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- 1 -
THE BRICS SECURITIES AND DERIVATIVES
MARKETS
By Research & Corporate Development 31 December 2012
The BRICS Exchange Alliance was announced in October 2011. Member exchanges
have begun cross-listing their respective benchmark equity index derivatives, and are
planning to develop new equity index products together. This paper briefly describes each
market in the alliance – the key exchanges and their market segments, product offerings,
and latest international cooperation initiatives.
The BRICS1 acronym refers to the five developing countries — Brazil, Russia, India, China
and South Africa — which have attracted attention because of their growth potential. In
October 2011, Hong Kong Exchanges and Clearing Limited (HKEx) in the Chinese economy
and exchanges from the other BRICS countries — BM&FBOVESPA from Brazil, Moscow
Interbank Currency Exchange (MICEX, now Moscow Exchange MICEX-RTS) from Russia,
BSE Limited (BSE) and the National Stock Exchange of India (NSE) from India, and the
Johannesburg Stock Exchange (JSE) from South Africa — announced the formation of
BRICS Exchange Alliance.
The alliance’s first initiative was the cross-listing of benchmark equity index derivatives on
one another’s trading platforms in March 2012. The initiative enables member exchanges to
expand their product offerings beyond their own markets and their investors to gain exposure
to the dynamic, emerging, and increasingly important BRICS economics. The alliance is
continuing to work on possible new product initiatives.
This article gives a brief description of each BRICS country’s securities and derivatives
markets (focusing on financial derivatives), profiling their respective positions in the world
economy and exchange markets. An overview is given of each market, followed by an
introduction to the key exchanges’ market segments and product offerings, and their other
international cooperation initiatives.
1. BRICS IN THE WORLD ECONOMY AND EXCHANGE MARKETS
According to the World Bank, the BRICS countries are middle-income economies2; the 108
middle-income economies in aggregate constituted one-third of the world’s Gross Domestic
Product (GDP) in 20113. The five BRICS economies enjoyed spectacular growth, more than
quadrupling their GDP from 2002 to 2011 in nominal terms while the rest of the world’s GDP
grew 84%. The BRICS economies accounted for one-fifth of global GDP in 2011
(compared with 9% in 2002) (see Table 1-1). Based on the World Federation of Exchanges
1 The acronym, BRIC, was coined by Jim O’Neill of Goldman Sachs in 2001 to refer to the rising emerging
economies in Brazil, Russia, India and China. Since 2008, the BRIC leaders have met annually to discuss
issues of global significance, such as development, peace and security, energy and climate change, and social
issues. In 2011, the leaders invited South Africa to join, thus becoming the BRICS. 2 Hong Kong is classified as a high-income economy.
3 Source: International Monetary Fund (IMF) statistics and World Bank classification.
The BRICS Securities and Derivatives Markets
- 2 - Research & Corporate Development, HKEx
31 December 2012
(WFE) statistics, exchanges from these five countries are among the top 20 in terms of market
value of domestic listed companies and contract volume of financial derivatives (see Figures
1-1 and 1-2).
Table 1-1. GDP in BRICS countries (2002 vs 2011)
Country GDP (current prices, US$ billion) % of global GDP
2002 2011 % change 2002 2011
China 1,454 7,298 402% 4.4% 10.4%
Brazil 506 2,493 393% 1.5% 3.6%
Russia 345 1,850 436% 1.0% 2.6%
India 510 1,827 258% 1.5% 2.6%
South Africa 111 409 267% 0.3% 0.6%
BRICS 2,926 13,877 374% 8.8% 19.9%
Rest of the world 30,428 56,022 84% 91.2% 80.1%
All countries 33,355 69,899 110% 100.0% 100.0%
Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2012
Figure 1-1. Top 20 exchanges in terms of market value of domestic listed companies
(end of October 2012)
BRICS markets
Source: WFE monthly statistics
13,625
4,526
3,526 3,275 2,677 2,633
2,314 2,044 1,392 1,348 1,203 1,176 1,162 1,114 1,098 964 933 835 767 741
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
NY
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US
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Top 20 exchanges by market value of domestic listed shares (October 2012)
The BRICS Securities and Derivatives Markets
- 3 - Research & Corporate Development, HKEx
31 December 2012
Figure 1-2. Top 20 exchanges in terms of contract volume of financial derivatives
(January-October 2012)
BRICS markets
Source: WFE monthly statistics
2. BRAZIL
In Brazil, BM&FBOVESPA is the only exchange operator of securities and derivatives
markets. It is a publicly listed company created in 2008 through the integration of the São
Paulo Stock Exchange (BOVESPA) and the Brazilian Mercantile & Futures Exchange
(BM&F). The Brazilian financial market is under the regulation and monitoring of three
authorities — the National Monetary Council (CMN), the Brazilian Central Bank (BCB)
and the Brazilian Securities and Exchange Commission (CVM).
CVM is the direct regulator of BM&FBOVESPA; it directly regulates and oversees the
Brazilian capital markets, including the exchange markets and the organised over-the-counter
(OTC) markets, and the market participants. CMN is responsible for formulating monetary
and credit policies for the financial and capital markets. BCB is responsible for the
implementation of CMN’s policies. BCB also oversees the operation of financial institutions
in Brazil.
BM&FBOVESPA itself has incorporated a specific entity for self-regulation —
BM&FBOVESPA Market Supervision (BSM). The main responsibility of BSM is to
supervise the markets managed by BM&FBOVESPA to ensure compliance with applicable
laws, rules and regulations by market participants and by the exchange itself.
1,773 1,712
1,670
1,356
1,141
946 876
825 820 783
593
194 168 132 126 99 92 85 65 63
0
200
400
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800
1,000
1,200
1,400
1,600
1,800
2,000C
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Gro
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X
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&F
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ons
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NY
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.Lif
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pe
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Top 20 exchanges by financial derivatives contract volume (January-October 2012)
The BRICS Securities and Derivatives Markets
- 4 - Research & Corporate Development, HKEx
31 December 2012
2.1 Market segments
BM&FBOVESPA operates two major market segments — BOVESPA and BM&F — for
securities and derivatives trading. Products traded on BOVESPA comprise: (1) equities —
including shares, Brazilian Depository Receipts (BDRs) representing shares of domestic and
foreign issuers, exchange-traded funds (ETFs) and warrants; (2) equity derivatives — mainly
stock options and index options; and (3) corporate debt securities. The BM&F segment
provides trading for commodity derivatives (agricultural, gold and energy), financial
derivatives (currency, interest rate and equity indices), spot foreign exchange (forex) and
public debt securities.
Besides exchange-traded products, BM&FBOVESPA runs the Organised OTC Market (the
only one in Brazil) for the trading of equities and derivatives. Derivatives products include
flexible options, forwards and swaps on equity indices, commodities, forex and interest rates.
For equities, there is a special trading segment of the Organised OTC Market, BOVESPA
Mais (meaning “BOVESPA Plus”), which provides a stepping stone for companies registered
with CVM to move to the listing segment. In addition, unsponsored BDRs4, which do not
involve the foreign companies that issue the shares underlying the BDRs, are available for
trading on the Organised OTC Market.
In Brazil, there is a Brazilian Commodities Exchange (BBM) which centralises the trading of
agricultural commodities and OTC agribusiness securities. It is a private mutualised entity
in which BM&FBOVESPA holds a majority membership interest.
The clearing and settlement of securities and derivatives are handled by BM&FBOVESPA’s
four clearing houses for different product types, which are in the process of integration, both
entity-wise and technology-wise. The post-trade process is integrated with BM&F
Settlement Bank (a wholly-owned subsidiary of BM&FBOVESPA), which provides
settlement, depository, registration and custody services to clearing houses and participants.
The existing four trading systems for the different securities and derivatives products are also
to be integrated. The trading system for BM&F derivatives and spot forex — PUMA
Trading System, which is jointly developed by BM&FBOVESPA and CME Group — will
replace the other three trading systems for securities and other derivatives products.
2.2 Securities market
BOVESPA has three special listing segments in addition to the traditional market — Novo
Mercado (meaning “New Market”), Corporate Governance (CG) Level 1 and CG Level 2.
These segments were launched in 2000 and adopt additional and more stringent corporate
governance requirements. BM&FBOVESPA itself is listed in Novo Mercado, which adopts
the highest corporate governance standards among all listing segments.
Brazil has the largest stock market in Latin America by market value, with 373 listed
companies and a total market capitalisation of US$1,223 billion at the end of 2011.
Currently, more than 80 BDRs are available for trading and 70 of them are unsponsored
BDRs on foreign stocks which include big names such as Coca-Cola, Exxon Mobil, General
4 BDRs can be classified into sponsored and unsponsored BDRs. Sponsored BDRs involve the issuer of
underlying shares which has an agreement with the depository bank.
