Bringing Offshore Trading Back Home

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(No Transcript)
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Yield-X
JSE Limited
Yield-X CURRENCY FUTURESBy Candice Quinn
ALTx
Main Board
SAFEX
Yield-X
Agricultural Derivatives

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

Bonds -Trading spot bonds - Primary listings -
Secondary listings - Carries
Interest Rate Derivatives - Bond Futures - Bond
Options - Index futures and options - Rods -
Swaps - Notes - FRAs
Currencies - Futures - Options
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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Budget Speech 21 February 2007
• Minister of finance Trevor Manuel
• Further developing South Africas financial
  markets and increasing liquidity in the currency
  market by permitting the JSE to establish a Rand
  futures market
• Budget Speech 20 February 2008
• Minister of finance Trevor Manuel
• The JSE Rand Futures market will be opened up
• What does this mean
• All corporate entities trusts close
  corporations partnerships hedge funds and
  banks can trade the currency futures with no
  limits, i.e. no upper limit on the value traded.

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• What are Futures
• A futures contract is a legally binding
  agreement that gives you the right to
• buy or sell an underlying asset at a fixed
  price on a future date

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• What are Currency Futures?
• Contracts that allow investors to trade an
  exchange rate for some
• time into the future
• Currency Futures are agreements between two
  parties, where one commits
• to buy (long) a currency and another to sell
  (short) a currency on a
• specified future date
• Long Currency Future holder buys the Dollar and
  sells the Rands, i.e.
• You want the Dollar to appreciate in value or
  the Rand to depreciate in
• value, example /R to move from R700 to R750
• Short Currency Future holder sells the Dollar
  and buys the Rand, i.e. You
  
• want the Dollar to depreciate in value or the
  Rand to appreciate in value,
• example /R to move from R800 to R700

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Currency Futures Advantages
• Effective and transparent hedge against currency
  risk
• Diversify Internationally from South Africa
• Take a view on the underlying currency movement

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Currency Futures listed on Yield-X
• Dollar / Rand
• Euro / Rand
• Pound / Rand
• Australian Dollar / Rand

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
Exchange rate, Ratio of Exchange between Two
Currencies

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

AUD 1 ZAR 7.3714
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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• How are Currency Futures quoted on Yield-X?
• Yield-X quotes all currency future prices in the
  same way as the underlying
• spot exchange rate
• This is represented as the number of Rands per
  foreign currency quoted to
• four decimal places, e.g. R7.7050 to 1

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Currency Futures Product Specifications
• Underlying Instrument
• Rate of exchange between one US Dollar and SA
  Rand
• Standardized contracts
• Fixed expiries in March, June, September and
  December
• Rand Denominated
• Contracts quoted in SA Rand per one underlying
  foreign currency
• (e.g. US Dollar) to four decimal places
• Cash Settled
• No physical delivery of foreign currency
• Contract sizes
• 1000 foreign underlying currency e.g. 1000,
  1000, 1000 and
• ZAAD 1000

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Margining
• Each trade is matched daily by Yield-X, i.e. the
  exchange ensures that
• there is a buyer and a seller to each contract
  traded
• The JSEs clearinghouse Safcom becomes the
  counterparty to each
• trade once each transaction has been matched
  and confirmed
• The clearinghouse therefore ensures settlement
  takes place on each
• trade
• To protect itself from non-performance, Safcom
  employs a process
• known as margining. This mechanism is
  two-fold

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Initial Margin
• When a position is opened (either long or
  short), the investor is
• required to pay an initial margin in cash
  (known as a good faith
• deposit) with the broker who subsequently
  deposits it with the
• clearinghouse
• This amount remains on deposit as long as the
  investor has an open
• position
• The initial margin attracts a market related
  interest rate which is
• refunded to the investor once the position is
  closed out, or if the
• contract expires
• The initial margin requirement varies between
  the different currency
• futures offered

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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• Initial Margin

Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

Plus Specials on Demand
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Yield-X

• Variation Margin
• Known as the daily settlement of profits and
  losses
• The Currency Future price is determined from the
  underlying markets spot
• price to which forward points are added to
  deliver the final price used in the
• daily MTM process
• The Exchange re-values each position daily at
  the close of each business
• day, and this process is known as
  Mark-to-Market (MTM)
• Any difference from the previous days MTM price
  is either paid to the
• investors, or paid by the investors to the
  clearinghouse, in cash and Rand
• denominated
• This payment is called variation margin and is
  simply the profit or loss on
• each position

Yield-X CURRENCY FUTURESBy Candice Quinn

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Profit Loss / Variation Margin - Example
Yield-X CURRENCY FUTURESBy Candice Quinn

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

• Profit /Loss is calculated off end of day
  closing price (fair value)
• Position holders of profitable trades receive
  Variation Margin
• Position holders of loss trades pay in Variation
  Margin

Margin Received
Margin Payable
Price
Long Position
Short Position
Price
Margin Payable
Margin Received
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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• How to Trade/Close a Position
• If an investor has a view on which direction the
  currency is going to move,
• the investor needs to contact their broker to
  transact on their behalf
• To close out the contract, the investor needs to
  contact the relevant broker
• and they enter into an equal but opposite
  transaction
• For example, if an investor had bought a
  currency future contract, the
• investor would close out the trade by selling
  the contract

