June 2003
TSEC Taiwan 50 Index Futures
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Background
The current TAIEX index and sector indices deviate measurably from
most cash portfolio held by stock investors, adding to the difficulty of
utilizing hedging and arbitrage strategies, and affects
the price discovery function of futures market;
the market mechanism to maintain effective prices; and
the precision and efficiency of futures trading strategies
Most renown stock index futures contracts use the index composed by
a fixed number of component stocks as underlying to facilitate hedging
purpose and, thereafter, the development of futures markets.
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TAIFEX Products at a Glance
TAIEX Futures(07/98)
Electronic Sector Index
Futures(07/99)
Finance Sector Index Futures
(07/99)
Mini-TAIEX Futures(04/01)
TAIEX Option(12/01)
Equity Option(01/03)
Total
98 2,233
99 3,653 714 155 4,522
00 4,944 1,512 654 7,100
01 11,659 2,807 1,596 2,334 856 19,252
02 16,661 3,367 1,479 4,210 6,316 32,033
03 19,217 3,357 3,410 4,451 45,508 1,512 77,455
2003 data up to May 30
Daily average (contracts)
Background
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Underlying: the TSEC Taiwan 50 Index
Abbreviation : Taiwan 50 Futures
Ticker symbol : T5F
Trading hours : 8 : 45 AM ~ 1 : 45PM
Taiwan time on trading days of Taiwan Stock
Exchange
Contract size : NT$500 × Index
Contract Specifications
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Delivery months: Five delivery months, including spot month, the next calendar month plus next three quarter months of the March, June, September, and December cycle.
Daily price limit : ±7% of previous day's settlement price.
Last trading day : The third Wednesday of the delivery
month.
Final settlement day : The first business day following the
last trading day.
Settlement : On net cash basis.
Taiwan 50 Index Futures Contract Specifications
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Contract Multiplier- 500
Contract size = TSEC Taiwan 50 Futures Index × NT$500
The medium contract size accommodates the features of the
index and encourages participation of institutional investors by
meeting their needs
Establishing market segregation from TAIEX futures reduces
crowding out between the two products, while taking into
account both the needs of institutional and individual investors
Reducing trading cost
Larger contract size (than TAIEX future) is more in tune with
international trend
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In reference to international practice and based on contract size, a
proper integer multiple is set for the conversion between futures
contract and the ETF to facilitate hedging, arbitrage and regular
trading.
20 futures contracts
50 ETF shares
1 futures contract
1 ETF basket
Contract Multiplier- 500
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Order Order placement : limit order or market order.
Orders are accepted starting at 8 : 30AM.
Matching 8 : 45 (market open) : competitive auction.
8 : 45 ~ 13 : 40 : Match order by order.
13 : 40 ~ 13 : 45 (market closing): competitive auction.
Trading System
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Position Management Opposite positions of the same delivery month for
the same product in the same account are automatically offset.
Margin Calculation
Margin calculation will be the same as that for stock index futures of TAIFEX, that is risk coefficient is used to estimate the greatest possible variation in the price of underlying to cover single-day index volatility risk.
Cash settlement
Settlement System
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Futures market
participant
ETF market participants
Primary market
Secondary market
Market participants
Securities dealersMutual fund companiesQFIIFutures dealersBanks and insurance companiesCPOOther juristic personsIndividuals
Participating securities
firms,
Institutional investors
Institutional investors,
Small traders
Market Participants
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Hedging needs—ETF issuing market (creation and redemption)
ETF participating firms that create or redeem ETF
shares can use futures products for hedging when they
face price risk arising from time difference.
When ETF participating firms intend to engage in
arbitrage trading, they can resort to futures trading
when buying or selling a basket of stocks is hard to
execute.
Needs of ETF Market for Futures Products
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Needs of hedging —ETF trading market
After the TSEC Taiwan 50 Index ETF is listed on the TSEC, its
fluctuation will reflect the fluctuation of all component stocks.
Institutional or individual investors can use futures products to
hedge the risk of ETF price volatility.
Needs of arbitrage
Price imbalance in the spot market, EFT market and futures
market may be corrected using futures products.
Needs of ETF Market for Futures Products