SGX launches Total Return Futures on the Nikkei 225

Innovative listed derivatives, based on Nikkei 225 implied equity repo, offers risk-management solution that addresses Asia’s largest securities financing market
SGX futurises another class of OTC derivatives to help clients achieve greater capital efficiencies, fostering more transparency and better Asian capital formation amid increased market regulation.

Singapore Exchange (SGX) is launching Asia’s first Total Return Futures (TRF), based on the Nikkei 225 Index, as it continues to pivot towards futurised derivatives. The new futures solution further expands SGX’s suite of risk-management tools that meets increasing market demand for new trading instruments, providing greater transparency and capital efficiencies.

Japan has the largest and most mature securities borrowing and lending market in Asia. Notably, it has grown into one of the biggest markets for structured products against a low-yield environment. The market for total return swaps developed in support of structured product issuance, enabling investors to gain access to the total returns of a basket of stocks while hedging their financing costs.

The SGX Nikkei 225 Index TRF will be introduced on 13 May 2019. This listed solution enables investors to replicate the full economics, including the payout profile, of standard Nikkei 225 Index total return swaps, which are currently transacted over-the-counter (OTC). The TRF, with contract months listed up to 10 years, will also allow investors to trade a particular financing cost – the implied equity repo – for the first time.

SGX is driving futurisation in derivatives in response to client demand to mitigate pressures on capital, collateral and balance sheets, following Basel III and bilateral margining rules for uncleared OTC contracts. The TRF will spur greater transparency and capital efficiency, while offering new customers an opportunity to trade and hedge repo.

Michael Syn, Head of Derivatives at SGX, said; “We are launching a solution that perfectly meets our market participants’ needs for trading opportunities with increased transparency and less risk. This is the first product of its kind in Asia, which is testament to our ability to quickly respond to market requirements. Repo is a new class of interest rate product that complements our comprehensive Japan equity derivatives offering, enabling participants to risk-manage both costs and benefits in Asia’s largest securities financing market. The TRF also supports our customers in meeting global financial market regulations.”

In 1986, SGX pioneered the world’s first futures contract based on the Japanese stock market, the SGX Nikkei 225 Index Futures. The exchange also collaborates with Nikkei Inc. on options on the Nikkei 225 Index as well as Asia’s first dividend index futures, which has grown to be the biggest dividend index market in the region since its launch in 2010.

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