Transcript Document 7351397

TAIFEX,
Your Key to a Bright Future in
Taiwan
1
Agenda
 Overview of TAIFEX
 TAIEX Options
 New measures & new products
 Prospects & future development
2
Overview of TAIFEX
3
Milestone of Taiwan Futures
Market
 1997.09
Establishment of Taiwan Futures Exchange
 1998.07
Listing of TAIEX Futures
 2001.12
Listing of TAIEX Options
 2003.01
Listing of Single Stock Option (5 stocks)
 2004.01
Listing of 10-Year Government Bond Futures
 2004.09
Awarded “Derivatives Exchange of the Year”
by Asia Risk Magazine
 2005.03
Listing of Electronic Sector and Finance
Sector Index Options
 2006.03
Listing of Gold Futures, MSCI Taiwan
IndexSM Futures and Options
4
Market Growth
100,000
90,000
Total Trading Volume
80,000
Average Daily Trading Volume
512.75
500
376.73
VOLUME
70,000
60,000
600
92,659.77
400
59,146.38
Unit: 1,000 contracts
50,000
300
237.14
40,000
39,318.39
31,874.93
200
30,000
7,944.25 128.07
20,000
10,000
4,351.39 32.03
1,926.79
277.91 1,077.67 7.11 19.25
4.52
2.22
100
0
0
1998
1999
2000
2001
2002
2003
2004
2005 2006/04
5
Open Interest
1,000
918.79
858.46
900
772.50
800
700
695.06
Unit: 1,000 contracts
600
500
400
300
200
111.79
100
5.70
0
Year
1999
9.81
2000
19.34
2001
2002
2003
2004
2005
2006/04
6
Worldwide Ranking
Market
Turnover
World
Ranking
Growth Rate
-
Ave Daily
Trading Vol
2,223
Growth Rate of
Ave Daily
Trading Vol
1998
277,909
57
-
1999
1,077,672
47
287.80%
4,522
103.39%
2000
1,926,789
44
78.79%
7,110
57.23%
2001
4,351,390
38
125.84%
19,252
170.77%
2002
7,944,254
35
82.60%
32,033
66.40%
2003
31,874,934
26
301.23%
128,067
299.80%
2004
59,146,376
20
85.56%
237,144
85.17%
2005
92,659,768
18
56.66%
376,730
58.86%
Data：FIA Annual Volume / Futures Industry Magazine (March/April 2006 Issue)
7
“Exchange of the Year” in 2004
 Awarded “Derivatives Exchange of the Year” by Asia
Risk Magazine in 2004
 Criteria
 Types of product
 Growth of trading volume
 Success factors
 New products development over the previous
year
 Prospects (including product development,
system upgrading, development of trading and
clearing system, market education and
promotion, internationalization, etc)
8
The Characteristics of Taiwan
Futures Market
 Efficiency
 Fully electronic trading system
 Free competition among FCMs
 Lowering of transaction tax
 Fairness
 Electronic trading system
 Matching principle adopts price then time priority
 Real time disclosure of 5 best buy/sell prices & quantity
 Safety
 Margin are collected before order placement
 Gross margining
 Daily marking to market
 Prudent financial requirements on Clearing Members
 On-site inspection on FCMs: Both regular & special
9
Regulatory Structure of Taiwan Futures
Market
Rules and Regulations
 Futures Trading Act
Regulator
 Financial Supervisory Commission (FSC)
Exchange
 Taiwan Futures Exchange
Self-Regulatory Organization
 Chinese National Futures Association (CNFA)
10
Market Structure
Financial Supervisory Commission / Securities & Futures Bureau
TAIFEX
Settlement
Banks
Individual
Clearing Member
General
Clearing Member
FCM
Settlement
Banks
FCM
FCM
Designated
Banks
CTA
CPO
IB
IB
CPO
CPO
Designated
Banks
Customers
11
Criteria for Clearing Membership
 Individual Clearing Member
 A futures commission merchant that handles clearing and settlement for its
brokerage and proprietary futures trading business.
