After-hours Trading of Selected Derivatives Products on Overseas Markets

Transcription

1 After-hours Trading of Selected Derivatives Products on Overseas Markets By Research & Corporate Development Department Overseas experience shows that the trading platform (home or overseas), the elapsed time since introduction and the product itself would be factors that determine the contribution of after-hours trading to product volume. Background To better serve investor demand, many exchanges have extended trading hours for their derivatives products, particularly for index derivatives. In the Asia-Pacific time zone, markets where there is after-hours trading (AHT, ie trading outside the normal trading hours of the home market) in index derivatives, the hours often extend into the European time zone or even the American time zone to attract global investors. Examples are Australian Securities Exchange s (ASX) SPI 200 futures and options, Korea Exchange s (KRX) KOSPI 200 futures and options, Singapore Exchange s (SGX) Nikkei 225 futures, Tokyo Stock Exchange s (TSE) TOPIX futures and Bombay Stock Exchange s (BSE) SENSEX futures and options. However, the mode of AHT varies across exchanges. Some exchanges operate their own platform for extended-hours trading, eg ASX and SGX, while others establish links or cooperate with exchanges in other time zones, eg KRX, TSE and BSE. This article examines the AHT of selected index products of overseas exchanges and their contribution to the full-day trading of the products on the respective markets. Markets and Products Under Study ASX s SPI 200 futures The underlying index for SPI 200 futures is the S&P/ASX 200 Index. ASX makes available the product on its own platform with long hours for trading by both domestic and global investors. After-hours trading of ASX index derivatives can be traced back to the 1980s. 21 Exchange July 2011

2 SGX s Nikkei 225 futures SGX offers mostly foreign products on its derivatives market. It has long hours of overnight trading on its own platform in futures on Japan s Nikkei 225 Index, to compete with or complement similar products on CME in the US. The AHT session on the SGX was introduced long ago and is called T+1 session; transactions conducted during the session are cleared and settled as if they were conducted during the normal trading session on the next trading day. KRX s KOSPI 200 futures and options KRX makes available AHT of its KOSPI 200 futures and options on other exchanges platforms. On 16 November 2009, KRX s KOSPI 200 futures started trading on CME s Globex platform for another 11 hours after Korean trading hours through an order-routing programme between KRX and CME Group. Clearing and settlement are performed by KRX. On 30 August 2010, KRX extended trading in its KOSPI 200 options through a derivatives trading link with Eurex of Deutsche Börse. Trading is effected in futures on KOSPI 200 options listed on Eurex. The product is a daily futures contract which expires at the end of each trading day with the open positions transferred from Eurex Clearing to KRX as consolidated open interest in the KOSPI 200 options on KRX. Trading is available for 12 hours after Korean trading hours. TSE s TOPIX futures Since 18 October 2010, trading hours in TSE s TOPIX futures have been effectively extended through the listing of the product on NYSE Liffe and a Position Transfer Arrangement between the two exchanges. Trading of TOPIX futures continues on NYSE Liffe for another 11 hours after Tokyo s market hours, thereby increasing the trading hours of the product to about 21 hours. NYSE Liffe TOPIX futures positions are cleared by NYSE Liffe Clearing, and all open positions of NYSE Liffe Clearing members at the close of business are then transferred to TSE members at NYSE Liffe s daily settlement price. Positions transferred to TSE are fungible with TOPIX futures positions created on TSE, creating a single pool of open interest in the Japan Securities Clearing Corporation. BSE s SENSEX futures and options BSE formed a partnership with Eurex under which Eurex started offering futures and options on SENSEX, India s benchmark index, from 4 October The SENSEX products on Eurex are independent of the products traded on the home market, BSE. No trading of the products on Eurex was recorded for the six months from launch to April Exchange July 2011

3 Table 1 below summarises the selected products under study, their home markets and trading hours. Table 1 Products under study Home exchange AHT Product Normal trading After-hours trading exchange session (local time) session (local time) Australian Securities ASX SPI 200 futures 09:50 16:30 17:10 07:00 (DST*) Exchange (ASX) 17:10 08:00 (non-dst) Korea Exchange (KRX) KOSPI 200 futures 09:00 15:15 CME KOSPI 200 futures 18:00 05:00 (order routing to Globex) Korea Exchange (KRX) KOSPI 200 futures 09:00 15:15 Eurex Futures on KOSPI 17:00 04:00 (DST*) 200 Options 17:00 05:00 (non-dst) Singapore Exchange SGX Nikkei 225 futures 07:45 14:25 15:30 01:00^ (SGX) Home exchange AHT Product Local trading Overseas trading exchange sessions session (local time) (home market time) Tokyo Stock TOPIX futures 09:00 11:00 Exchange (TSE) 12:30 15:10 16:30 19:00 NYSE TOPIX futures 07:00 21:00 (DST*) 15:00 05:00 (DST*) Liffe 06:00 21:00 (non-dst) 15:00 06:00 (non-dst) * DST refers to Daylight Saving Time. ASX follows US DST schedule, which is from the second Sunday in March to the first Sunday in November. KRX and TSE follow the DST in Europe, which starts on the last Sunday in March and ends on the last Sunday in October. ^ The closing time was extended from 00:00 to 01:00, effective from 11 January 2010 during the study period. Beyond the study period, the closing time was further extended to 02:00 in August The study periods for the individual products differ for ASX and SGX, where AHT has been in place for a long time, the study period was 2009 to mid-2010; for other markets, where AHT was recently introduced, the study period was from the launch of AHT to some six months after launch. 23 Exchange July 2011

