The chief executives of three of Asia Pacific’s largest derivatives exchanges discussed their organizations’ latest initiatives and new products at FIA’s Asia Derivatives Conference, Asia-V, on 7 December.
Nicolas Aguzin, the recently appointed CEO of Hong Kong Exchanges and Clearing, emphasized the role that Hong Kong will play as a gateway between China and the world.
Aguzin, a former senior executive at JP Morgan, commented that China’s capital market will more than triple over the next 10 years. That increase is “roughly equivalent to the combined developed-world equity market capitalization of today,” he said.
“As the growth in cross-border capital flow between China and rest of the world continues, global investors will increasingly be looking to manage their exposure and risk to and within China. The demand for more and more sophisticated derivatives products will become significant, and Hong Kong has a crucial role to play in this,” he said.
In October, HKEX launched the much-anticipated MSCI A50 Connect Index Futures contract, the exchange’s first futures contract based on shares listed in mainland China. The notional value of open interest in the A50 contract surpassed the $2 billion mark a month after it launched, Aguzin said. He added that a wide range of investors including sovereign wealth funds, hedge funds, asset managers and delta one trading desks are active in the market.
“This is also not just about international capital – this product supports the steady further internationalization of China’s capital markets, utilizing Hong Kong’s world-renowned regulated markets and infrastructure that bridges both East and West,” he said.
The launch marks the start of a new front in the battle for derivatives dominance between HKEX and Singapore Exchange, whose rival China-focused derivatives product dominates the market. SGX’s FTSE China A50 Index Futures launched 18 years ago and is widely used by institutional investors in other parts of the world to manage exposure to the Chinese equity markets.
“The world’s investors are familiar with the China growth story, where our pioneering FTSE China A50 Index Futures remains the benchmark – a hyper-liquid, globally accepted futures on A-shares, with deep and established roots in the marketplace,” SGX’s CEO Loh Boon Chye told the conference. “We do not take the support of the community lightly and we will work to ensure its continued success,” he said.
He added that Asia’s diversity means other emerging-market powerhouses also offer “unparalleled opportunities”.
“In India, where we recently opened a GIFT City office, we will ramp up efforts in the coming months to internationalize India’s capital markets alongside local partners and regulators,” Loh said. “In Southeast Asia, where the 10 Association of Southeast Asian Nations (ASEAN) economies are benefitting from the recovery in global trade, we are helping investors unearth opportunities in hidden gems such as Indonesia and Vietnam.”
Talking about the exchange’s sustainability efforts, Loh said SGX has been working to provide leadership for financing Asia’s climate transition. It is one of the founding members of the Net Zero Financial Service Providers Alliance and the Glasgow Financial Alliance for Net Zero, which aims to act as a strategic forum to ensure the financial system works together to accelerate the transition to a net-zero economy.
“The clock is ticking, and the transition will require consensus and cooperation from all of us. We believe exchanges can help steer the pathway to net-zero,” he said. “SGX is working closely with GFANZ and other organizations, including FIA, to accelerate the work in this region, while balancing Asia’s unique environmental, economic and social objectives.”
Japan initiatives
Speaking about Japan Exchange Group’s role in helping to grow the Japanese economy, Moriyuki Iwanaga, president and CEO of Osaka Exchange, the main derivatives market of JPX, told the conference the exchange had embarked on several new initiatives to expand its product line-up, expand trading opportunities and bring in new market participants.
In July 2020, JPX completed a transfer of futures and options on precious metals, rubber and agricultural products from its Tokyo Commodity Exchange (TOCOM) to OSE.
“The TOCOM integration is still new, but we strive to constantly enrich our commodity product line-up, especially in the energy sector,” Iwanaga said. “Adding to the existing crude oil and electricity futures, we are targeting to list LNG futures next April. Also, the Ministry of Economy Trade and Industry of Japan started discussing carbon credit rights trading, which obviously we are also keen to participate in.”
Japan’s power futures market is also enjoying steady growth, having doubled since inception, with an increase in both domestic and foreign participation. “We are confident to unleash the full potential of this market soon,” he said.
In September, OSE launched a new trading platform, J-GATE 3.0, based on Nasdaq’s OMX GENIUM technology. Iwanaga said the upgrade has reduced barriers to market entry and provided a familiar environment to current and prospective clients. The exchange also extended its trading hours and is now open 21 hours a day.
“Nearly 40% of all trades are happening during the night session, and this further extension allows us to cover the US market close, a market indicator which is very popular for many Japanese traders,” he said. The exchange will also start “holiday trading” from September next year, providing more trading opportunities to both domestic retail and overseas traders, he said.
