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BRICS Bourses Start Cross-Listing Derivative Indices

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Looking to expand product offerings beyond home markets, five of the world's leading emerging market indices, have started to cross-list derivative indices from Friday. Brazil's IBOVESPA futures; Russia's MICEX Index futures; Hong Kong's Hang Seng Index futures; and South Africa's FTSE/JSE Top40 futures got listed on the BSE on Friday. Part of the common linkage platform, the cross-listing however, could run into the same chicken-and-egg problem that has derailed similar efforts like liquidity. The idea to give investors in one country exposure to another hot market in their local currency carries appeal, on paper at least. However, investors won't buy into a financial product unless they are confident of liquidity, and that liquidity will not come unless investors buy in. "Not many (investors) track other markets. Liquidity would remain a problem for these instruments on a perennial basis," said Ambareesh Baliga, chief operating officer of brokerage Way2Wealth. Indian investors have seen this particular problem first hand. An exchange traded fund (ETF) tracking the Hang Seng index, now called the Goldman Sachs Hang Seng Exchange Traded Scheme, was launched in early 2010 as a way for Indian investors to track a market that had surged 52 per cent the previous year. There has been one problem: The ETF had daily average volumes of Rs 300,000 this year as of Wednesday, according to Reuters calculations based on the daily data posted in the National Stock Exchange. That's just about the cost of a Nano car from Tata Motors in some cities in India, despite a 13.3 per cent gain in the Hang Seng in the same period, slightly higher than global indexes such as the S&P 500. ETFs listed in Hong Kong have run into similar problems. Late last year, Lyxor International Asset Management, a unit of Societe Generale, delisted a number of products tracking global indexes, citing trading volume as one of the factors. Solving the problem of liquidity would be key for the success of such investment vehicles, investors said, especially as exchanges plan to introduce products beyond index futures. Price-Bands For Cross-Linked Index Price bands for the benchmark equity index derivatives will be same as that applicable for the existing stock index futures contracts, BSE said. It added that the derivatives contracts on these foreign stock indices shall also be denominated, traded and settled in Indian Rupees. BSE further noted that exchange transaction charges for trades done by trading members on these futures contracts shall be waived off for a period of 6 months from commencement (till 30 September 2012). The cross-listing of benchmark equity index derivatives is likely to facilitate liquidity growth in the BRICS markets and will considerably strengthen their international position. The founding members of the BRICS Exchanges Alliance include BM&FBOVESPA from Brazil, Open Joint Stock Company MICEX-RTS from Russia, BSE Ltd from India, Hong Kong Exchanges and Clearing Ltd (HKEx) as the initial China representative, and JSE Ltd from South Africa. The alliance was formed on 12 October 2011, at a World Federation of Exchanges' conference in Johannesburg, South Africa. The listing of benchmark equity index derivatives marks the implementation of the first phase of the alliance. Under the second phase, the member exchanges plan to work together to develop new equity index related products representing the BRICS economies and cash market product offerings. The third phase may include product development and cooperation in additional asset classes and services. Interest in the BRICS economies is prompted by above- average growth predicted for these regions as well as the rising consumer power generated by growing middle class in each nation. (With Agencies)