4 After-hours Trading ASX s SPI 200 futures on ASX Figures 1 and 2 show respectively the daily AHT volume and the per-month average daily AHT volume of SPI 200 futures on ASX for the period from January 2009 to July The daily AHT volume pattern has a typical trading cycle with spikes in the days before the expiry of contract months. The highest average daily AHT volume, 6,596 contracts, was recorded in May The daily ratio of AHT volume to full-day volume of the product on ASX fluctuated from day to day, ranging from about 2 per cent to about 25 per cent (see Figure 3). Figure 1 Daily AHT volume of SPI 200 futures on ASX (Jan 2009 Jul 2010) Note: The data set excluded six trading days during which either the day or the night session was not opened. Figure 2 Average daily AHT volume of SPI 200 futures on ASX (Jan 2009 Jul 2010) 24 Exchange July 2011

5 Figure 3 Daily ratio of AHT volume to full-day volume of SPI 200 futures on ASX (Jan 2009 Jul 2010) Nevertheless, the proportion of AHT volume showed an upward trend from about 8 per cent in the first half of 2009 to 13 per cent in mid-2010, as shown in Figure 4. The average daily ratio rose from 8.5 per cent for the year 2009 to 12.5 per cent during the first seven months of 2010 (see Figure 5). For the entire study period, AHT constituted on average 10 per cent of the daily trading volume of SPI 200 futures on ASX. Figure 4 Average daily ratio of AHT volume to full-day volume of SPI 200 futures on ASX (Jan 2009 Jul 2010) 25 Exchange July 2011

6 Figure 5 Minimum/maximum/average daily ratio of AHT volume to full-day volume of SPI 200 futures on ASX by period KRX s KOSPI 200 futures on CME Figures 6 and 7 show respectively the daily AHT volume and the per-month average daily AHT volume of KOSPI 200 futures on CME from their launch on 16 November 2009 to August The daily AHT volume gradually built up over the period. The average daily AHT volume exhibited different levels, each higher than the previous, in stages after launch: November 2009 to January 2010 below 1,000 contracts a day; February to April 2010 over 2,000 contracts a day; May to August 2010 over 4,000 contracts a day but in a slightly decreasing trend. Nevertheless, the contribution of AHT volume to daily trading volume of the product remained low less than 1 per cent on average during the study period. (See Figures 8 to 10.) Figure 6 Daily AHT volume of KOSPI 200 futures on CME (16/11/ /08/2010) 26 Exchange July 2011

7 Figure 7 Average daily AHT volume of KOSPI 200 futures on CME (Nov 2009 Aug 2010) Figure 8 Daily ratio of AHT volume to full-day volume of KOSPI 200 futures on KRX and CME (16/11/ /08/2010) 27 Exchange July 2011

8 Figure 9 Average daily ratio of AHT volume to full-day volume of KOSPI 200 futures on KRX and CME (Nov 2009 Aug 2010) Figure 10 Minimum/maximum/average daily ratio of AHT volume to full-day volume of KOSPI 200 futures on KRX and CME by period 28 Exchange July 2011

9 KRX s KOSPI 200 options on Eurex Figures 11 and 12 show respectively the daily AHT volume and the per-month average daily AHT volume of KOSPI 200 options on Eurex from their launch on 30 August 2010 to March Daily AHT volume fluctuated a lot with exceptionally high volume observed at times, particularly with over 64,000 contracts on 18 January 2011 (this was officially noted by Eurex but no reason was given). Figure 11 Daily AHT volume of KOSPI 200 options on Eurex (30/08/ /03/2011) Figure 12 Average daily AHT volume of KOSPI 200 options on Eurex (Aug 2010 Mar 2011) 29 Exchange July 2011

10 Average daily AHT volume jumped to a much higher level in 2011 than in 2010 over 8,000 contracts in the first quarter of 2011 (nearly 10,000 contracts daily in March 2011) compared to below 5,000 contracts in late Nevertheless, the contribution of AHT to daily trading volume of the product remained low less than 0.1 per cent on average during the study period, given the very high volumes on KRX. The highest ratio recorded was only 0.7 per cent. (See Figures 13 to 15.) Figure 13 Daily ratio of AHT volume to full-day volume of KOSPI 200 options on KRX and Eurex (30/08/ /03/2011) Figure 14 Average daily ratio of AHT volume to full-day volume of KOSPI 200 options on KRX and Eurex (Aug 2010 Mar 2011) 30 Exchange July 2011

