SGX launches interest-rate derivatives on Japan repo

Signage at the SGX building on Shenton Way in Singapore; taken October 2018.Signage at the SGX building on Shenton Way in Singapore; taken October 2018.

Singapore Exchange, or SGX, said on Monday it is launching the first total return futures (TRF) in Asia, based on the Nikkei 225 Index, with the introduction set for 13 May.

“This listed solution enables investors to replicate the full economics, including the payout profile, of standard Nikkei 225 Index total return swaps, which are currently transacted over-the-counter (OTC),” SGX said in a statement on Monday. “The TRF, with contract months listed up to 10 years, will also allow investors to trade a particular financing cost – the implied equity repo – for the first time.”

The exchange said a market for total return swaps has developed in support of structured product issuance, which lets investors gain access to the total returns of a basket of stocks while hedging financing costs. Japan has become one of the biggest markets for structured products amid a low-yield environment, SGX said.

Michael Syn, head of derivatives at SGX, said in the statement that the new offering was the first of its kind in Asia.

“Repo is a new class of interest rate product that complements our comprehensive Japan equity derivatives offering, enabling participants to risk-manage both costs and benefits in Asia’s largest securities financing market. The TRF also supports our customers in meeting global financial market regulations.”

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