The BRICS Securities and Derivatives Markets
- 5 - Research & Corporate Development, HKEx
31 December 2012
Electric and Microsoft. In 2011, the total value of share trading was US$931 billion (see
Figure 2-1) and the average daily trading value was US$3.7 billion. Almost all securities
trading came from stocks (95% in 2011); options exercise contributed another 4%; other
products such as investment funds, structured products and fixed-income securities
contributed only 1% of the total trading value (see Figure 2-2).
Figure 2-1. Domestic stock market capitalisation, annual share trading value and
no. of listed companies on BM&FBOVESPA (2002 – 2011)
Sources: BM&FBOVESPA monthly operational data and WFE monthly statistics
Figure 2-2. Trading value by security type on BOVESPA (2011) (excluding equity derivatives)
Notes:
(1) Numbers may not add up to 100% due to rounding.
(2) Trading in round-lot market, odd-lot market and auction market is classified as trading in “Stocks”.
(3) “Others” includes structured products, investments certificates and fixed-income securities.
Source: BM&FBOVESPA annual statistics
399
369358
343 350
404393 385 381 373
124
234
341
482
723
1,399
588
1,341
1,542
1,223
46
68105
166 276
607
750
645
869 931
0
75
150
225
300
375
450
525
600
0
200
400
600
800
1,000
1,200
1,400
1,600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
No
. o
f li
sted
co
mp
an
ies
Ma
rket
ca
pit
ali
sati
on
/ s
ha
re t
rad
ing
va
lue
(US
$b
n)
Domestic stock market capitalisation, annual share trading value and
no. of listed companies on BM&FBOVESPA (2002 - 2011)
No. of listed companies
Market capitalisation
Share trading value
Sources: BM&FBOVESPA & World Federation of Exchanges (WFE)
Stocks
95%
Options exercise
4%
Investment funds
1%
Others
0.04%
Trading value by security type on BOVESPA segment (2011)
(excluding equity derivatives)
Notes:
(1) Numbers may not add up to 100% due to rounding.
(2) Trading in round-lot market, odd-lot market and auction market is classified as "Stocks".
(3) "Others" includes structured products, investments certificates and fixed-income securities.
Source: BM&FBOVESPA
The BRICS Securities and Derivatives Markets
- 6 - Research & Corporate Development, HKEx
31 December 2012
The significant growth of market capitalisation over the past decade shown in Figure 2-1,
however, was not accompanied by a corresponding increase in number of listings. In fact,
primary market activities were not very active except in 2007. In 2011, BOVESPA saw 24
new listings and US$4 billion of funds raised through initial public offerings (IPOs),
compared to the peak levels of 71 new listings and US$30 billion IPO funds raised in 2007
(see Figure 2-3).
Figure 2-3. IPO funds raised and no. of newly listed companies
on BM&FBOVESPA (2002 – 2011)
Note: IPO funds raised figures for 2002 and 2003 are not available.
Source: BM&FBOVESPA monthly operational data
2.3 Financial derivatives market
Both market segments of BOVESPA and BM&F offer trading in financial derivatives. The
key products on BOVESPA are stock (including ETF) options and IBOVESPA options (the
only index options offered by BOVESPA segment). BM&F offers a much wider range of
financial derivatives, including futures and options (F&O) on interest rates, forex and equity
indices, and futures on sovereign debt securities. Of all product types on BM&FBOVESPA,
stock options are the dominant volume contributor, accounting for 56% of the total derivatives
trading volume (including OTC contracts) in 2011. They are followed by F&O on interest
rates (32%) and on forex (8%). Other derivatives (including agricultural and energy
products) account for only a small fraction (4%). In terms of open interest, the top three are
still interest rate derivatives (64%), stock options (26%), and forex derivatives (8%). (See
Figure 2-4.)
22
7
30
5
13
6
4
116
9 13
38
71
14
1520
24
0
30
60
90
120
150
180
210
240
0
4
8
12
16
20
24
28
32
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
No
. o
f n
ewly
lis
ted
co
mp
an
ies
IPO
fu
nd
s ra
ised
(U
S$
bn
)
IPO funds raised and no. of newly listed companies on BM&FBOVESPA (2002 - 2011)
IPO funds raised
No. of newly listed companies
Note: IPO funds raised figures for 2002 and 2003 are not available
Source: BM&FBOVESPA
The BRICS Securities and Derivatives Markets
- 7 - Research & Corporate Development, HKEx
31 December 2012
Figure 2-4. Derivatives trading volume and open interest by product type
on BM&FBOVESPA (2011)
(a) Trading volume
(b) Open interest
Notes:
(1) Numbers may not add up to 100% due to rounding.
(2) “Other derivatives” comprise: (i) BOVESPA options on ETFs and IBOVESPA; and (ii) BM&F F&O on equity indices,
gold, agricultural products and energy.
Source: Futures Industry Association (FIA) monthly statistics
In the BRICS Exchange Alliance, futures on IBOVESPA, the benchmark index of the
Brazilian stock market, is the cross-listed product. The monthly trading volume of
IBOVESPA futures on BM&FBOVESPA has been quite stable over the past decade. The
average daily contract volume was the lowest (in terms of the current contract size) at 42,775
contracts in September 2002 and reached a high of 151,119 contracts in August 2007. (See
Figure 2-5.) The average daily volume for the year 2011 was 86,948 contracts.
Figure 2-5. IBOVESPA daily closing and monthly trading volume of IBOVESPA futures
on BM&FBOVESPA (2002 – 2011)
Note: The contract size of IBOVESPA futures was reduced to one-third since 17 April 2006. For comparison, the trading
volumes of IBOVESPA futures from FIA for Jan 2002 to Apr 2006 were multiplied by 3.
Sources: Reuters and FIA
BOVESPA stock
options
56%
BM&F interest rate
F&O
32%BM&F forex F&O
8%
Other derivatives
4%
BM&FBOVESPA — Derivatives market trading volume by product type (2011)
Notes:
(1) Numbers may not add up to 100 per cent due to rounding.
(2) “Other derivatives” comprise: (i) BOVESPA options on ETFs and IBOVESPA; and (ii) BM&F F&O on equity indices,
gold, agricultural products and energy.
Source: Futures Industry Association (FIA)
Total: 1.5 billion contracts
BOVESPA stock
options
26%
BM&F interest rate
F&O
64%BM&F forex F&O
8%
Other derivatives
2%
BM&FBOVESPA — Derivatives market open interest by product type (2011)
Notes:
(1) Numbers may not add up to 100 per cent due to rounding.
(2) “Other derivatives” comprise: (i) BOVESPA options on ETFs and IBOVESPA; and (ii) BM&F F&O on equity indices,
gold, agricultural products and energy.
Source: Futures Industry Association (FIA)
Total: 52 million contracts
0
2
4
6
8
10
12
14
16
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2002/01 2003/01 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01 2010/01 2011/01
Fu
ture
s tr
ad
ing
vo
lum
e (m
il c
on
tra
cts)
IBO
VE
SP
A d
ail
y c
losi
ng
(p
oin
ts)
Year/month
IBOVESPA daily closing and monthly trading volume of IBOVESPA futures (2002 - 2011)
IBOVESPA futures monthly volume
IBOVESPA daily closing
Note: The contract size of IBOVESPA futures was reduced to one-third since 17 April 2006. For comparison, the trading
volumes of IBOVESPA futures from FIA for Jan 2002 to Apr 2006 were multiplied by 3.
Sources: Reuters and Futures Industry Association (FIA)
73516 (2008/05/20)
29435 (2008/10/27)
13872 (2002/01/02)
8370
(2002/10/16)
56754 (2011/12/29)
The BRICS Securities and Derivatives Markets
- 8 - Research & Corporate Development, HKEx
31 December 2012
2.4 Other international cooperation initiatives
BM&FBOVESPA partnered with CME Group in the development of the PUMA Trading
System and a derivatives order routing arrangement. This routing arrangement allows
BM&FBOVESPA customers to trade CME Group’s products through the PUMA system.
Similarly, customers of CME Group can access the Brazilian derivatives market through the
CME Globex platform. This was further strengthened by the signing of a cross-listing
agreement in March 2012 involving S&P 500 Index futures and BOVESPA Index futures, the
benchmark futures products of the two exchanges. Besides CME Group, NASDAQ OMX
has provided technologies to BM&FBOVESPA for market data and market surveillance.
Separately, BM&FBOVESPA formed an alliance with Chi-X Global in 2012 to launch
Chi-FX Brazil, a new trading platform for overseas investors to trade BM&FBOVESPA-listed
stocks in their local currencies.
Furthermore, BM&FBOVESPA has signed memoranda of understanding (MOU) with a
number of exchanges, including the Toronto Stock Exchange (TSX, now part of TMX Group),
the Santiago Stock Exchange in Chile, the Colombian Stock Exchange (BVC), the Mexican
Exchange (BMV), the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange
(SZSE).
