The unveiling of the initiatives follows the recent successful completion of SFE’s demutualisation, the appointment of a new Board of Directors and the merger agreement between SFE and Austraclear to create a centralised clearing house for the clearing of both cash and derivative debt products.
Following the agreement of Austraclear’s shareholders to the SFE merger under its proposed scheme of arrangement and subject to EGM and ASIC approval, SFE intends to invite Austraclear’s current Chairman, Jim Watt, onto its Board as well as Michael Katz and David Willis, the heads of institutional banking at the Commonwealth Bank of Australia and Westpac Banking Corporation, respectively.
In addition to welcoming the prospect of expanding the SFE Board with major Austraclear shareholder nominees, SFE Managing Director and CEO, Robert Elstone said: "These product and service initiatives set new benchmarks for what a futures exchange and clearing house should offer their customers. SFE is committed to providing a relevant product portfolio, made available on a widely distributed and functionally advanced trading platform, with the backing of a world-class clearing house integrated with the cash markets. These initiatives go a considerable way to reinforcing SFE as a premier provider of clearing and risk management services for the local and regional financial marketplaces."
Mr Elstone outlined the initiatives in the categories of Products, Trading System and Clearing.
Products
The introduction of new SFE products and enhancements to the existing product range result from extensive consultation with key users.
Enhancements to existing bond contracts – the tick size for SFE’s 3-Year Treasury Bond contract is to be reduced in late November 2000 and the coupon rate on both the 3-Year and 10-Year Treasury Bond contracts are to be reduced during 2001. Such reductions will bring the coupons closer to current market bond yields and improve the efficiency of the bond products for hedging. Improved efficiency as a hedging tool should attract new participants and increase liquidity.
Overnight Options on 90-Day Accepted Bank Bills – Overnight Options on Bank Bills will give users with overnight exposure to volatile US or European interest rate markets an effective hedge when the Australian market is otherwise closed. SFE was the first exchange in the world to list overnight options in 1993. The new products will be available for trading from 14 November 2000.
Australian/United States Dollar Currency futures – the listing of an AUD/USD futures contract will offer customers the benefits of SFE’s exchange-traded derivatives such as price transparency, leveraged exposure and reduced counterparty risk. SFE’s new currency contract has the market-maker support of Deutsche Bank AG and is backed by demand from corporate treasuries, importers and exporters, interbank proprietary traders and retail participants. It will be listed in the first quarter of 2001.
SFE is prepared to list interest rate contracts on the 5-Year part of the yield curve should customer sentiment demand. SFE has surveyed market participants extensively to assess the potential for these new debt derivatives. A further announcement regarding these initiatives will be made in early 2001.
SFE is seeking approval for SPI 200™ contracts from the Commodities Futures Trading Commission (CFTC) – authorisation from the United States’s CFTC will allow SFE to directly offer SPI 200™ futures and options contracts to customers domiciled in the US. The granting of CFTC approval is expected to significantly enhance trading volume and liquidity in the new SPI 200™ contracts and ensure that the SPI 200™ will be available to customers globally. Approval is expected shortly.
Trading System
SYCOM®, SFE’s fully electronic trading system, is already operating around the clock and successfully providing liquidity and price transparency to market users. In response to user demand, further improvements are being made to the features of SYCOM® to enhance the trade execution services offered by SFE.
New trading participants – following SFE’s demutualisation, improved access arrangements are being introduced that allow new participants to more easily connect to SYCOM®. Together with SFE’s impressive international regulatory approvals, new participants are taking advantage to connect to SYCOM® from Asia, Europe and the US. More than 400 trading workstations and interfaces are currently located worldwide.
Improved SYCOM® functionality - improvements to the SYCOM® interface will further enhance the ability of domestic and international participants to connect their own or third party-provided trading software to SYCOM®. In the first quarter of 2001, the interface will be enhanced to allow users access to functionality such as the custom market, market depth, and a wider variety of order types that were previously only available on SFE-provided SYCOM® workstations.
