JSE celebrates 10th anniversary of Currency Derivatives Market
Johannesburg, 23 June 2017: Both the total value and total number of contracts traded on the JSE’s Currency Derivatives market has effectively more than doubled every year since the launch of the market in 2007. Over the past decade the Currency Derivatives market has shown an average annual growth rate of 160% in the total value of contracts, while the average annual growth rate in the number of contracts traded during this period has been 142%.
The volume and value of trading which took place annually during since the launch of the market is depicted in the graphs below:
The JSE celebrated the 10th anniversary of the Currency Derivatives market at an event held in Sandton last night. Prior to the launch of this market, currency trading took place exclusively through over the counter transactions conducted directly between market participants. Today an average of almost 240 000 currency derivative contracts, with an average total value of R3,2 billion, are traded on the JSE every day.
Donna Nemer, Director: Capital Markets at the JSE says the exchange is proud to be able to celebrate the contribution this market has made to the development of South Africa’s broader financial market system. “The creation of the JSE’s Currency Derivatives market moved currency trading exclusively from over the counter transactions to a transparent and regulated platform. It provided a more easily accessible and cost effective way for retail and institutional investors, as well as importers and exporters, to hedge their currency risk.”
Nemer says the Currency Derivatives market has shown continued growth over the past decade as the JSE constantly sought to expand its product range according to the needs of the market. In 2011 the JSE launched “Any Day Expiry” contracts which allow investors the flexibility to pick the expiry date of the contracts they trade. These contracts allowed market participants to hedge their currency risk with even more precision.
Chief Director: Financial Investments and Savings at National Treasury, Olano Makhubela says the following about the development and growth of the currency futures market: “The currency futures were enabled in South Africa in 2007 after the Minister of Finance granted the approval to the JSE. This milestone decision by the Minister was informed by the need to continue deepening South Africa’s financial markets so that they can continue to deliver transparent, standardised and accessible financial products on a world-class and regulated platform like the JSE. The process embarked upon ten years ago is a testament to what we can achieve as South Africans if we work together, trust and respect each other, and are humble.”
Richard de Roos, Head of FX at Standard Bank Group, said it was an honour for the bank to have been involved in the creation of the currency derivatives market on the JSE. “It was a great pleasure to be part of the group of stakeholders including the JSE, South African Reserve Bank and the banking industry who brought currency futures to the exchange. This gave participants, individuals and institutions – previously restricted by exchange controls – the ability to gain access to and actively manage a portfolio of currency products. As a bank, this also enabled us to provide solutions for clients with non-transactional exposure to foreign currencies.”
Later, the exchange also created Quanto Futures which track the movement of both the euro/dollar and British pound/dollar exchange rates, but are settled at a fixed rate in rands and the funds used to buy them stay in South Africa. This allows investors to get exposure to the world’s most popular currency derivatives pairs without making use of their offshore allowance or exposing themselves to movements in the rand.
In 2014 the JSE also expanded its offering to include a range of African currency pairs. These futures and options offer exposure in the movement between the rand and the Nigerian naira, the Kenyan shilling, the Zambian kwacha and the Botswana pula. “South Africa’s well-developed financial markets mean that we have a crucial role to play in facilitating the flow of investment, goods and services around our continent. The use of instruments to effectively hedge against currency risk greatly supports this,” says Nemer.
The JSE also offers futures which track the movement in the Rand exchange rate to the US, Canadian and Australian dollars, the Chinese Renminbi, the Turkish Lira, the Swiss Franc and the Japanese Yen. The rand/dollar currency pair remains the most actively traded currency pair on the JSE and constitutes around 80% of the total trade in the currency derivatives market.
ABOUT THE JSE
The Johannesburg Stock Exchange is based in South Africa where it has operated as a market place for the trading of financial products for 130 years. It connects buyers and sellers in equity, derivative and debt markets. The JSE is one of the top 20 exchanges in the world in terms of market capitalisation and is a member of the World Federation of Exchanges (WFE) and holds the chairmanship of the 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.
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What is a Currency Future?
A Currency Futures contract is an agreement that gives the investor the right to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. One party to the agreement agrees to buy (longs it) the future at a specified exchange rate and the other agrees to sell it (shorts it) at the expiry date. The underlying instrument of a currency future contract is the rate of exchange between one unit of foreign currency and the South African Rand. Contracts are cash-settled in Rands and no physical delivery of the foreign currency takes place.