3. RUSSIA
In Russia, the principal exchange operator is Moscow Exchange MICEX-RTS (“Moscow
Exchange”). It was formed in December 2011 when the two principal exchange operators at
that time — MICEX Group and RTS Group — merged. Besides the Moscow-based
exchange, the group has exchange centres in regions like Ural, Volga and Siberia.
There are a few regional exchanges which are not part of the Moscow Exchange Group.
These include the St. Petersburg Currency Exchange, the Samara Currency Interbank
Exchange and the St. Petersburg Exchange (in which Moscow Exchange has a minority
shareholding). The first two exchanges, as implied by their names, focus on currency
trading while the St. Petersburg Exchange mainly trades commodities and related derivatives.
The principal regulator of the exchanges and the capital market in Russia is the Federal
Service for Financial Markets (FFMS). The Central Bank of Russia (CBR) is responsible
for regulating Russia’s banking industry and forex market and is the organiser of the
government securities market. The Federal Anti-monopoly Service (FAS) and the Ministry
of Finance (MOF) are two other important supervisory bodies in Russia’s regulatory
framework, with authority over the maintenance of competition in the financial market and
the issuance of public debt securities respectively.
The BRICS Securities and Derivatives Markets
- 9 - Research & Corporate Development, HKEx
31 December 2012
3.1 Market segments
Products of Moscow Exchange can be classified into forex, corporate securities, government
securities and derivatives (financial and commodity). Moscow Exchange also extends its
offering of commodity products through its associate, National Mercantile Exchange
(NAMEX). Besides on-exchange products, Moscow Exchange operates an OTC market
which has several systems for reporting OTC trades. One function of the OTC market is to
facilitate trading in securities of foreign issuers, including depository receipts (DRs) on these
securities.
The post-trade processing of transactions on Moscow Exchange is handled by its five
subsidiaries — National Clearing Centre (NCC), RTS Clearing Centre (RTS-CC), National
Settlement Depository (NSD), Depository Clearing Company (DCC) and RTS Settlement
Chamber (RTS-SC) — for different securities market sectors (see below) and asset classes.
NCC and RTS-CC are the clearing houses for the forex market and derivatives market
respectively. They also provide clearing services for different sectors of the securities
market. Settlement and depository services for the securities market are provided by NSD
and DCC. RTS-SC is a non-banking credit institution which provides settlement services to
trading participants on Moscow Exchange. As the post-trade facilities of a merged exchange,
these five institutions are in the process of integration.
3.2 Forex market
Forex trading is a significant business segment of Moscow Exchange, given that MICEX was
founded in 1992 as a currency exchange. In 2011, total trading volume on the on-exchange
currency market reached RUB86.8 trillion (US$3 trillion), representing 29% of the aggregate
turnover on the regulated markets of Moscow Exchange. The electronic currency trading
system of MICEX supports trading (including currency swaps) in US dollar, euro, Ukrainian
hryvnia, Kazakhstan tenge, Belarusian rouble and, since December 2010, Chinese renminbi
(RMB). Similar to the global market, forex trading on MICEX has been dominated by US
dollar and euro, which account for almost 100% of the trading volume.
3.3 Securities markets
Corporate securities listed on Moscow Exchange comprise equities (including Russian
depository receipts (RDRs)), corporate debt securities and investment funds, and are traded on
three sectors — Main Market (formerly under MICEX), Standard, and Classica (formerly
under RTS-SE). The Main Market is the most liquid sector, accounting for over 80% of
equity turnover and more than 99% of bond trading volume in the Russian securities market.
Figure 3-1 shows the market capitalisation of domestic listed companies and the annual
securities turnover on MICEX from 2002 to 2011.
The BRICS Securities and Derivatives Markets
- 10 - Research & Corporate Development, HKEx
31 December 2012
Figure 3-1. Domestic stock market capitalisation and annual securities turnover of MICEX
(2002 – 2011)
* Turnover of stocks, RDRs and investment funds
Sources: Moscow Exchange and WFE
Securities that have gone through the listing procedure are admitted to trading on any one of
the five quotation lists — A1, A2, B, V and I — depending on the requirements satisfied by
the securities (A1 has the most stringent requirements while V and I have the least).
Alternatively, securities can go through a simplified procedure for admission to trading
without being listed. In 2011, both MICEX and RTS-SE had two newly listed companies
through IPOs, raising capital of US$2 billion in total5.
Moscow Exchange operates the Innovation and Investment Market (IIM), created jointly
with the Russian State Corporation of Nanotechnologies (ROSNANO), to help growth
technology companies attract investment. This sector consists of three segments: (1) the
Innovation and Growth Companies (IGC) sector to allow IPOs of eligible companies; (2) a
private placement platform; and (3) the IPOBoard (an online information and trading system)
to facilitate fund raising by non-public technology companies.
Securities trading constituted 51% of total cash market trading value of MICEX in 2011. Of
this, about half was in bonds and bond repurchase agreements (repos) (see Figure 3-2) in
which government securities play an important role. GKO, OFZ (two types of government
bonds — zero-coupon treasury bills and coupon-bearing bonds respectively) and CBR bonds
are the main instruments of this segment. MICEX calculates the Russian Government Bond
Indices (RGBI) and yield indicators based on the prices of these instruments. Notably, repo
trading on stocks is also popular, constituting 17% of total cash market trading of MICEX.
5 Figures are from WFE annual statistics, which may include dual-listings.
59
138 153
266
887
1,222
337
736
949
771
36 73100 114
420
624
427474
443
539
0
200
400
600
800
1,000
1,200
1,400
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Ma
rket
ca
pit
ali
sati
on
/ T
urn
ov
er (
US
$ b
il)
Domestic stock market capitalisation and annual securities turnover of MICEX (2002 - 2011)
Market capitalisation
Securities turnover*
* Comprising stocks, RDRs and investment funds
Sources: Moscow Exchange and World Federation of Exchanges (WFE)
The BRICS Securities and Derivatives Markets
- 11 - Research & Corporate Development, HKEx
31 December 2012
Figure 3-2. Trading volume of securities, bonds and currencies on MICEX (2011)
Source: Moscow Exchange
3.4 Financial derivatives market
Derivatives products of Moscow Exchange are traded on FORTS and MICEX Derivatives.
FORTS (abbreviation for “Futures and Options on RTS”) is the main derivatives market of
Moscow Exchange in terms of volume (99% of the total in 2011). Products on FORTS are
futures on shares (including RDRs), stock indices, bonds, currencies, interest rates and
commodities, and options on futures (except interest rates). MICEX Derivatives offers
financial futures on currencies, interest rates, a stock index (MICEX Index) and Russian
stocks with fewer contract types than FORTS.
Figure 3-3 shows that financial derivatives are the dominant products on Moscow Exchange’s
derivatives market in terms of both trading volume and open interest. In 2011, index futures,
stock futures and forex futures are the most actively traded products, contributing 35%, 33%
and 24% of the total derivatives trading volume respectively.
Figure 3-3. Derivatives trading volume and open interest by product type
on Moscow Exchange (2011)
(a) Trading volume
Total no. of contracts: 1,099 million
(b) Open interest
Total no. of contracts: 3.2 million
* Agricultural products, energy and metals
Note: Numbers do not add up to 100% due to rounding
Source: FIA
Stocks, investment
funds and RDRs
9%
Stock repos
17%
Bonds
3%
Bond repos
22%
Currency
49%
Trading volume of securities, bonds and currencies on MICEX (2011)
Source: Moscow Exchange
Total: US$5,909 billion
Index futures
35%
Stock futures
33%Forex futures
24%Interest rate futures
0.7%
Index options
3%
Stock options
0.8%
Forex options
0.1%
Commodity F&O*
4%
MICEX-RTS derivatives trading volume by product type (2011)
* Agricultural products, energy and metals
Note: Numbers do not add up to 100% due to rounding
Source: Futures Industry Association (FIA)
Index futures
12%
Stock futures
23%
Forex futures
45%
Interest rate futures
5%
Index options
7%
Stock options
2%
Forex options
2%
Commodity F&O*
3%
MICEX-RTS derivatives open interest by product type (2011)
* Agricultural products, energy and metals
Note: Numbers do not add up to 100% due to rounding
Source: Futures Industry Association (FIA)
The BRICS Securities and Derivatives Markets
- 12 - Research & Corporate Development, HKEx
31 December 2012
The first cross-listed product of Moscow Exchange for the BRICS Alliance is futures on the
MICEX Index, the benchmark index of the Russian stock market. Trading in MICEX Index
futures in the local market was relatively inactive in the first two years after launch in 2007
and the monthly volume even dropped to zero in November 2008. In early 2009, MICEX
introduced a number of measures to boost the liquidity in its equity derivatives market,
including reduction of the minimum price fluctuation, commission fee and margin deposit
rates for this product. Subsequently, the trading volume picked up rapidly and reached the
peak of 46,990 contracts on an average daily basis in October 2010. (See Figure 3-4.) The
average daily volume for the year 2011 was 10,805 contracts, compared to 1,523,571
contracts for the most active RTS Index futures.