 Financial Requirement
 FCM: minimum paid-in capital of NT$200 million
 Concurrent futures business operator: at least NT$60 million in designated
operating funds
 General Clearing Member
 A futures commission merchant that, in addition to handling clearing and
settlement for its brokerage and proprietary futures trading business, may
also handle clearing and settlement on consignment for other futures
commission merchants.
 Financial Requirement
 The minimum paid-in capital of a futures commission merchant or the
designated operating funds allocated by another business operating
concurrently as a futures commission merchant shall be at least NT$400
million.
12
Criteria for FCMs
 Minimum capital (paid-in capital / designated operating
funds)
 FCM
 Brokerage: NT$ 200,000,000
 Proprietary: NT$ 400,000,000
 Concurrent futures business operator
 Stock-related futures and options contracts traded in TAIFEX:
NT$50,000,000
 Interest rate futures and options traded in TAIFEX: NT$50,000,000
 Stock-related futures and options traded in TAIFEX & Interest rate
futures traded in TAIFEX: NT$80,000,000
 Futures and Options contracts traded in TAIFEX: NT$100,000,000
 Futures and Options contracts traded in TAIFEX & TAIEX index
futures, options and futures options traded on foreign exchanges:
NT$200,000,000
13
Market Participants (as of April 30,
2006)
 FCMs: 24 (42 branch offices)
 Concurrent FCMs: 19 (84 branch offices)
 Introducing brokers (IB): 71 (1007 branch offices)
 Proprietary Trading Companies: 39
 Commodity Trading Advisors (CTAs): 22
 Commodity Pool Operators (CPOs): 13
 Clearing Members: 34
 Individual Clearing Members: 10
 General Clearing Members: 24
14
Account opening of Market Participants
(as of April 30, 2006)
Accumulated numbers of account opening: 1,119,950 accounts- 1,113,880 of
individual investors and 6,070 of institutional investors
1,200
1,132.35 1,119.95
Unit: 1,000 accounts
1,021.70
1,000
820.38
800
569.00
600
400
305.04
370.93
226.03
200
0
Year
1999
2000
2001
2002
2003
2004
2005
2006/04
15
Trading Structure
Institution
Individual
100%
80%
48.82%
68.57%
60%
41.68%
65.02%
80.74%
94.41%
92.44%
90.49%
40%
51.18%
20%
31.43%
34.98%
2003
2004
58.32%
19.26%
0%
5.59%
7.56%
9.51%
1999
2000
2001
2002
2005 2006(Apr.)
16
TAIFEX Products
 Stock Index Futures
 TAIEX Futures (July 21, 1998) (with CFTC No-action Letter)
 Electronic Sector Index Futures (July 21, 1999) (with CFTC No-action




Letter)
Finance Sector Index Futures (July 21, 1999) (with CFTC No-action Letter)
Mini-TAIEX Futures (April 9, 2001) (with CFTC No-action Letter)
Taiwan 50 Futures (June 30, 2003)
MSCI Taiwan IndexSM Futures (March 27, 2006)
 Stock Index Options
 TAIEX Options (Dec 24,2001)
 Electronic Sector Index Options (March 28, 2005)
 Finance Sector Index Options (March 28, 2005)
 MSCI Taiwan IndexSM Options (March 27, 2006)
17
TAIFEX Products -cont.
 Stock Options
 Jan 20,2003 Listed 5 stocks
 Aug 2,2004 Added 10 stocks
 Sep 27,2004 Added another 15 stocks
 Interest Rate Futures
 10-Year Government Bond Futures (Jan 2, 2004)
 30-Day Commercial Paper Interest Rate Futures (May 31, 2004)
 Metal Futures
 Gold Futures (March 27, 2006)
18
Trading Volume by Products
2006 Jan.~Apr.
Unit: 1,000 contracts
TEO
222.78
0.57%
TFO
282.61
0.72%
MSO
70.57
0.18%
TXO
33,986.24
86.44%
STO
332.09
0.84% TX
3,168.19
8.06%
MTX
475.33
1.21%
T5F
0.15
0.00% TE
527.90
TF 1.34%
GBF GDF
2.56
2.00
0.01% 0.01%
246.96
0.63%
CPF
0.01
MSF
0.00%
1.00
0.00%
19
Trading Volume by Equity Products
(Exclude TXO)
2006 Jan.~Apr.
Unit: 1,000 contracts
TX
3,168.19
59.47%
MTX
475.33
8.92%
T5F
0.15
0.00%
TE
527.90
9.91%
TF
246.96
4.64%
MSF
1.00
0.02%
TEO
222.78
4.18%
TFO
282.61
5.30% MSO
70.57
STO
1.32%
332.09
6.23%
20
TAIEX Options (TXO)
The world' s top 10 index options-TXO ranked
No. 3 in the category.
