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).
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.
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.
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