Figure 3-4. MICEX Index weekly closing and monthly trading volume of MICEX Index
futures on Moscow Exchange (2002 – 2011)
Note: MICEX Index futures were launched in June 2007
Sources: Reuters and FIA
3.5 Other international cooperation initiatives
Before merging with RTS Group, MICEX Group signed memoranda of cooperation with a
number of overseas counterparts, including Chicago Mercantile Exchange (CME), Deutsche
Börse (DB), HKEx, the London Stock Exchange (LSE), NASDAQ Stock Market, the New
York Stock Exchange (NYSE), the SHSE, the SZSE and Tokyo Stock Exchange (TSE). In
addition, NASDAQ OMX is a partner of both MICEX Group and RTS Group in the area of
market data services.
Moscow Exchange also has several joint ventures in Ukraine and Kazakhstan. In 2008, RTS
Group cooperated with a group of brokers in Ukraine to establish the Ukrainian Exchange,
and provided the new exchange with equity and derivatives trading systems. Currently,
Moscow Exchange has a 43% stake in the Ukrainian Exchange. Moscow Exchange was
also the majority shareholder in the PFTS Stock Exchange in Ukraine and the Evraziyskaia
Trading System (ETS) Commodity Exchange in Kazakhstan as at the end of 2011.
0.0
0.4
0.8
1.2
1.6
2.0
0
500
1,000
1,500
2,000
2,500
2002/01 2003/01 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01 2010/01 2011/01
Fu
ture
s tr
ad
ing
vo
lum
e (m
il c
on
tra
cts)
MIC
EX
In
dex
wee
kly
clo
sin
g (
po
ints
)
Year/month
MICEX Index weekly closing and monthly trading volume of MICEX Index futures
(2002 - 2011)
MICEX Index futures monthly volume
MICEX Index weekly closing
Note: MICEX Index futures were launched in June 2007
Sources: Reuters and Futures Industry Association (FIA)
1943 (2008/05/18)
256 (2002/01/06)
513 (2008/10/26)
1402
(2011/12/30)
The BRICS Securities and Derivatives Markets
- 13 - Research & Corporate Development, HKEx
31 December 2012
4. INDIA
There are over 20 stock exchanges and over 20 commodity exchanges in India. Among the
stock exchanges, the National Stock Exchange of India (NSE) and BSE Limited (BSE) are
the most prominent. These two exchanges offer trading in stocks, ETFs, bonds and financial
derivatives. The commodity exchanges offer trading in commodity futures while trading in
commodity options is still prohibited. Among them, Multi Commodity Exchange of India
(MCX), which became India’s first exchange to get listed on the BSE in March 2012, has the
lion’s share by trading volume.
The principal regulator in the Indian securities market (in legislative terms, “securities”
includes financial derivatives) is the Securities Board of India (SEBI). It regulates stock
exchanges, market intermediaries and other service providers and their activities, and
promotes investor education and training of market intermediaries. The market for domestic
government securities (G-secs), which are traded both OTC and on exchange, is developed
and managed by the Reserve Bank of India (RBI), the nation’s central bank. It also issues
G-secs on behalf of the Indian Government.
At the policy level, the Ministry of Finance (MOF) is responsible for formulating polices and
administering the relevant Acts for the regulation and development of the securities market;
and the Ministry of Corporate Affairs (MCA) is primarily responsible for administering the
Acts governing the corporate sector.
4.1 Key exchanges
The NSE and the BSE are the most prominent stock exchanges in India — almost all cash
market trading (equities and other securities, excluding financial derivatives) is done on the
two exchanges, with the NSE having the lion’s share (81% in 2011/126). These two
exchanges are also the only exchanges in India offering equity derivatives, in which trading
volume is also dominated by the NSE (97%). Currently, only the NSE, MCX Stock
Exchange (MCX-SX) and the United Stock Exchange of India (USE) offer currency
derivatives, in which the NSE has again the largest share by trading volume (47% in 2011/12),
followed by MCX-SX (37%). (See Figure 4-1.)
The NSE offers the trading of shares, warrants, mutual funds (including ETFs), fixed income
securities (include G-sec), futures and options contracts on equities, equity indices and
currencies, and interest rate futures. The National Securities Clearing Corporation Limited
(NSCCL), the NSE’s wholly-owned subsidiary, clears and settles the transactions of equity
and financial derivatives.
The BSE’s product offering is similar to the NSE’s except that the BSE does not offer trading
of interest rate futures and has suspended the trading of currency futures since April 2010.
BOI Shareholding Limited (BOISL, 49% owned by the BSE) is the BSE’s clearing house for
funds and securities while Indian Clearing Corporation Limited (ICCL), the BSE’s
subsidiary, provides clearing and settlement services for the BSE’s mutual funds and
corporate debt segments.
6 The financial year in India is from April to March the following year (the same convention is used for this
India section of the article).
The BRICS Securities and Derivatives Markets
- 14 - Research & Corporate Development, HKEx
31 December 2012
The two exchange groups operate the only two authorised securities depositories in India —
the National Securities Depository Limited (NSDL), the NSE’s associate/affiliate company,
and the Central Depository Services (India) Limited (CDSL) which is 54% owned by the
BSE. Securities settlement is not yet fully dematerialised — net settlement is conducted by
electronic delivery of securities at NSDL and CDSL while physical settlement is provided for
on a trade-for-trade basis.
Figure 4-1. Turnover of cash market securities and selected financial derivatives on all
Indian stock exchanges (Apr 2011 – Mar 2012)
(a) Cash market turnover value
(b) Equity derivatives trading volume
(c) Currency derivatives trading volume
Notes:
(1) Cash market turnover value is converted to USD using period-end exchange rate (source: RBI).
(2) Other exchanges had eligible trading value/volume.
Sources: SEBI annual reports and bulletins
NSE
US$549 bil
(81%)
BSE
US$130 bil
(19%)
Cash market turnover on all Indian stock exchanges (Apr 2011 - Mar 2012)
Total: US$680 bil
NSE
1,205 mil
(97%)
BSE
32 mil
(3%)
Contract volume of exchanged-traded equity derivatives in India
(Apr 2011 - Mar 2012)
Total: 1,237 mil contracts
NSE
973 mil
(47%)
MCX-SX
770 mil
(37%)
USE
315 mil
(15%)
Contract volume of exchanged-traded currency derivatives in India
(Apr 2011 - Mar 2012)
Total: 2,058 mil contracts
The BRICS Securities and Derivatives Markets
- 15 - Research & Corporate Development, HKEx
31 December 2012
4.2 Cash market
Figure 4-2 shows the growth of the cash markets operated by the NSE and the BSE in the past
decade. Although the BSE has a much larger number of listed companies than the NSE
(5,133 vs 1,646 as at the end of March 2012), they have similar equity market capitalisation
(US$1,192 billion for the NSE vs US$1,215 billion for the BSE) given that most of the
companies listed on the NSE are dual-listed on the BSE. NSE’s total cash market turnover
has grown to 4 times that of BSE by 2011/12 (US$549 billion vs US$130 billion).
Figure 4-2. Market capitalisation, turnover value and number of listed companies
in the NSE’s and the BSE’s cash market segment (2002/03 – 2011/12)
Notes:
(1) Market capitalisation and turnover are converted to USD using period-end exchange rates (source: RBI).
(2) The reporting year covers April each year to March the following year.
(3) The significant decrease in the number of listed companies in the BSE from 2003/04 to 2004/05 is partly
due to the delisting of 552 companies in July 2004 because of their non-compliance with the BSE’s listing
agreements.
Sources: NSE statistics and SEBI Bulletins
818
909 970
1,069
1,228
1,381 1,432
1,470
1,574 1,646
113
258
362
631 773
1,215
568
1,331 1,501
1,192
130 253 261
352
446
888
540
917
801
549
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
No
. o
f li
sted
co
mp
an
ies
Ma
rket
ca
pit
ali
sati
on
/ c
ash
ma
rket
tu
rno
ver
(U
S$
bil
lio
n)
Preiod-end Market capitalisation, cash market trunover and no. of listed companies on NSE (2002/03 - 2011/12)
No. of listed companies
Market capitalisation
Cash market turnover
Reporting year
5,650
5,528
4,731
4,781
4,821 4,887
4,929 4,975
5,067 5,133
120
277
388
677
813
1,285
606
1,366
1,532
1,215
66 116 119 183
219
395
216
305 247
130 4,200
4,400
4,600
4,800
5,000
5,200
5,400
5,600
5,800
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
No
. o
f li
sted
co
mp
an
ies
Ma
rket
ca
pit
ali
sati
on
/ c
ash
ma
rket
tu
rno
ver
(U
S$
bil
lio
n)
Preiod-end Market capitalisation, cash market trunover and no. of listed companies on BSE (2002/03 - 2011/12)
No. of listed companies
Market capitalisation
Cash market turnover
Reporting year
BSE
NSE
The BRICS Securities and Derivatives Markets
- 16 - Research & Corporate Development, HKEx
31 December 2012
4.3 Financial derivatives market
The NSE is not only the largest exchange in India in terms of contract volume of financial
derivatives but also a prominent derivatives exchange in the world. It ranked 3rd
in terms of
aggregate derivatives volume in 2011, behind Korea Exchange (KRX) and CME Group7.