Contract
Exchange
KOSPI 200 Index Options
KRX
2006 1st Q
2005
Volume Rank Volume Rank
698.70
1 2535.20
1
Dow Jones Euro STOXX 50
Eurex
Index Options
31.78
2
90.81
2
TAIEX Index Options
23.70
3
80.10
3
SPX S&P 500 Index Options CBOE
21.47
4
71.80
4
DAX Index Options
Eurex
14.79
5
53.63
6
TA 25 Index Options
Tel-Aviv Stock Exchange
14.03
6
63.10
5
Nikkei 225 Index Options
Osaka
7.86
7
24.89
8
AEX Index Options
Euronext
6.22
8
19.75
9
FTSE 100 Index Options
Euronext.LIFFE
4.57
9
14.47
11
OEX S&P 100 Options
CBOE
4.14
10
18.67
10
TAIFEX
Data: FOW TRADEData (Volume in million contracts)
21
TAIEX Options
22
Success Factors of TAIEX Options
(TXO)
 Contract specifications tailors the needs of
domestic investors
 Market maker mechanism
 Efficient electronic trading platform
 Reduction of transaction costs driven by high
internet accessibility and competition among
FCMs
 Volatility of underlying index (TAIEX)
 Increasing participation of institutional investors
 Continuous marketing and investors education
23
Contract Specification Tailors the
Needs of Domestic Investors
 Providing pay-off pattern with limited risk and
unlimited return
 High leverage characteristics
 Providing risk diversification tool that meets
investors’ needs
 Contract specifications tailored to the needs of
domestic investors
 Using TAIEX as underlying index
 Product characteristics similar to the existing
warrants that are wildly accepted by investors
24
TAIEX Options Contract Spec.
 Underlying Index: Taiwan Stock Exchange Capitalization Weighted
Stock Index (TAIEX)
 Ticker Symbol: TXO
 Exercise Style: European
 Multiplier: NT$50 (per index point)
 Expiration Months
 Spot month, the next two calendar months followed by two additional
months from the March quarterly Cycle (March, June, September, and
December)
 Strike Price Intervals
 Strike price between 3,000 points and 8,000 points: 100 points for the 3
serial months, 200 points for the 2 quarterly months
25
TAIEX Options
Contract Spec.-cont.
 Strike (Exercise) Prices
 Initial listing: 1 at-the-money strike price, plus
 5 ITM and 5 OTM for the 3 serial months
 3 ITM and 3 OTM for the 2 quarterly months
 Premium Quote
 < 10 points: 0.1 point (NT$5)
 >=10 points,<50 points: 0.5 point (NT$ 25)
 >=50 points, <500 points: 1 point (NT$ 50)
 >=500 points, <1,000 points: 5 point (NT$ 250)
 >=1,000 points: 10 point (NT$ 500)
 Daily Price Limit
 +/- 7% of previous day's closing price of the underlying index
26
TAIEX Options
Contract Spec.-cont.
 Position Limit (on either direction of the market)
 Individuals：8,000 contracts
 Institutional investors：16,000 contracts;
 Institutions may apply for a higher position limit on trading
accounts for hedging purpose
 Last Trading Day
 The third Wednesday of the delivery month of each contract
 Expiration Date
 The first business day following the last trading day
 Final Settlement Price
 Computed from the first fifteen-minute volume-weighted
average of each component stock's prices in the index on the
final settlement day
 Settlement: Cash settlement
27
Implementation of Market Maker
Mechanism
 Objectives
 Enhancing price continuity, fairness and stability and
provide liquidity
 Attracting more participants to enter the options
market
 Applicable Products
 TAIEX Options
 Equity Options
 Electronic Sector Index Options
 Finance Sector Index Options
 MSCI Taiwan IndexSM Options
28
Efficient & Friendly Trading Platform
 95% of orders can be processed within 3 seconds.
