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Bonds and Financial Derivatives: Quo Vadis?

Bonds and Financial Derivatives: Quo Vadis?. JSE Media Day – August 2012 Graham Smale – Director: Bonds and Financial Derivatives. Agenda. Equity Derivatives Currency Derivatives Bonds Bond and IR Derivatives. 2012 – What has changed since last year.

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Bonds and Financial Derivatives: Quo Vadis?

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  1. Bonds and Financial Derivatives: Quo Vadis? JSE Media Day – August 2012 Graham Smale – Director: Bonds and Financial Derivatives

  2. Agenda • Equity Derivatives • Currency Derivatives • Bonds • Bond and IR Derivatives

  3. 2012 – What has changed since last year • In January 2012 all financial products, excluding cash equities and commodities we centralised under a single Exco position headed up by Graham Smale, who previously headed up the Interest Rates division. • The operations staff for bonds and financial derivatives has been centralised under Brett Kotze, General Manager: Clearing and Settlement, reporting to the Director: Post Trade Services • Divisional management has been streamlined into product groups and support; • Equity Derivatives – Magnus de Wet • Interest Rates and Currencies – Warren Geers • Can-Do products – Paolo Govetto • Change Management, Training and Education – Anthony Leibrandt • Quantitative Support – Rudolph Oosthuizen

  4. Equity Derivatives

  5. Equity Derivatives • The JSE has a rich product suite • Index futures options – The flagship product and responsible for most of the activity • Single Stock Futures and Options – A leveraged alternative to shares • IDX futures and options – Exposure to international equities, including BRICS (Bricsmart the JV with other BRICS exchanges) • Any-day expiry futures and options – Flexibility of expiry on standard products • Can-Do futures and options – OTC replication of complex products (as long as we can value it we will clear it) • Current challenges • Global equity markets are subdued in the wake of sustained economic uncertainty and the tsunami of regulatory change • The technology arms race

  6. How does 2012 Look?A mixed scorecard

  7. Index Futures – Our Benchmark Product

  8. The Rise and Fall of Single Stock FuturesContracts

  9. The Rise and Fall of Single Stock FuturesValue Traded

  10. Index Options

  11. Single Stock Options

  12. Equity DerivativesOpportunities for 2013 and Beyond • Bringing the equity derivatives closer to underlying equities • Billing models • Market-making incentives • Product evolution • Exchange-cleared CFDs – To benefit from the consequences of the implementation of Basel III on the costs of OTC products • Speculative dividend futures • IDX – International shares and indices • Stimulation of the options market – Electronic trading and Market-making • Technology • Evolving the technology platform (Millennium Exchange) • Co-location – The rise of the machine and the value of proximity

  13. Currency Derivatives

  14. How does 2012 Look?Good Volume Growth

  15. Currency Futures

  16. Currency Options

  17. Plans for Currency Derivatives • Evolution of the billing model • Incentives for market-makers and volume providers • Offering products that compete effectively with the OTC market • Any-day expiry • Can-Do’s - Exotic options • Linking cash settled contracts to specific spot transactions on expiry • Cross currency pairs – e.g. EURUSD, requires policy and Excon approval

  18. Bonds and IR Derivatives

  19. Products • The JSE runs a combined market for listed instruments: • Government and non-government bonds • Securitisations • Commercial paper • Bond and bond index derivatives • Short-term interest rate (STIR) futures (Jibar futures)

  20. How does 2012 Look?A product whose time has come?

  21. Product toolset Government Bonds “Risk-free” Jibar Futures GOVI Real Rates Interbank Swaps Future Inflation ILBI

  22. Issuance by sector

  23. Bonds by type

  24. Bond Issuance – Dec-06

  25. Bond Volumes – Dec-06

  26. Risk-Adjusted Bond Volumes – Dec-06

  27. Bond Issuance – Dec-11

  28. Bond Volumes – Dec-11

  29. Risk-Adjusted Bond Volumes – Dec-11

  30. Bonds and IR DerivativesFocus areas for 2012 and beyond • Defining new secondary market trading rules for the cash market • Government bonds – This will be the output from a policy forum chaired by National Treasury • Non-government bonds – Working with the market on options • Clearing of bonds – Counterparty risk will become a limiting factor under Basel III • Growing the interest rate derivatives market • Liquidity providers on key products – Aids with the “transparency” debate • New product development – Bond futures similar to popular international products • Billing model • New billing model for cash bonds • Linking the cash and derivatives markets

  31. THANK YOU

  32. REFERENCE SLIDES

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