Among the various product types, index options are the most actively traded, surpassing
currency futures in 2011/12 — contributing 40% of the NSE’s total derivatives volume,
compared to 32% for currency futures (see Figure 4-3). In respect of trading activity by
underlying, option contracts on the S&P CNX Nifty Index were the most active in the year
2011, contributing 39% of the total8. It was followed by futures contracts on US dollar (US$)
against Indian Rupee (32%), option contracts on US$ against Indian Rupee (11%) and futures
contracts on the S&P CNX Nifty Index (6%). Stock futures and stock options accounted
for 7.3% and 1.5% respectively of the total (see Table 4-1).
Table 4-1. Top 5 derivatives products by contract volume on NSE (2011)
Rank Derivatives Contract volume % of total
1 S&P CNX Nifty Index Options 868,684,582 39.5%
2 US Dollar/Indian Rupee Futures 697,825,411 31.7%
3 US Dollar/Indian Rupee Options 252,807,126 11.5%
4 S&P CNX Nifty Index Futures 123,144,880 5.6%
5 EUR/Indian Rupee Futures 18,065,186 0.8%
- All individual stock futures 160,878,260 7.3%
- All individual stock options 33,172,963 1.5%
- Others 45,788,242 2.1%
All NSE products 2,200,366,650 100.0%
Source: FIA statistics
Although the BSE is the first exchange to offer equity derivatives in India (SENSEX futures
in 2000), it captured only a 1%-3% market share in equity derivatives each year in the past
decade. In view of this lacklustre performance, the BSE introduced a series of Liquidity
Enhancement Incentive Programmes (LEIPS) in late September 2011 to boost lasting
liquidity in the segment. As a result, total trading volume in the BSE derivatives market
increased from 6,000 contracts in 2010/11 to 32 million contracts in 2011/12 contributed
mainly by equity derivatives — 77% in 2011/12 by index options and 22% by index futures
products (mainly SENSEX Index futures). (See Figure 4-3.)
7 Source: FIA statistics. It should be noted that the contract sizes of the NSE’s products are much smaller
than the US standards. For example, the multiplier of the NSE’s S&P CNX Nifty Index futures/options is
INR100 (US$1.9 as of end-2011) per index point, with a contract size of US$8,324, compared with US$50
per index point for CME’s E-mini S&P 500 Index futures, with a contract size of US$62,880 as of end-2011;
the contract size of the NSE’s US dollar/Indian Rupee futures/options is US$1,000, compared with €125,000
(US$162,156) for CME’s Euro FX futures. 8 Source: FIA statistics
The BRICS Securities and Derivatives Markets
- 17 - Research & Corporate Development, HKEx
31 December 2012
Figure 4-3. Contract volume of all financial derivatives on the NSE and the BSE
(2002/03 – 2011/12)
Notes:
(1) The reporting year covers April each year to March the following year.
(2) Contract volume figures of the NSE’s interest rate futures and the BSE’s stock options are too small to be
identifiable in the chart.
(3) The volume of the BSE’s products grew very strongly in 2011/12 after the launch of a series of Liquidity
Enhancement Incentive Programmes in late September 2011.
Sources: NSE statistics and SEBI Bulletins
In the BRICS Exchange Alliance, futures on SENSEX, one of the benchmark indices of the
Indian stock market, is the cross-listed product. Figure 4-4 shows the monthly trading
volume of SENSEX Index futures on the BSE from January 2011 to June 2012 (where data is
available) and the daily closing of the underlying index for the past decade. The average
daily volume was 57,433 contracts in 2012 up to June.
81 157 210
(30%) 178 165 146 81 105
204
(48%)
222
(32%) 146 186 158
55
212
(31%) 341
(32%)
651
(36%)
864
(40%) 14
33
36
33
379
(36%)
712
(40%)
701
(32%)
37
272
(12%)
[17] [57] [77] [158]
[219]
[425]
[690]
[1,058]
[1,784]
[2,179]
0
500
1,000
1,500
2,000
2,500
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Nu
mb
er o
f co
ntr
act
s (m
illi
on
)
Contract volume of financial derivatives in NSE (2002/03 - 2011/12)
Index Futures Stock Futures Index Options
Stock Options Currency Futures Currency Options
[ ] Total contract volume
( ) % share
Reporting year
2
7
(96%) 7
(22%)
25
(77%)
[0.1] [0.4] [0.5] [0.0002]
[1.8]
[7.5]
[0.7] [0.009] [0.006]
[32]
0
5
10
15
20
25
30
35
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Nu
mb
er o
f co
ntr
act
s (m
illi
on
)
Contract volume of financial derivatives in BSE (2002/03 - 2011/12)
Index Futures Stock Futures Index Options Currency Futures
[ ] Total contract volume
( ) % share
Reporting year
NSE
BSE
The BRICS Securities and Derivatives Markets
- 18 - Research & Corporate Development, HKEx
31 December 2012
Figure 4-4. Daily closing of SENSEX Index and monthly trading volume of
SENSEX Index futures on the BSE (2002 – 2012H1)
Note: Volume figures of SENSEX Index Futures are available since January 2011 and those before late 2011
are too small to be identifiable in the chart.
Sources: Reuters and FIA
4.4 Other international cooperation initiatives
Alliances that the Indian exchanges have reached with their overseas counterparts are mainly
in the area of derivatives product development.
The NSE has established a cross-listing relationship with CME Group for the listing of futures
contracts on the NSE’s S&P CNX Nifty Index in the US and futures and options contracts on
the two US indices S&P 500 Index (S&P 500) and Dow Jones Industrial Average (DJIA) in
India. The NSE has also partnered with Singapore Exchange (SGX) in the listing of futures
and options contracts on S&P CNX Nifty Index in Singapore. Launched in 2000, SGX’s
S&P CNX Nifty Index futures achieved a significant trading volume — 14.7 million contracts
in 2011, representing 20% of SGX’s total derivatives volume. On the other hand, the
mini-futures contracts on the index launched by CME Group in 2010 had only about 46,000
contracts traded in 2011.
Reciprocally, the NSE launched S&P 500 futures and options and DJIA futures in August
2011, which achieved average daily volumes of 1,846 contracts, 99 contracts and 2,464
contracts respectively in the first half of 2012. The next attempt of the NSE to offer trading
of futures and options on foreign indices in India was made in May 2012 when it partnered
with FTSE Group (part of LSE Group) to launch FTSE 100 Index futures and options
contracts. These products achieved average daily volumes of 5,064 contracts and 830
contracts respectively up to June 2012. The NSE, which has signed a “letter of support” on
the BRICS Exchange Alliance, has not joined the other alliance members in the cross-listing
of benchmark equity index products.
0
1
2
3
4
0
5,000
10,000
15,000
20,000
25,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Fu
ture
tra
din
g v
olu
me
(mil
lio
n c
on
tra
cts)
SE
NS
EX
In
dex
da
ily
clo
sin
g (
po
ints
)
SENSEX daily closing and monthly volume of SENSEX Index futures (2002 - 2012H1)
SENSEX Index futures monthly volume
SENSEX Index daily closing
3264 (2002/01/01)
21005 (2010/11/05)
17430 (2012/06/29)
2834 (2002/10/28)
The BRICS Securities and Derivatives Markets
- 19 - Research & Corporate Development, HKEx
31 December 2012
The BSE, whose shareholders include DB and SGX (5% each), partnered with Eurex of the
DB Group to launch SENSEX Index futures and options in Germany in October 2010.
However, little or no trading has been recorded since then. In addition, the BSE agreed with
the US International Securities Exchange (ISE) of the DB Group for the introduction of
derivatives based on ISE’s indices in India. However, such products are not yet launched.
Separately, the BSE signed a MOU with the Osaka Securities Exchange (OSE) in April 2011
for the development of financial markets in India and Japan.
To promote sustainable investment practices in its market, the BSE joined in October 2012 the
Sustainable Stock Exchange Initiative which is promoted by five global exchanges —
NASDAQ OMX, BM&FBOVESPA, the JSE, Egyptian Exchange and the Istanbul Stock
Exchange.
