Hedging Stocks with SiMSCI Futures

Transcription

1 Hedging Stocks with SiMSCI Futures Alex Poh, Singapore Exchange 24 July 2011 Version 1.0

2 Contents Page 1 What is SiMSCI? Futures Trading Hedge your Stocks using SiMSCI Futures 7-8 1

3 What is SiMSCI? The MSCI Singapore Free Index SM (SiMSCI) is a free-float adjusted market capitalization weighted index that tracks the equity market performance of large and medium sized companies listed on Singapore Exchange It belongs to the larger family of MSCI indices that is welltracked by institutions like funds, banks etc SiMSCI is similar to the STI in terms of the constituent stocks and the two indices are highly correlated 2

4 SiMSCI Constituents 3

5 Futures Trading I agree to sell the iphone 5 to you 7 days from now at a price of $1088. I agree to buy the iphone 5 from you 7 days from now at a price of $

6 SiMSCI Contract Specifications SGX MSCI Singapore Index Futures Underlying Stock Index Contract Size Contract Months Minimum Price Fluctuation Trading Hours Last Trading Day Settlement Basis MSCI Singapore Free (SiMSCI) Index SM S$200 x MSCI Singapore Index SM Futures Price Notional value of 1 futures contract at 370 = S$74,000 2 nearest serial months and March, June, September and December months n 1-year cycle 0.1 index point (S$20.00) T session: 8.30am 5.10pn T+1 session: 6.15pm 2.00am (next day) 2 nd last business day of the contract month Cash settlement 5

7 SiMSCI Contract Specifications SGX MSCI Singapore Index Futures Value of the MSCI Singapore Free Index SM computed based on the Special Quotation methodology applied on each component stock of the index on the day following the Last Trading Day. Final Settlement Price Margins (as of 1 Jun 2011) Price Information (Vendor:Ticker) The Special Quotation is calculated by MSCI using the first traded price of each component stock in the MSCI Singapore Free Index SM on the day following the Last Trading Day, irrespective of when these stocks first trade on the SGX trading day. If any component stock is not traded by SGX market close on the day following the Last Trading Day, the last official closing price of that stock will be used to calculate the Special Quotation. Initial: S$2,625 Maintenance: S$2,100 Bloomberg: QZA<INDEX>CT CQG: ZG Reuters SSG:<F3> or 0#SSG: Standard & Poor's Comstock: ssgm 6

8 Hedge your Stocks using SiMSCI Futures 2 investors (A&B) created their stock portfolios on 1 Jun (buying on the close), based on their stock-picking analysis. They believe their portfolios will outperform the Singapore market. Their portfolios is valued at S$70,590 (A) and S$72,995 (B). Due to concerns about the European situation, they decide to hedge their market risk by selling 1 SiMSCI futures each at the closing price of (valued S$73,960) on the same day. Stocks Investor A Investor B DBS GROUP HOLDINGS SINGAPORE TELECOM UNITED OVERSEAS BANK KEPPEL CORP GENTING SINGAPORE PLC WILMAR INTERNATIONAL SINGAPORE AIRLINES NOBLE GROUP CAPITALAND SINGAPORE EXCHANGE SINGAPORE PRESS HLDG HUTCHISON PORT TRUST FRASER AND NEAVE CITY DEVELOPMENTS SEMBCORP INDUSTRIES Note: All examples exclude transaction cost 7

9 Hedge your Stocks using SiMSCI Futures The European situation caused markets to decline and both investors decide to off-load their shares at the end of 15 Jun. They also close out their SiMSCI futures at the close of 15 Jun (352.7), earning ( ) x S$200 = S$3,420 each. Investor A s portfolio outperform the market and was rewarded with a positive return Investor B s portfolio was on-par with the market and his return was neutral Investor A Investor B 1 Jun Portfolio S$70,590 S$72, Jun Portfolio S$68,440 S$69,850 Portfolio P/L -S$2,150 - S$3,145 SiMSCI Futures P/L S$3,420 S$3,420 Total S$1,270 S$

10 Thank You This presentation is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject SGX to any registration or licensing requirement. This presentation is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This presentation is published for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Further information on this investment product may be obtained from Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While SGX and its affiliates have taken reasonable care to ensure the accuracy and completeness of the information provided, they will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Neither SGX nor any of its affiliates shall be liable for the content of information provided by third parties. SGX and its affiliates may deal in investment products in the usual course of their business, and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore. The information in this presentation is subject to change without notice. Futures and options contracts on any MSCI index are not sponsored, guaranteed or endorsed by MSCI, and MSCI bears no liability of any kind with respect to such contracts. SGX Ltd, November