11 Figure 15 Minimum/maximum/average daily ratio of AHT volume to full-day volume of KOSPI 200 options on KRX and Eurex by period SGX s Nikkei 225 futures on SGX Figures 16 and 17 show respectively the daily AHT volume and the per-month average daily AHT volume of Nikkei 225 futures on SGX for the period from January 2009 to June The product had significant AHT volume during the study period about 20,000 contracts a day during 2009 and a higher level of over 52,000 contracts on average in May Figure 16 Daily AHT volume of Nikkei 225 futures on SGX (Jan 2009 Jun 2010) 31 Exchange July 2011

12 Figure 17 Average daily AHT volume of Nikkei 225 futures on SGX (Jan 2009 Jun 2010) The daily ratio of AHT volume in Nikkei 225 futures to the product s total volume was quite steady during 2009 and increased somewhat in 2010, especially in mid-year (from about 20 per cent in January 2010 to 30 per cent in mid-2010). For the entire study period, AHT in Nikkei 225 futures on SGX constituted on average 22 per cent of the daily trading volume in the product. It rose as high as 40 per cent in the period. (See Figures 18 to 20.) Figure 18 Daily ratio of AHT volume to full-day volume of Nikkei 225 futures on SGX (Jan 2009 Jun 2010) 32 Exchange July 2011

13 Figure 19 Average daily ratio of AHT volume to full-day volume of Nikkei 225 futures on SGX (Jan 2009 Jun 2010) Figure 20 Minimum/maximum/average daily ratio of AHT volume to full-day volume of Nikkei 225 futures on SGX by period TSE s TOPIX futures on NYSE Liffe The trading of TOPIX futures on NYSE Liffe starts at 15:00 Tokyo time and goes to 06:00 (or 05:00 British Summer Time) the next morning. Trading hours on NYSE Liffe for the product overlap the TSE trading hours largely during the evening session on TSE, which runs from 16:30 to 19:00. Trading in the product during the overlapping time can be conducted on both markets while AHT is conducted on NYSE Liffe. From the launch of TOPIX futures on NYSE Liffe on 18 October 2010, trading was extremely low for the six-month period up to April During the study period, 68 per cent of the trading on NYSE Liffe was AHT, ie occurring outside the TSE trading hours. The largest daily volume on NYSE Liffe observed was 82 contracts on 15 March 2011 (see Figure 21). The average daily volume in each month during the study period was 12 contracts or less. During the 141 trading days on TSE in the study period, 66 days (47 per cent) recorded no trading of the product on NYSE Liffe. 1 Data is up to 28 April 2011 since 29 April 2011 (Friday) was a public holiday in Japan. 33 Exchange July 2011

14 During the entire study period, trading of TOPIX futures on NYSE Liffe constituted on average 0.02 per cent of the daily trading volume in the product. The highest daily contribution was 0.19 per cent recorded in January 2011 (see Figure 22). Figure 21 Daily volume of TOPIX futures on NYSE Liffe (18/10/ /04/2011) Figure 22 Ratio of daily volume of TOPIX futures on NYSE Liffe to combined volume of the product on SGX and NYSE Liffe (18/10/ /04/2011) 34 Exchange July 2011

15 Table 2 below summarises the contribution of AHT to the total daily volume of the products under study. Table 2 Contribution of after-hours trading to total trading volume for products under study Home AHT Product Study period Average daily exchange exchange contribution of AHT ASX ASX SPI 200 futures 01/ / % KRX CME KOSPI 200 futures 16/11/ /08/ % KRX Eurex KOSPI 200 Options 30/08/ /03/ % SGX SGX Nikkei 225 futures 01/ / % TSE NYSE Liffe TOPIX futures 18/10/ /04/ % BSE Eurex SENSEX futures & options 04/10/ /04/2011 0% Conclusion AHT in index derivatives could make a significant contribution to a product s daily volume. This is illustrated by the cases of ASX and SGX, which have introduced AHT on their own platform. However, AHT through trading or clearing links as in the cases of KRX and TSE, or on an independent overseas platform as the case of BSE, did not yield encouraging results during the study period. Nevertheless, some upward trend was observed for the cases of KRX s KOSPI 200 futures and options, showing that AHT volume may take time to build up. The case of BSE s SENSEX futures and options may indicate that product attractiveness may also be an issue. Overall, the trading platform (home or overseas), the elapsed time since introduction and the product itself would be factors that determine the contribution of AHT to product volume. 35 Exchange July 2011