5. CHINA/HONG KONG
Mainland China and Hong Kong operate independent securities and derivatives markets,
under different rules and regulations and with different market infrastructure. In Mainland
China, there are two stock exchanges ― the Shanghai Stock Exchange (SHSE) and the
Shenzhen Stock Exchange (SZSE); one financial derivatives exchange ― China Financial
Futures Exchange (CFFEX); and three commodities exchanges ― Shanghai Futures
Exchange (SHFE), Dalian Commodity Exchange (DCE) and Zhengzhou Commodity
Exchange (ZCE) which offer futures trading on commodities. Apart from that, there is a
national off-exchange (over-the-counter) trading system ― the Agency Share Transfer System
― for the trading of delisted stocks and for technology growth companies.9 In Hong Kong,
HKEx is the dominant exchange operating both the securities and the derivatives market.
This section focuses on the stock exchanges and the financial derivatives exchanges in the
China/Hong Kong markets, although the Mainland exchanges are not yet members of the
BRICS Exchange Alliance.
The China Securities Regulatory Commission (CSRC) is the securities and futures market
regulator in Mainland China. It regulates the exchanges and clearing houses, market
intermediaries, investment fund companies and other service providers in the market. The
People’s Bank of China (PBOC, the Central Bank) and the China Banking Regulatory
Commission (CBRC) are responsible for the regulation of the banks which provide services
for the securities and futures market. The China Insurance Regulatory Commission (CIRC)
is responsible for regulating the insurance companies, including their scope and degree of
participation in the securities and futures markets. In the process of gradual market opening,
the CSRC works with the other two regulators and other government authorities, including the
State Administration of Foreign Exchange, in formulating related policies and regulations.
9 There are also numerous local equity or property rights exchanges in the Mainland, which provide trading
venues for the shares and assets of non-listed companies. These are outside the scope of the current article.
The BRICS Securities and Derivatives Markets
- 20 - Research & Corporate Development, HKEx
31 December 2012
In Hong Kong, the Securities and Futures Commission (SFC) is the securities and
derivatives market regulator while the Hong Kong Monetary Authority (HKMA) is the
frontline regulator of banks which conduct securities and futures businesses.
5.1 Securities market
Of the exchanges in the China/Hong Kong markets, only HKEx is currently a member of the
BRICS Exchange Alliance. It operates a Main Board and the Growth Enterprise Market
(GEM). Listed securities include equities, equity warrants, derivative warrants, Callable
Bull/Bear Contracts (CBBCs)10
, debt securities and funds (including ETFs). Clearing and
settlement is performed by the Hong Kong Securities Clearing Company (HKSCC) on an
immobilised basis. Securities registration is performed at the share registrars.
On the Mainland, the SHSE operates a Main Board while the SZSE operates a Main Board, a
Small and Medium sized Enterprise (SME) Board (launched on 24 June 2004) under the Main
Board, and a separate board, ChiNext, for growth enterprises (launched on 30 October 2009).
Listed securities on the SHSE and SZSE include equities, government bonds, corporate bonds
(including convertibles), equity warrants, investment funds (including ETFs) and bond
repurchases. Securities clearing, settlement and registration is performed by the China
Securities Depository & Clearing Corporation (SD&C)11
in electronic book-entry form as
the Mainland securities market is already dematerialised.
The Mainland securities market is partly opened to foreign investors through the Qualified
Foreign Institutional Investor (QFII) scheme for investment in A shares and through the
specialised equity product, B shares, which are traded in foreign currencies. The investment
of QFIIs is subject to authorised investment quota controlled by the Mainland Government.
B shares were originally designed for foreign investors but were subsequently opened to
domestic residents in February 2001. The Hong Kong market, on the other hand, is an open
market without restriction on investor participation and fund flows.
The Hong Kong market and the Shanghai market have comparable market size by value of
listed companies while the Mainland markets have higher turnover value. Figure 5-1 shows
the trend in market capitalisation and turnover for the three markets in the past decade. As at
the end of 2011, the market capitalisation of HKEx was US$2,258 billion and that of the
SHSE was US$2,355 billion. Among the three, the SHSE has the largest average daily
turnover value (US$30 billion in 2011 vs US$13 billion for the SZSE and US$9 billion for
HKEx) while the SZSE has the highest equity turnover ratio (227% in 2011 vs 160% for
SHSE & 69% for HKEx).
10
CBBCs are a kind of structured product issued by a third party, usually an investment bank, that tracks the
performance of an underlying asset without requiring investors to pay the full price required to own the
actual asset. 11
SD&C is the securities central clearing house established by the two exchanges, which operates two branch
companies in Shanghai and Shenzhen to serve the respective markets.
The BRICS Securities and Derivatives Markets
- 21 - Research & Corporate Development, HKEx
31 December 2012
Figure 5-1. Equity market capitalisation and total market turnover value
on SHSE, SZSE and HKEx (2002 - 2011)
Source: Monthly statistics of SHSE amd SZSE, HKEx Fact Books 2002-2011.
Figure 5-2 shows the trading composition by type of security on the markets. Securities
trading on the SHSE is contributed almost equally by equities and debt securities while that
on the SZSE is dominated by equities. A significant proportion of HKEx’s securities trading
is contributed by structured products including derivative warrants and CBBCs.
Figure 5-2. Trading composition by security type on SHSE, SZSE and HKEx (2011)
Source: Monthly statistics of the respective exchanges.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
To
tal
ma
rket
tu
rno
ver
va
lue
(TV
)
Eq
uit
y m
ark
et c
ap
itali
sati
on
(M
C)
Equity market capitalisation and total market turnover value on SHSE, SZSE & HKEx
(2002 - 2011)
SHSE TV SZSE TV HKEx TV
SHSE MC SZSE MC HKEx MC
US$bn US$bn
2,209
3,066
7,215
2,355
2,258
1,054
US$1,554 bn
(70%)
US$77 bn
(4%)
US$577 bn
(26%)
US$2,922 bn
(95%)
US$89 bn
(3%)
US$55 bn
(2%)
US$3,770 bn
(52%)
US$3,344 bn
(46%)
US$46 bn (1%)
US$55 bn (1%)
Trading composition by security type on SHSE, SZSE and HKEx
(2011)
Equities Debt securities Funds Structured products
Total (US$bn)
SHSE 7,215
SZSE 3,066
HKEx 2,209
The BRICS Securities and Derivatives Markets
- 22 - Research & Corporate Development, HKEx
31 December 2012
Figure 5-3 shows the new listing activities on the markets. SZSE, which offers a listing
platform for smaller companies, has attracted the most number of listings since 2007. Funds
raised by newly listed companies on HKEx has been the highest among the three exchanges
since 2009.
Figure 5-3. Number of and funds raised by newly listed companies (NLC) on
SHSE, SZSE and HKEx (2002 - 2011)
Source: Monthly statistics of the respective exchanges.
5.2 Financial derivatives market
HKEx, a member of the BRICS Exchange Alliance, offers trading in various products,
comprising equity index futures and options, single-stock futures and options, and other
products12
on its derivatives market. In the Mainland, CFFEX is the only exchange
offering financial derivatives. The only product currently available for trading is the CSI300
Index futures, which started trading since 16 April 2010. In February 2012, CFFEX
commenced simulated trading in government bond futures which has been suspended since
May 1995 after serious market malpractices. In 2011, the average daily contract volume on
HKEx and CFFEX was 572,275 contracts and 206,606 contracts respectively.
Figure 5-4 shows the trading composition by product type on the two exchanges.
Derivatives trading on HKEx in terms of number of contracts is dominated by options
products, mainly stock options (53% in 2011). Equity index futures contributed 36% —
16% by Hang Seng Index futures standard contracts, the cross-listed product in the BRICS
Exchange Alliance. Figure 5-5 shows the monthly trading volume of this contract on HKEx
over the past decade. The average daily trading volume for the product was 94,036 contracts
in 2011, 4 times that ten years ago.
12
Other products are interest rate futures, fixed income futures and gold futures. Their volumes are minimal.
15.1
60.3
10.7
18.4
28.7
16.1
2.1
5.94.4
9.2
45.5
28.7
42.9
37.5
8.5
32.0
57.8
33.5
13
25
6 9
26
39
52
101
7190
321
243
62 84
35
69
101
89
0
50
100
150
200
250
300
350
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
No. of
new
ly l
iste
d c
om
pan
ies
(NL
C)
Fu
nd
s ra
ised
(F
R)
by N
LC
s
Number of and funds raised by newly listed companies on SHSE, SZSE & HKEx
(2002 - 2011)
SHSE FR by NLC SZSE FR by NLC HKEx FR by NLC
SHSE NLC SZSE NLC HKEx NLC
US$bn
The BRICS Securities and Derivatives Markets
- 23 - Research & Corporate Development, HKEx
31 December 2012
Figure 5-4. Trading composition by derivatives product type on CFFEX and HKEx
(No. of contracts) (2011)
Source: Annual statistics of CFFEX, HKEx Fact Book 2011.
