The Evolution of the JSE’s Equity Derivatives Market 2001 to 2009

An ongoing stream of technical innovations introduced at the South African Futures Exchange (SAFEX) have ensured that trade in over 300 instruments has grown exponentially since SAFEX’s creation in 1989. These instruments include 280 Single Stock Futures, Dividend Futures on all the Single Stock Futures contracts listed and several indices. Options are tradable on all these futures as well. SAFEX, the JSE’s Equity Derivatives Division, was ranked last year as the 10th biggest Derivatives exchange in the world in terms of number of contracts traded.

Since 2002 the Single Stock Futures market has grown rapidly. Director of Trading at the JSE, Allan Thomson, believes one of the reasons for this growth is improved valuation methods. In 2008 the Can-Do-Options team from SAFEX won an International Award from Futures and Options World Magazine for its innovative solutions in bringing OTC trades onto the exchange. The Can-Do-Options team list and margin customizable baskets and exotic options on the exchange.

In the wake of the Credit Crunch of 2008/9 the world’s exchanges and financial institutions are wrestling with ways to bring “Over The Counter” (OTC) structured products onto exchanges in order to minimise counterparty risk through centralized clearing, daily margining and independent valuations. SAFEX’s Can-Do Team has been doing exactly this since 2006. SAFEX implemented a new trading and clearing platform on August 18th 2008. The system was developed for the JSE by a South African company called Securities and Trading Technology. The system is robust and flexible and has opened up a wide range of trading opportunities for market participants.

Internationally the world has been rocked by the rapid decline in global equities markets. Under immense strain the South Africa’s derivatives market and SAFEX’s methods have held up exceptionally well. In many emerging markets the Derivatives and Spot Markets closed and large counterparties defaulted. Some international proprietary trading desks specialising in emerging markets options have expressed interest in increasing their participation in the SAFEX market due to the recent poor performance of many emerging markets’ exchanges.

Some of the new products that have been or will be launched by the exchange include International Derivatives, African Derivatives and Variance Swaps.

As the leading audit and advisory service provider to the financial services market, KPMG has been advising clients to assist them in meeting the onerous technical and regulatory requirements demanded by the accounting and compliance frameworks of the securities trading environment.

“We have noted increasing confidence in the reliability and quality of information provided to market participants in the futures market,” says Gavin de Lange, Director of Financial Services at KPMG.