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• How to Roll Over a Position
• All investors who wish to hold their positions
  beyond the expiry date will be
• required to roll their positions over into the
  next expiry date
• Investors will need to close out their positions
  and subsequently enter into
• the next contract expiry. This is usually done
  automatically on the investors
• behalf by the broker
• Example - investors holding a June contract will
  need to roll their
• position into the September contract. If an
  investor had bought a June
• contract, the investor would have to sell the
  June contract and
• subsequently buy a September contract
• The benefit to the investor is that the same
  exposure is maintained. The
• Exchange offers discounted trade fees for all
  positions that are rolled over

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Practical Examples
• Currency Futures are used Primarily to
• Speculate - No interest in purchasing/selling
  the underlying currency
• and hope to make profit on short-term price
  movements in belief that
• the currency rates will change
• Hedge Seek to reduce risk by protecting
  underlying shares. It
• removes the risk of existing or expected
  currency exposure

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Speculating
• Speculator expects Rand to weaken (Dollar
  strengthen)
• Buy 10 Contracts at R8.2000 an exposure of
  R82,000
• Deposit R3,100 only for the initial margin (10 x
  R310)
• Sell contracts at R8.5500 in the future
• Profit R3,500
• 10 x 1,000 x (R8.55 R8.20) R3,500
• Initial margin of R3,100 is returned
• The R3,100 initial capital outlay has returned a
  profit of R3,500
• A return of 13 during a period in which the
  Rand only
• weakened by 4

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Daily Cash Flows Speculative Example

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

Summary of cash flows Initial Margin R0 (-3100
3100) Variation margin R3,500 (500 1700 200
1500)
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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Hedging
• Example Company ABC importing goods worth 1
  Million
• Buy (Long) 1,000 contracts at R7.7375 (1
  Million)
• An exposure of R7,737,500
• Deposit R310,000 as the initial margin (R310 x
  1,000 contracts).
• When goods arrive, need to pay physical dollars
  on delivery. Company
• ABC now sells the dollar future contracts
  which are now trading at R7.9000
• Initial margin of R310,000 is returned
• Profit on currency future R162,500 1,000
  contracts x 1,000 x (R7.90
• R7.7375)
• Pay for goods at R7.90 cost R7,900,000
• Net Cost R7,737,500 (Position was hedged)
  still only paying for the
• goods what they would have been three months
  earlier.
• I.e. Costs/profits are locked in
• If the price had gone down Company ABC will
  loose on the futures, but pay
• less for the physical spot

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
Example of a Zero-sum game For every winner
there is an equal loser

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Why Trade Currency Futures?
• Trade on a regulated and efficient platform
• Allow for transparent pricing
• Equalise the playing field for investors
• Allow individuals and smaller corporates to
  access favourable rates
• usually reserved for larger corporates
• Represents a relaxation of exchange controls for
  
• individuals and corporate entities
• Less administration for corporates no
  reporting to SARB
• required and no firm and ascertainable
  commitment required (i.e. no
• documentation required to hedge)

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Risks
• Gearing
• Post small amount but valued on full nominal
  value
• Can make money but can also lose money!
• Loss can be more than the initial margin posted
  if unfavourable
• position is not closed out
• Trading Hours
• Global currency markets open 24 hours a day
• Local market only open Mon-Fri 9am-5pm
• Market could move against you while local market
  is closed and
• you will have to wait until the next days
  opening of the market to trade out
• some banks can put stop losses in place
  though

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn

• Costs
• Exchange fees to the members are R1.00 (excl
  VAT) per currency future
• contract traded
• These are the fees the exchange charges the
  broking community however
• the fees that the brokers charge the clients
  vary from broker to broker

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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• Statistics Update (1 December 2008)
• Total number of Contracts 4,9 Billion
• Total Contract Value R46 Billion
• Ratio On Screen vs Off Screen Trades 4060

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QUESTIONS ?? Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
Questions?

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Detailed example of Cash Flows on a Long Currency
Futures Position This table details the daily
cash flows that will be debited or credited to
the investors trading account during the life of
the position.
Yield-X CURRENCY FUTURESBy Candice Quinn

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
Summary of Cash Flows Initial margin R0 (-3 100
3 100) Variation Margin R2 877 ( 1 036 777
1 701 2 079 686) Note this example
excludes any trading fees charged by the
exchange, the clearing member or the currency
future broker.

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
Detailed example of Cash Flows on a Short
Currency Futures Position This table details
the daily cash flows that will be debited or
credited to the investors trading account during
the life of the position.

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range

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Yield-X
Yield-X CURRENCY FUTURESBy Candice Quinn
All short positions are valued using the
formula CF1 - CF0 i.e. todays price minus
yesterdays price. Summary of Cash
Flows Initial margin R0 (-3 100 3
100) Variation Margin R3 700 ( 840 390 1
930 85 455) Note this example excludes any
trading fees charged by the exchange, the
clearing member or the currency future broker.

• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range
• Bringing Offshore Trading Back Home
• Developing the SA Financial Market
• Enhancing the JSEs Innovative Product Range