21 October 2009
The value of currency futures contracts traded on the JSE’s Currency Derivatives Market recently broke through the R100-billion mark, with trading volumes in contract terms having exceeded 11-billion since the product’s inception.
“These figures attest to growing market awareness of these derivatives as a currency risk management tool,” the JSE said in a statement this week. “In fact, despite the economic downturn, growth has been phenomenal, with volumes surging approximately 106% year-on-year.”
Because currency derivatives are used not only for hedging purposes, but also for trading and speculating, a wide variety of clients can avail themselves of these effective products.
“Currency futures will be used for trading, hedging and speculating,” Yield-X’s Warren Geers said at the launch in March 2007. “Participants will be able to take a view on where the currency is moving to, and protect themselves by buying or selling currency futures.”
Trading currency futures
Former Finance Minister Trevor Manuel gave the JSE the go-ahead to launch the market in his Budget speech in February 2007, saying it would “deepen SA’s financial markets and increase liquidity in the local foreign exchange market”.
Individuals and foreigners are allowed to trade currency futures without limits, while pension funds and long-term insurance companies can trade subject to their 15% foreign allocation allowance, and asset managers and registered collective investment schemes subject to their 25% foreign allocation limit.
Corporates and trusts are not allowed to trade currency futures unless they have a valid exchange control approval number or approval from the South African Reserve Bank.
The JSE chose Yield-X as the platform for the market because of the link between currencies and interest rates. The Yield-X platform “will ensure that only standardised contracts will be traded on a fully electronic platform, resulting in guaranteed settlement, a transparent dealing environment and true price discovery,” said Geers at the time.
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