JSE Launches Any Day Expiry Currency Contracts

March 03, 2011

JOHANNESBURG, 2 March 2011. The JSE has launched a new initiative on the foreign currency contracts, namely the “Any Day Expiry”. These new currency derivative contracts broaden the exchange’s existing range of currency futures and options contracts and allow investors the flexibility to pick the expiry date of the contract.

The introduction of this new currency product is in response to the wholesale market looking to hedge their currency risk with increased precision. “This new contract meets the needs of a certain clients, for example, hedge fund managers working on a short term currency strategy or those in the import and export arena who would like to match exact expiry dates with those of the delivery of goods,” says Warren Geers General Manager of Derivatives Trading at the JSE.

The contract is designed with wholesale investors in mind with a minimum exposure of one million of the foreign underlying (for example $1million or £1million).

Apart from the added flexibility of picking the expiry date, other contract specifications and fees remain the same as the existing currency derivative products, which expire on set quarterly close-out dates.

The local currency market was first established in 2007, but institutional investors and corporates only entered the market in 2008 after a special dispensation in that year’s budget address. Since then 20 million contracts worth R165 billion have been traded. Dollar-Rand contracts make up more than 80% of the trading activity on the Exchange.

An attraction of the JSE currency derivatives suite is that they require no foreign exchange clearance and are settled in Rands. Local contracts also offer the reassurance of Reserve Bank and Financial Services Board regulation and South Africa’s five major banks as counterparties. The JSE’s clearing house (Safcom) acts as the central counter-party to all trades, and any counter-party risk is offset using a method known as margining.

“Many investors prefer using OTC derivatives because traditionally they are more flexible than their listed counterparts, but the reality is that they have a number of disadvantages, including counterparty risk and opaque pricing. Products like the Any Day Expiry currency derivative demonstrates that the JSE is cognisant of the investor’s needs for both flexibility and sound risk management,” adds Geers. In line with international trends, the JSE is seeing a greater demand for customised derivatives products that are traded on-exchange.

Victoria Williams
Corporate Communications Consultants
Tel: +27 11 463 2198
Cell: +27 72 452 1772
Email: victoria@corpcom.co.za  

Warren Geers
General Manager Trading
Tel: +27 11 520 7470