney
A new securities exchange in Lusaka (Zambia) is installing tried-and-tested bond and derivative trading software and says it will be ready to launch operations next month, May 2012. BaDEx has trading platforms that include spot and derivative trading in bonds, currency, commodities (such as derivatives on metals and silo certificates on the spot market) and a variety of other derivatives including agricultural commodities, precious metals, equity and energy.
There is also a central scrip depository system (CSD) with a separate core management, risk solution, surveillance and settlement systems and platforms. The CSD will apparently link to CSDs in South Africa, Europe and the US and with the central Bank of Zambia’s real-time gross settlement system.
BaDEx, also known as Bond and Derivatives Exchange, reports that it was licensed by Zambia’s Securities and Exchange Commission on 1 January 2012 and the licence covers all securities under the Securities Act – bonds, equity, derivatives and commodities. It has signed a contract effective 12 March with South Africa’s STT (www.sttsoftware.co.za, which has also provided the JSE’s bond trading software for many years), for STT to immediately deploy trading, clearing, settlement and surveillance systems, and systems for auctioning government securities that will be suitable for the central bank, among others.
Dominic Kabanje, CEO of BaDEx, told AfricanCapitalMarketsNews that the exchange is a public-liability company owned by “banks, pension funds and private companies including the major securities dealers in Zambia”. He says they started with 6 local stockbroking members (approach stockbrokers Madison Asset, Integral Initiatives, Intermarket Securities, Laurence Paul Investment Services, Pangaea Renaissance, African Alliance Securities for more information) but are also looking for remote members, working with a South African merchant bank.
Mr Kabanje said they are now doing primary listings. BaDEx will start secondary trading using an online, Internet-based platform when the systems go live and are also seeking to partner with an international clearing house. In a press release he said they had been excited for 18 months: “We are glad to have finally concluded and signed the contract with our software systems vendors. STT applications have been tried and tested in the South African financial markets at the Johannesburg Stock Exchange (JSE), who have used this software for the past 18 years.
“We are currently setting up a network of domestic and foreign-based settlement banks, local and remote foreign members and dealers, institutional underwriters, a clearing house as well as primary panels of domestic, regional and international investors. We plan to link up all willing domestic and regional banks, institutional investors, pension funds, treasury departments, the local central bank, the government debt management office and the local member brokers to our system by providing interfaces and online access to our platforms.
“We will also shortly join the international community of CSDs in South Africa, Europe and the United States initially to facilitate faster and smoother clearing of international securities transactions. The applications from STT and others will enable us to do this and in addition will allow us to compete internationally for bond and derivatives business”.
“I do not see any obstacles from the Zambian side for companies wishing to list. Even SA companies can list on BaDEx. We want Zambian companies to dual list on JSE and BaDEx. At BaDEx we are implementing SADC protocols on the free-trade area as well as enhancing intra-regional trade. An exchange is one such conduit for regional trade. We will, however, have to deal with the problem of exchange controls in SA.”
Michelle Janke, STT’s Managing Director, said the company was happy to reach further into SADC: “We have worked closely with the executives of BaDEx for more than a year, and the closely formed relationship will stand us in good stead over the coming months whilst we deliver all the software applications and prepare the new securities market in Zambia to go live. We hope that in due course through an ongoing cooperation between BaDEx and regional merchant banks we can assist in transforming Lusaka into a key financial hub within the SADC region. We will be there to make this happen operationally.”
Products to be traded include: corporate bonds, municipal bonds, currency futures and options, interest-rate derivatives (including swaps), equity derivatives and commodity derivatives on underlying copper, cobalt, gold, oil, wheat, soya and maize spot markets, bond derivatives market, spot bond market, spot and currency derivatives market, commodities derivatives (including metals) and the commodities spot markets (with silo certificates), agricultural derivatives market, spot equity and equity derivatives markets, precious metals derivatives market and energy derivatives market.
March 22nd, 2012 by Tom Minney
JOHANNESBURG – The JSE (www.jse.co.za) says it will introduce its third wheat futures contract, with a cash-settled contract based on hard red winter wheat, referencing the Kansas City Board of Trade’s (www.kcbt.com) benchmark settlement prices. The new contract will be introduced on 28 March with expiry dates in July, September, and December 2012 and March 2013.
KCBT President & CEO Jeff Borchardt said: “The Kansas City Board of Trade is proud to be partnering with the Johannesburg Stock Exchange to provide their market users access to our Hard Red Winter wheat futures contract, the global benchmark for bread wheat pricing. JSE’s respected position in global commodities trade made the idea of working with JSE quite appealing. This is KCBT’s first such license agreement with an overseas exchange.”
Chris Sturgess, Director: Commodities at the JSE, commented: “We are very pleased to be working with the Kansas City Board of Trade, which celebrates its 156th anniversary this year. Not only do they have a wealth of experience, we also share their commitment to integrity and service for the market we serve. This also represents a further step toward globalizing South Africa’s commodity markets.” Hard red winter wheat is similar in type and milling quality to South African-produced wheat, which means local market participants can consider this alternative product for price-risk management purposes specific to their wheat exposure.
This is the JSE’s third wheat futures contract and the second international wheat contract, all traded on contract sizes of 50 metric tons. The JSE’s local wheat contract is its second most liquid agricultural product. The JSE listed its first international wheat contract under license from the CME Group in July 2011.
According to Sturgess: “Offering 3 wheat contracts enables traders not only the choice on which product to hedge their wheat-price risk but also through our electronic trading system the functionality to trade the spread between the various markets. This should complement volumes across all 3 product types.”
South African local traders have had access to global commodity markets since 2009, when the JSE signed the first licensing agreement with the CME Group for a corn futures contract. It currently offers contracts on corn, wheat, soybean, soybean meal and oil.
As with other foreign-referenced commodities, Rand Merchant Bank and Nedbank Capital will be market-makers, ensuring active price quoting off the liquidity of the international market. Individual investors and corporate entities are able to invest with no limits. Pension fund managers and long-term insurance funds are subject to their 25% foreign allocation limits. And asset managers and collective investment schemes will be subject to their 35% foreign allocation limits.
Why invest in or trade wheat futures?
Wheat futures provide a way for South Africans to:
- Effectively manage the price risk with a view either on the domestic market or to more easily access the international market via the contract, which will be traded in the local currency
- Hedge or gain exposure based on expectations of directional price, spread movement or volatility in wheat either as an outright position or versus the domestic market
- Realise arbitrage and spread opportunities between the CBOT contract, KCBT contract and the local contract
- More effectively evaluate both the current and future world supply and demand for wheat and the various qualities
- Identify short- and long-term cyclical price and volatility patterns for wheat.
Full product specs can be found at: www.jse.co.za/commodities. The JSE is among the world’s top 20 largest equities exchanges in terms of market capitalisation. It is currently ranked the 20th largest exchange by the Futures Industry Association (FIA) for derivatives