Figure 5-5. Hang Seng Index (HSI) daily closing and monthly trading volume
of HSI futures on HKEx (2002 - 2011)
Source: Reuters and HKEx Fact Books 2002-2011.
50.4m
(100%)
50.3 m
(36%)
15.4 m
(11%)
0.4
(0%)
74.3m
(53%)
Trading composition by derivatives product type on CFFEX and HKEx
(No. of contracts) (2011)
Equity index futures Equity index options Single-stock futures Single-stock options
Contracts
HKEx 140,493,472
CFFEX 50,411,860
0
1
2
3
4
5
6
7
8
0
5000
10000
15000
20000
25000
30000
35000
2002/01 2003/01 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01 2010/01 2011/01
Tra
din
g v
olu
me
(mil
co
ntr
act
s)
HS
I d
ail
y c
losi
ng (
po
ints
)
Year/month
Hang Seng Index (HSI) daily closing and monthly trading volume of HSI futures (2002 - 2011)
HSI futures monthly volume
HSI daily closing
31638.22 (2007/10/30)
11015.84 (2008/10/27)
11350.85 (2002/01/02)
8409.01(2003/04/25)
18434.39 (2011/12/30)
Sources: Reuters and HKEx Fact Book, 2002-2011
The BRICS Securities and Derivatives Markets
- 24 - Research & Corporate Development, HKEx
31 December 2012
5.3 Other international cooperation initiatives
The SHSE so far has signed cooperative MOUs or agreements with 37 overseas exchanges or
markets, including ASX, SGX, the NYSE, TSX, the LSE, Borsa Italia, Nasdaq Stock Market,
OMX, Euronext, DB, Chicago Board Options Exchange (CBOE) and the CME. The SZSE
has also signed MOUs with nearly 30 overseas exchanges. It has also signed an MOU with
the International Finance Corporation (a member company of the World Bank Group) on
corporate governance training and another one with Standard & Poor’s on index development
and product listing.
Among the Mainland futures exchanges, the SHFE has signed MOUs on cooperation with a
number of overseas counterparts, including those in Korea, Australia, the US and Japan. The
DCE has signed MOUs with Dubai Gold & Commodities Exchange (DGCX), KRX and
NASDAQ OMX in the second half of 2012. CFFEX signed MOUs on cooperation with
CBOE, CME, DB and NYSE Euronext in May 2012. However, no specific trading or listing
cooperation has been established between the Mainland exchanges and overseas counterparts,
except with HKEx on the regulation of H shares with A shares listed in the Mainland.
Apart from MOUs on cooperation with the SHSE and SZSE, HKEx has signed MOUs with a
number of overseas exchanges, including KRX, Hanoi Stock Exchange, Taiwan Stock
Exchange (TWSE) and GreTai Securities Market, and Kazakhstan’s exchange; and with the
four futures exchanges, the CSRC and other financial market authorities in the Mainland. It
had also signed regulatory agreements with the U.S. National Association of Securities
Dealers (NASD, now the Financial Industry Regulatory Authority (FINRA)) to facilitate the
launch of a Pilot Programme in 2000 for trading seven Nasdaq stocks on its market; however,
little trading in this segment has been recorded.
6. SOUTH AFRICA
The Johannesburg Stock Exchange (JSE) is the only full-service securities and derivatives
exchange in South Africa. It was listed on the Main Board of its stock market in June 2006.
The former South African Futures Exchange (SAFEX) and Bond Exchange of South Africa
(BESA), which offered trading in derivatives and interest rate products respectively, are now
part of the JSE corporate group. The JSE has a 45% equity interest in Strate Ltd, the central
securities depository (CSD) in South Africa, where “Strate” originally stands for the “Share
Transaction Totally Electronic System”.
The Financial Services Board (FSB) is the regulator responsible for overseeing the South
African non-banking financial service industry. As a self-regulatory organisation, the JSE
regulates issuers and investors and is supervised by the FSB. The fiscal policies of the
country are managed by the National Treasury under the Ministry of Finance, which finances
the government’s budget deficits by issuing various types of public debt instruments. The
banking industry, which participates in the bond market, is regulated by the central bank —
the South African Reserve Bank. The Reserve Bank is a privately owned bank whose
shares are traded on an Over-the-Counter Share Transfer Facility (OTCSTF) market
coordinated within the bank itself. There is no OTC market for securities listed on the JSE.
The BRICS Securities and Derivatives Markets
- 25 - Research & Corporate Development, HKEx
31 December 2012
6.1 Market segments
The JSE provides issuance, trading and post-trade services across the markets of equities,
interest rate products and derivatives. Equity products include ordinary and preference
shares, ETFs, warrants, real estate investment trusts (REITs), South African Depository
Receipts (SADRs) on foreign shares and some less typical products (Krugerrand gold coins
and carbon credit notes). The interest rate market offers spot trading and repo trading in
corporate and government bonds and their related futures products. Other derivatives
available are futures and options on equities, currencies and commodities (including metals,
crude oil and agricultural products) which are traded on the Yield-X business segment of the
JSE. Yield-X is in the process of merging its interest rate product segment with BESA after
the JSE’s acquisition of the latter in 2009.
Equity market trading is conducted on the LSE’s latest technology platform, Millennium
Exchange. Interest rate and derivatives products are traded on the Nutron Trading System.
The equity clearing system is the Broker Deal Accounting (BDA) System, the back-office
system that JSE members must use for maintaining their accounting and client records.
Electronic securities settlement is conducted on a T+5 cycle by Strate for dematerialised or
immobilised securities, including bonds. Derivatives products are cleared by the SAFEX
Clearing Company (SAFCOM), a wholly owned clearing house of the JSE.
6.2 Equity market
The JSE’s equity products are traded on two markets — Main Board and Alternative
Exchange (AltX). The latter caters for smaller companies which are not yet able to list on
the Main Board. There was a third market — Africa Board — for the listing of African
companies domiciled outside South Africa but it was closed in April 2012, with the listings
moved to the Main Board. Over 70 Main Board-listed companies are also dually listed on
overseas exchanges, including Australian Stock Exchange (ASX), the LSE, Nasdaq Stock
Market and the NYSE. Figure 6-1 shows the growth in market capitalisation of all listed
companies and annual turnover on the JSE equity markets in the past decade.
Figure 6-1. Equity market capitalisation and turnover on JSE (2002 – 2011)
Sources: Monthly statistics of JSE and WFE
96 113
183 202
301
436
349380
452407
188
268
456
565
715
834
486
805
1,013
856
0
200
400
600
800
1,000
1,200
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Eq
uit
y m
ark
et c
ap
ita
lisa
tion
/ E
qu
tiy
tu
rno
ver
(U
S$
bn
)
Equity market capitalisation and turnover on JSE (2002 - 2011)
Equity turnover value
Equity market capitalisation
Sources: Monthly statistics of JSE and WFE
The BRICS Securities and Derivatives Markets
- 26 - Research & Corporate Development, HKEx
31 December 2012
Figure 6-2 shows key statistics on the JSE’s primary market activities in the same period.
During this period, there were not many newly listed companies — the largest number of
listings, 62, was observed in 2007 before the global financial crisis. Alongside, equity
capital raised through means that require publication of a prospectus (including IPOs) was
rarely recorded — the biggest amount was recorded in 2003 (17% of total capital raised).
Figure 6-2. Equity capital raised and number of newly listed companies on JSE (2002 – 2011)
Source: JSE monthly statistics
6.3 Interest rate market
Various types of cash debt instruments, including vanillas, commercial papers, consumer price
index (CPI)-linked instruments, credit-linked notes and equity structured notes, are available
on the JSE’s interest rate market. Compared to the equity market, the bond market is much
more active in terms of turnover — constituting 87% of total market turnover value in 2011
(see Figure 6-3) — despite a much smaller market capitalisation (some 20% that of equities).
As at the end of September 2011 (the latest available statistics), there were 1,137 bonds listed
on the JSE, with a total market capitalisation of ZAR1,414 billion (US$176 billion). The
majority of these bonds were issued by corporates (mostly by banks) but in value terms it was
dominated by government and public organisation issues (see Figure 6-4). In 2011, there
were 733 newly issued bonds, with a nominal value of ZAR378 billion (US$47 billion).
[11,988]
[3,395]
[7,424]
[12,953][12,405]
[18,268]
[8,200]
[14,528]
[12,222]
[10,844]
9 8
17 19
37
62
23
1014 16
0
40
80
120
160
0
5,000
10,000
15,000
20,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
No
. o
f n
ewly
lis
ted
co
mp
an
ies
Ca
pit
al
rais
ed (
US
$m
)
Equity capital raised and number of newly listed companies on JSE (2002 - 2011)
Capital raised via prospectus
Capital raised via other means
No of newly listed companies
[ ] : Total capital raised
Source: JSE monthly statistics
The BRICS Securities and Derivatives Markets
- 27 - Research & Corporate Development, HKEx
31 December 2012
Figure 6-3. Market share of equity products, bonds and bond repos
in turnover value on JSE (2011)
* Equity products include ordinary shares, debentures, DRs, ETFs, ETNs, funds, warrants and REITs.