Certification of Independent Software Vendors (ISVs) – the enhancements to the SYCOM® interface also enables SFE to further promote connectivity to the Internet and the global networks of a wide range of global ISVs. This provides both domestic and international participants with even greater choice as to their preferred method of access to SFE’s listed contracts. Trading activity via the SYCOM® interface already represents over 15% of SFE’s total transaction volumes. The addition of more major companies to the growing list of ISVs certified to connect to SYCOM® is expected by the end of the year.
Clearing
SFE’s wholly owned subsidiary, Sydney Futures Exchange Clearing House (SFECH), is adopting new technology and broadening its range of services to position itself as a leading central counterparty to the trading of cash and derivatives products within Australia and the region. This ambition has been strengthened by the recent merger agreement between SFE and Austraclear designed to create an entity with the central clearing capacity for all derivatives, over-the-counter (OTC) debt and commodities products.
Clearing of Bond Securities and Repurchase Agreements (Repos) – a further extension of SFECH’s capabilities beyond derivatives, will be its offering of central counterparty clearing of OTC bonds and repos from the first quarter of 2001. SFECH’s move into bond and repo clearing has the support of 11 domestic and foreign banks that make-up 80% of the $A5 trillion Australian bond market. Coupled with the Austraclear merger, bond and repo clearing services will give participants the ability to clear both their cash and futures bond transactions through the one clearing house. This centralisation of operational and central counterparty clearing functions will generate savings and efficiencies for participants via a reduction in operating costs, liquidity requirements, capital allocations and counterparty risk.
Adoption of OM SECUR Clearing Technology – underpinning SFECH’s new clearing initiatives will be the adoption of OM SECUR as its core processing system, considered a benchmark technology platform for clearing houses around the world. Scheduled for introduction in the third quarter of 2001, OM SECUR has open and adaptable architecture, offering participants flexible access, multi-currency and multi-exchange capabilities, web-based reporting systems, proven reliability and the ability to efficiently deliver product enhancements. The adoption of such technology will allow SFE to improve its clearing services to participants.
Remote Clearing from Hong Kong – SFECH has obtained approval from the Hong Kong Securities and Futures Commission allowing it to offer its participants remote clearing facilities from Hong Kong. SFECH is the first international clearing house to be granted such approval, with Goldman Sachs Australia Pty Limited becoming the first participant to begin remote clearing earlier this month. Remote clearing reduces the operating costs of customers with trading and clearing operations centralised in Asia (and potentially North America and Europe) by allowing remote access to SFECH clearing services.
Summary
In summarising, Mr Elstone said: "Within the past 12 months SFE has successfully completed two of the biggest challenges facing derivatives exchanges around the globe – the migration to full electronic trading and demutualisation. With those behind us, we can now concentrate on enhancing our technology platforms, improving the accessibility of our markets and responding vigorously to a range of competitive forces.
"These initiatives are in response to the demands of market users for a broader range of hedging products and for services that offer greater flexibility and functionality. We expect their implementation to build market liquidity and make SFE a more attractive place to do business, both domestically and internationally.
"SFE’s trading volume is continuing to grow. For the first three quarters of 2000, 23.9 million futures and options contracts were traded, an increase of 3.6% on the January to September period last year. The growth was led by the rise in SFE’s most heavily traded contract, 3-Year Bond futures, which were up 12% on 1999 figures to 9.3 million contracts.
"The performance of SFE’s wholly owned subsidiary, the New Zealand Futures and Options Exchange (NZFOE), is also improving. September 2000 was NZFOE’s second busiest month of the year and the third consecutive month of trading growth. More than 678,000 futures and options contracts have been traded on NZFOE so far in 2000.
"Subject to trading volume in the December quarter, the SFE Group’s profit outlook (prior to sizeable abnormal expenses relating principally to demutualisation and the proposed Austraclear merger) is in line with that disclosed in SFE’s demutualisation information memorandum earlier this year.
"SFE has a strong balance sheet commensurate with its prudential obligations as a risk management service provider and a diverse shareholder representation which includes Australia’s major trading and investment banks and local proprietary traders. The Group is well positioned to play a key role in the evolution of the Australian and Asian financial marketplaces."