 Capacity of trading system is 8 million contracts / day
 Over 1,000 FCM branches island-wide, providing faceto-face services for individual participants
 Implementation of trading platforms by FCMs
 Friendly interfaces for investors to participate the
complicated derivatives market
 40% of orders placed through internet
 Reducing transaction cost by 50%, compared with
traditional orders placing through telephone
29
New Measures & New Products
30
Trading for Non-Hedging
Purposes
31
Status
 Prior to March 27 2006, foreign investors could only
invest in Taiwan’s futures market for hedging purposes
 Must trade in Taiwan’s securities market
 Margins for futures trading should not exceed 30% of
inward- remitted funds
 Total contract value of short position should not exceed
the total market value of securities
 Total contract value of short position should not exceed
the total amount of cash equivalents
 After March 27 2006, foreign investors are allowed to
trade in TAIFEX market without limitation on trading
purposes
32
Investment limits and Restrictions
 Fund regulation: Margin deposit/withdrawal in
US Dollar only
 Offshore Funds shall be separated into two
different accounts for securities and futures
markets, respectively
 Position limit: According to rules governing
position limits for various products
 Foreign institutional investors (the same as local
institutional investors) may apply for higher
position limit
33
Omnibus Account
34
To Open an Omnibus Account
 Offshore foreign FCMs with following requirement are
eligible to open omnibus accounts
 A clearing member of a foreign futures exchange
recognized by the competent authority
 Within the past one year, in its home country or in Taiwan,
it has not been sanctioned by the relevant authorities or
self-regulatory institutions for securities or futures by the
suspension of the securities or futures brokerage
business of its head (or a branch) office
 Within the past three years, it has not breached a futures
trading contract or securities trading contract in its home
country or Taiwan, or violated the reporting obligations,
where the circumstances are serious
35
Settlement of Omnibus Accounts
 Collection of margins
 Each omnibus account is regarded as one single account,
the local FCM will collect margins and premiums for
futures and options from the offshore foreign FCM
 Offshore foreign traders will deposit and withdraw margins
for both NTD and USD denominated products in USD only
 Computations of margins
 The margins of an omnibus account will be collected on a
gross basis with margins for long and short positions
separately
 Margin reduction in futures contracts cannot be applied to
the omnibus account
36
Rules and Regulations of Position Limit
 Direct account
 Position limits are set pursuant to the trading rules of each
contract and in consistent with domestic investors
 Position limits are applicable on ID level
 Application for higher position limit based on hedging purpose
 Omnibus account
 An omnibus account is not subject to position limits.
 Institutional investors who have applied for higher position limit
are not allowed to trade through omnibus accounts except for
liquidating the positions.
37
USD-Denominated Products
38
MSCI Taiwan IndexSM Futures Contract
spec.





Underlying Index: MSCI Taiwan Stock IndexSM
Ticker Symbol: MSF
Trading Hours: 08:45AM - 1:45 PM
Contract Size: US $100 x Futures price
Delivery Months:
 Spot month, the next calendar month, and the next three quarter months
 Daily Settlement Price:
 The last traded price of the closing session or otherwise determined by the
TAIFEX according to the trading rules.
 Daily Price Limit
 +/- 7% of previous day's settlement price
 Minimum Price Fluctuation
 0.1 index point (US $10)
39
MSCI Taiwan IndexSM Futures
Contract spec. -cont.
 Last Trading Day
 The third Wednesday of the delivery month of each contract
 Final Settlement Day
 The first business day following the last trading day
 Final Settlement Price
 Computed from the first fifteen-minute volume-weighted
average of each component stock's prices in the index on the
final settlement day
 Settlement: Cash settlement.
 Position Limit:
 Individuals: 300 contracts
 Institutional investors: 1,000 contracts;
 Institutions may apply for a higher position limit on trading
accounts for hedging purpose
40
MSCI Taiwan IndexSM Options
Contract spec.
