Asian exchanges continue to rise in volumes league table

Asian exchanges continue to rise in volumes league table

Another year, another triumph. In 2009, the National Stock Exchange (NSE) of India had overtaken the Nasdaq OMX Group to become the seventh largest derivatives exchange in the world. In 2010, it surpassed Chicago Board Options Exchange and Brazil’s BM&FBovespa SA to become the world’s fifth largest derivatives exchange, Futures Industry Association’s (FIA) latest rankings show.

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The MCX group of exchanges, likewise, has risen to No. 9 position, from No. 12 in 2009. And China’s Zhengzhou Commodity Exchange and Shanghai Futures Exchange have also grown volumes at a higher rate compared with the world average. The net result of all this is that volumes of listed derivatives grew by 42.8% in the Asia-Pacific region in 2010, much higher than the global growth rate of 25.6%. And for the first time ever, Asia-Pacific accounted for the largest share of global volumes. Total volume on the derivatives exchanges in the region reached 8.86 billion contracts in 2010, considerably higher than the 7.17 billion contracts traded in North America.

It’s common knowledge that derivatives contracts are much smaller in size in Asian countries compared with developed markets. Hence, a comparison based on traded volumes is not a fair one to measure size. As pointed out by FIA, the white sugar futures contract traded on the Zhengzhou Commodity Exchange, which is the world’s largest listed agri-commodity derivatives contract, is more than five times smaller in size compared with the sugar contract that trades on ICE Futures US, which is part of the IntercontinentalExchange Group. And though the volumes of the copper futures contract on the Shanghai Futures Exchange is three times more than its counterpart on the London Metal Exchange, in terms of notional turnover, the latter is three times bigger in size.

Similarly, India’s currency futures contracts were among the fastest growing last year. But at $1,000 per contract, their size “is about 10 times smaller than the typical contract size at the Tokyo Financial Exchange, the region’s largest market in terms of foreign exchange futures, and about 100 times smaller than a typical foreign exchange contract at CME (Chicago Mercantile Exchange), the largest foreign exchange futures market in the world". This is not to say that the above-mentioned Asian contracts aren’t liquid. It’s just that they are comparatively much smaller in size. And the above trend is not true for all segments.

Data from the Bank for International Settlements (BIS) show that the listed market for futures and options on equity indexes in Asia-Pacific is larger than that in North America, even in terms of notional turnover. According to BIS data, equity index futures and options worth $109.9 trillion traded on exchanges in the Asia-Pacific region in 2010, much higher than the turnover of $76.9 trillion on North American exchanges. The relatively better performance in the equity index derivatives segment is primarily because of the record index options volumes on the Korean Exchange, which is the world’s largest exchange in volume terms.

At the same time, the share of Asian exchanges in listed interest rate and forex derivatives is minuscule, BIS data shows. By and large, Asian exchanges are much smaller in terms of notional turnover, despite their steady ascent in the volumes league table.

Among the Indian exchanges, the FIA rankings suggest that the rise of the MCX group has been quite dramatic. In 2008, its volumes were about 17% of those reported by NSE. In 2010, they stood at 67%. But this is thanks primarily to the surge in the currency futures segment, where the contract size is extremely low.

In value terms, however, the relationship between the two exchanges hasn’t really changed. In 2008, MCX’s turnover amounted to 37% of the turnover reported by NSE’s derivatives segment. In February this year, or based on latest statistics, its turnover is 37.5% of NSE’s turnover. The currency segment accounts for over 80% of MCX’s total volumes and 24% of turnover; while in NSE’s case it accounts for about 45% of volumes and 8% of turnover.

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