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Johannesburg - The JSE is making its currency derivatives 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, 20 million contracts worth R175bn have been traded on the exchange.
Between 2007 and March 2011, currency spreads have narrowed from an 8c 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," said Warren Geers, the general manager for derivative trading at the JSE.
"Investors want flexibility and risk management; we believe that we can offer them both," he said.
Geers said 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 said.
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," said Geers.
To promote cross-currency trading, the JSE will 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," said Geers.
Previous adjustments include the recent launch of any-day expiry currency products that allows investors to pick the expiry date of the contract.
Another new introduction is the maxi-currency contract, which is a larger-sized contract aimed at off-share market participants as well as local wholesale and institutional investors ($100 000 contract size compared with 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 SA'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," said Geers.
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, 20 million contracts worth R175bn have been traded on the exchange.
Between 2007 and March 2011, currency spreads have narrowed from an 8c 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," said Warren Geers, the general manager for derivative trading at the JSE.
"Investors want flexibility and risk management; we believe that we can offer them both," he said.
Geers said 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 said.
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," said Geers.
To promote cross-currency trading, the JSE will 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," said Geers.
Previous adjustments include the recent launch of any-day expiry currency products that allows investors to pick the expiry date of the contract.
Another new introduction is the maxi-currency contract, which is a larger-sized contract aimed at off-share market participants as well as local wholesale and institutional investors ($100 000 contract size compared with 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 SA'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," said Geers.
