The JSE Currency Derivatives market gears up for growth
March 15, 2011
JOHANNESBURG, 14 MARCH 2011. The JSE is making its currency derivative market
more attractive and competitive by providing incentives for larger currency
deals and greater trading flexibility for investors. The measures include
changes to the fee structure and the launch of new trading strategies.
The JSE’s currency derivatives market was first established in 2007.
Since then, twenty million contracts worth R175 billion have been traded on the
exchange. Between 2007 and March 2011, currency spreads have narrowed from an
eight cent spread to less than a quarter of a cent meaning it is cheaper for
investors to use the market.
“We believe that there is still huge
potential for growth in our market, especially now given the considerable
discussion regarding derivatives reform and proposals to move more trade on
exchange. Investors want flexibility and risk management; we believe that we can
offer them both,” says Warren Geers, General Manager for Derivative Trading at
Geers believes that the next step in the market’s evolution is
to position SA as an attractive trading hub for international and local
wholesale investors. “While all investors will benefit from these measures, many
of them are designed to reward investors that bring significant volumes to the
table,” he says.
Because competitive pricing plays a key role in
attracting participants, the JSE is set to adjust the current sliding scale
bands. The new fee structure reduces costs by 33% for deals of greater than
7,500 contracts and more than 50% for deals greater than 10,000 contracts (down
significantly from the previous limit of 15,000 contracts). Fees are capped at
R35,000 per deal for the largest deals. Changes to the sliding scale fee
structure have also been made, adjusting the maximum number for the higher band
at 999 rather than thousands. Fees for trades of 5,000 contracts or more remain
the same, while fees on deals of fewer than 5,000 contracts increase slightly.
A sliding fee structure will also be implemented for currency options,
in which volumes have grown. The fees will also be capped at R35,000 a deal to
entice bigger deals, but the sliding scale gives larger participants rebates of
75% more than the previous billing model.
To encourage same day trading
activity, the JSE has committed to a zero fee for the second leg of all intraday
trades. “We would like to see more day traders participating in our market. At
present this type of investor is not very active in our market,” says Geers.
To promote cross currency trading, the JSE will now only charge on one
side of the transaction. This allows participants to synthetically trade any two
foreign currencies against each other for example a Euro/Dollar transaction (but
still remains Rand settled) and the fee will be as if the participant was
trading the direct cross-currency.
“Growing a market involves responding
to and foreseeing market needs,” says Geers. Previous adjustments include the
recent launch of any-day expiry currency products which allows investors to pick
the expiry date of the contract. Another new introduction was the maxi currency
contract, which is a larger size contract aimed at off-share market participants
as well as local wholesale and institutional investors ($100,000 contract size
compared to the retail size contract of $1,000).
An advantage of trading
JSE-listed derivatives, as compared with over-the-counter (OTC) alternatives, is
that on-market instruments require no foreign exchange clearance and are settled
in Rands. JSE derivative traded products also offer the reassurance of Reserve
Bank and Financial Services Board regulation along with South Africa’s five
major banks as counterparties. “It is important to tell the market about the
counterparty risks associated with trading of the OTC products. Many investors
also still need to realise that it is possible to make money in both a bull and
bear market,” adds Geers.
FOR FURTHER INFORMATION PLEASE CONTACT:
Corporate Communications Consultants
Tel: +27 11
Cell: +27 72 452 1772
General Manager Trading
Tel: +27 11