Source: JSE monthly statistics
Figure 6-4. Distribution in number and market capitalisation of bond listings
on JSE by type (Sep 2011)
(a) No. of listings
Total: 1,137
(b) Market capitalisation
Total: US$176 billion
* SPVs are special purpose vehicles, which are backed by single assets or pools of assets.
^ “Others” includes bonds issued by non-resident organisations.
Note: Numbers may not add up to 100% due to rounding.
Source: JSE Quarterly Review of Interest Rate Market, 2011Q3
6.4 Financial derivatives market
The JSE derivatives market is dominated by financial derivatives, the underlying assets of
which are equities, currencies and interest rates. Among them, equity derivatives are the
most actively traded. Almost 99% of the total derivatives trading volume and open interest
in 2011 came from financial derivatives and over 88% is attributable to equity derivatives.
Single-stock futures and options (available for both domestic and foreign stocks) had a 57%
dominant share in equity derivatives trading volume, in which single-stock futures had a
bigger share than single-stock options (49% vs 8%). Notably, single-stock dividend futures
Equity products*
13%
Bonds
29%Bond repos
58%
Market share of equity products, bonds and bond repos in turnover value on JSE (2011)
Total turnover value: US$3,216,719m
* Equity products include ordinary shares, debentures, depository receipts, ETFs, ETNs, funds, warrants and REITs.
Source: JSE monthly statistics
Central government
7%
Municipal government
1%
State-owned enterprises
4%
Water authorities
1%
Corporates
57%
SPVs*
27%
Others^
3%
No. of bond listings on JSE by type (Sep 2011)
* Special purpose vehicles (SPVs) are backed by single assets or pools of assets.
^ Others include bonds issued by non-resident organisations.
Source: JSE Quarterly Review of Interest Rate Market
Total no. of listings: 1,137
Central government
60%
Municipal government
1%
State-owned
enterprises
13%
Water authorities
2%
Corporates
19%
SPVs*
6%
Others^
1%
Market capitalisation of bond listings on JSE by type (Sep 2011)
* Special purpose vehicles (SPVs) are backed by single assets or pools of assets.
^ Others include bonds issued by non-resident organisations.
Note: Numbers do not add up to 100% due to rounding.
Source: JSE Quarterly Review of Interest Rate Market
Total market cap: US$176 billion
The BRICS Securities and Derivatives Markets
- 28 - Research & Corporate Development, HKEx
31 December 2012
also had a substantial share (27%). Index futures (including volatility index futures) and
options accounted for only 15% of the equity derivatives trading volume with the majority
(9%) came from a single product — futures on the FTSE/JSE Top 40 Index, the benchmark
index of the South African stock market. (See Figure 6-5.)
Although the JSE does not operate an OTC market, it seeks to incorporate the flexibility of
OTC derivatives into listed derivatives by introducing “Can-Do” futures and options, which
allow investors to negotiate the contract terms in respect of the underlying asset and expiry
date. The underlying asset may be a single stock, an index or a basket of shares. Similar to
many OTC derivatives, Can-Do futures and options are not suitable for general retail
investors given the considerable minimum contract size of ZAR10 million. They
contributed only 1% of the equity derivatives trading volume in 2011.
Figure 6-5. Distribution of JSE derivatives trading volume and open interest
by product type (2011)
(a) Trading volume
Total no. of contracts: 167,503,211
(b) Open interest
Total no. of contracts: 13,321,940
(c) Trading volume of equity derivatives
by underlying asset
Total no. of contracts: 148,821,912
* Agricultural products, crude oil and metals
^ Including International Derivatives (IDX), which are futures on internationally listed shares
Note: Numbers may not add up to 100% due to rounding.
Source: JSE monthly statistics
Equity futures
79%Equity options
10%
Currencies F&O
9%
Interest rate F&O
1%
Commodities F&O*
2%
Derivatives market trading volume of JSE by product type (2011)
* Agricultural products, crude oil and metals
Note: Numbers do not add up to 100% due to rounding
Source: JSE monthly statistics
Total no. of contracts: 167,503,211
Equity futures
72%
Equity options
17%
Currencies F&O
6%
Interest rate F&O
4%
Commodities F&O*
1%
Derivatives market open interest of JSE by product type (2011)
* Agricultural products, crude oil and metals
Source: JSE monthly statistics
Total no. of contracts: 13,321,940
Single-stock futures^
49%
Single-stock options
8%
Single-stock dividend
futures^
27%
FTSE/JSE Top 40 Index
futures
9%
Other index F&O
6%
Can-do F&O
1%
Equity derivatives trading volume of JSE by underlying asset (2011)
^ Including International Derivatives (IDX), which are futures on internationally listed shares
Source: JSE monthly statistics
Total no. of contracts: 148,821,912
The BRICS Securities and Derivatives Markets
- 29 - Research & Corporate Development, HKEx
31 December 2012
Futures contract on FTSE/JSE Top 40 Index is the first cross-listed product of the JSE for the
BRICS Alliance. This index was launched in June 2002 by the JSE and FTSE (now part of
LSE Group) to replace JSE’s benchmark index at that time. Figure 6-6 shows the daily
closing and the monthly futures trading volume of this index from 2002 to 2011. Since the
index futures is a quarter-month contract, it assumes a 3-month pattern of exceptionally high
volume at quarter-end months when roll-over takes place. In 2011, this futures product
constituted 72% of the total trading volume of all index futures on the JSE, with an average
daily trading volume of 53,070 contracts.
Figure 6-6. Daily closing and monthly futures trading volume of FTSE/JSE Top 40 Index
on JSE (2002 – 2011)
Sources: Reuters and FIA
6.5 Other international cooperation initiatives
The JSE is one of the ten member exchanges of the Committee of SADC Stock Exchanges
(COSSE). SADC is the Southern African Development Community, the aim of which is to
create a community providing for regional peace and security, and an integrated regional
economy. COSSE seeks to contribute to the establishment of a regional common market by
facilitating regional integration in the finance and investment field. To enhance regional
cooperation, the JSE has signed MOU on cooperation with a number of regional exchanges,
including exchanges in Namibia, Kenya, Nigeria, Ghana, Mauritius and Egypt. In Asia, the
JSE signed a MOU with the TWSE in 2003.
LSE Group has been an important technology and business partner of the JSE since 2002
when the latter launched the SETS trading system provided by LSE Group. The JSE’s SETS
system was replaced by another LSE platform — TradElect — in April 2007. In July 2012,
the system was further upgraded to the Millennium Exchange platform of LSE Group. The
LSE and JSE also reached an agreement in 2002 on dual listing, remote access and marketing
0
1
2
3
4
5
6
7
0
5000
10000
15000
20000
25000
30000
35000
2002/01 2003/01 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01 2010/01 2011/01
Fu
ture
s tr
ad
ing
vo
lum
e (m
il c
on
tra
cts)
Da
ily
in
dex
clo
sin
g (
po
ints
)
Year/month
Daily closing and monthly futures trading volume of FTSE/JSE Top40 Index
(2002 - 2011)
Monthly index futures volume
Daily index closing
31315
(2008/05/22)
15905
(2008/11/20)
10336
(2002/01/02)
6763
(2003/04/25)
28469
(2011/12/30)
Sources: Reuters and FIA
The BRICS Securities and Derivatives Markets
- 30 - Research & Corporate Development, HKEx
31 December 2012
activities. As for the cooperation on derivatives products, the JSE has signed licensing
agreements with CME Group to launch futures on corn, precious metals and crude oil.
Before BESA was acquired by the JSE, it formed a partnership with NASDAQ OMX to
launch BondClear, a new clearing house for OTC interest rate derivatives in South Africa.
NASDAQ OMX initially had a 20% stake in BondClear but the stake was subsequently sold
to the JSE. BondClear is now wholly owned by the JSE and is awaiting a clearing house
licence from the FSB.
The JSE has been an active promoter of socially responsible investment (SRI) among South
African listed companies. A further step was taken in June 2012 when the JSE, NASDAQ
OMX, BM&FBOVESPA, Istanbul Stock Exchange and Egyptian Stock Exchange announced
their joint commitment to promote long-term sustainable investment and improved
environmental, social and corporate governance disclosure and performance among their
listed companies.
* * *
Disclaimer
The analysis and framework of this paper are developed by Research & Corporate Development Department
based on the information derived from sources believed to be reliable. Any views and comments in this paper
captured within the framework do not necessarily represent those of HKEx.