South Africa’s multi-asset trading venue, the Johannesburg Stock Exchange (JSE) has launched currency futures on the most liquid traded contract, EUR USD. The move comes on the back of increased demand from South African investors wanting to trade in global financial instruments in a regulated environment.
The contract launched under the Quanto derivatives range, will offer trade execution in EUR USD. Quanto futures is a product that mirrors the underlying movement of instruments on a 1 for 1 basis. If the price of the Euro/Dollar increases by 20% in dollar terms, then the value of the investor’s rand position in Euro/Dollar will also increase by 20%. Since the futures are settled in rand, it does not count towards an investor’s foreign allocation allowance.
“This type of product has attracted investors around the world who want exposure to the most traded currency globally This new currency contract will be primarily traded by investors hoping to make a profit on the movements of the Euro/Dollar exchange rate,” says Warren Geers, General Manager of Bonds and Financial Derivatives at the JSE, in a statement to the media.
The contract is classified as a Euro/Dollar futures contract which is cash-settled and traded in ZAR, but will mirror the performance of the underlying Euro/Dollar spot.
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The contract size is 10,000 nominal, and will be priced in South African Rand (ZAR). The minimum Price Movement is 0.0001 (R1.00).
South Africa, one of Africa’s largest economies, is the continent’s capital market with a robust and sophisticated trading environment. With harsh movements in the rand over the last 18 months traders have been skeptical when investing in currencies. The launch of the new contract will open up international markets to South African investors, in their domestic currency.
South Africa has been developing itself as a regional financial hub, and was an active player in the single-stock futures market, boasting the most liquid single-stock futures contract in 2007.
The euro against the dollar is the most liquid FX contract, according to the recent BIS FX Survey 2013. The EUR USD contract is predominantly traded in the OTC market. However, with pressure coming on the back of the 2008 global recession from governments and industry bodies, OTC products have become a taboo. Traders have been geared towards listed instruments for enhanced safety and security, hence the establishment of SEFs.
Over the last five years several exchanges have included the EUR USD futures contract as a mechanism to attract the traditional spot FX traders, including Bahrain’s BFX and Bourse Africa in Mauritius, and major exchanges such as the CME and Eurex have been long- standing players in the world of currency futures.