 Underlying Index: MSCI Taiwan Stock IndexSM
 Ticker Symbol: MSO
 Exercise Style: European
 Multiplier: US $20 (per index point)
 Expiration Months
 Spot month, the next two calendar months followed by
two additional months from the March quarterly Cycle
(March, June, September, and December)
 Strike Price Intervals
 Strike price between 150 points and 400 points: 5 points
for the 3 serial months, 10 points for the 2 quarterly
months
41
MSCI Taiwan IndexSM Options
Contract spec. -cont.
 Strike (Exercise) Prices
 Initial listing: 1 at-the-money strike price plus
 5 in-the-money and 5 out-of-the-money strike prices for the 3 serial months
 3 in-the-money and 3 out-of-the-money strike prices for the 2 quarterly months
 Up to the 5th business days before expiration, add new strike prices to
maintain:
 5 in-the-money and 5 out-of-the-money strike prices for the 3 serial months
 3 in-the-money and 3 out-of-the-money strike prices for the 2 quarterly months
 Premium Quote
 <0.5 point：0.005 point (US $0.1)
 >=0.5 point, <2.5 points：0.025 point (US $0.5)
 >=2.5 points, < 25 points：0.05 point (US $1)
 >=25 points, <50 points：0.25 point (US $5)
 >= 50 points：0.50 point (US $10)
 Daily Price Limit
 +/- 7% of previous day's closing price of the underlying index
42
MSCI Taiwan IndexSM Options
Contract spec.-cont.
 Position Limit (on either direction of the market)
 Individuals：1500 contracts
 Institutional investors：5,000 contracts;
 Institutions may apply for a higher position limit on trading
accounts for hedging purpose
 Last Trading Day
 The third Wednesday of the delivery month of each contract
 Expiration Date
 The first business day following the last trading day
 Final Settlement Price
 Same as MSCI Taiwan IndexSM Futures
 Settlement: Cash settlement
43
Gold Futures contract spec.





Underlying : Gold with a purity of .995
Ticker symbol: GDF
Trading Hours: 8:45am – 1:45pm
Contract Size: 100 Troy Ounces
Delivery Months
 The current calendar month and each of the next 6 even-
numbered months
 Daily Price Limit
 Prices will be permitted to rise or fall a maximum of 15%
over the settlement price of the preceding day.
 Minimum Price Fluctuations
 US$0.10 per troy ounce (US$10 per contract)
44
Gold Futures contract spec. -cont.
 Last Trading Day
 Trading terminates at the close of business on the third to last
business day of the maturing delivery month
 Final Settlement Day
 The first business day after the last trading day
 Final Settlement Price
 Based upon the London Gold AM Fixing as released by The
London Gold Marked Fixing Limited on the last trading day
 Settlement: Cash settlement
 Position Limits
 Individual: 300 contracts
 Institutional: 1,000 contracts
45
Prospects & future development
46
Improvement Programs
 Improvement Measures Understudied
 Government Bond
 Further restrict the maturity of deliverable bonds from 8.5 years to
10 years
 Calculation base of cash settlement price changes to CTD price
base
 Developing New Products
 Currency cross-rate futures
 DRAM futures
 Single stock futures
 Interest rate futures and options in various terms
 Equity index futures and options for new indices
 Energy futures
47
Improvement Measures of trading and
clearing
 Spread order for futures contract
 Relaxation for price limit
 SPAN
 Accept securities and government bond as
collateral
48
Internationalization of futures market
 Actively attract foreign investors into the market
 Forge strategic alliances with foreign exchanges
and related organizations
 Participate in international organizations
 FIA, IOMA, WFE, IOSCO
49
Summary & Conclusion
50
Summary
The Taifex Market:
 Vibrant, liquid and high growth market
 Implemented major cost reduction exercise
 Large retail participation base
 Liberalizing the market progressively
 Actively attract international participation
 Taking initiatives to enhance its
products/markets, and trading/clearing
functions
51
Contact Us
 Web site: www.taifex.com.tw
 E-mail: [email protected]
 Contract persons:
 Ms. Sarah Chiu
 E-mail: [email protected]
 TEL: 886-2-23663242
 Ms. Rita Tsai
 E-mail: [email protected]
 TEL: 886-2-23663249
52
Thank You
53