Both the total value and total number of contracts traded on the JSE’s Currency Derivatives market has effectively more than doubled every year since the launch of the market in 2007.
Over the past decade the Currency Derivatives market has shown an average annual growth rate of 160% in the total value of contracts, while the average annual growth rate in the number of contracts traded during this period has been 142%.
The JSE celebrated the 10th anniversary of the Currency Derivatives market at an event held in Sandton last night. Prior to the launch of this market, currency trading took place exclusively through over the counter transactions conducted directly between market participants.
Today an average of almost 240 000 currency derivative contracts, with an average total value of R3,2 billion, are traded on the JSE every day.
Donna Nemer, Director: Capital Markets at the JSE said the exchange is proud to be able to celebrate the contribution this market has made to the development of South Africa’s broader financial market system. “The creation of the JSE’s Currency Derivatives market moved currency trading exclusively from over the counter transactions to a transparent and regulated platform. It provided a more easily accessible and cost effective way for retail and institutional investors, as well as importers and exporters, to hedge their currency risk.”
Nemer says the Currency Derivatives market has shown continued growth over the past decade as the JSE constantly sought to expand its product range according to the needs of the market. In 2011 the JSE launched “Any Day Expiry” contracts which allow investors the flexibility to pick the expiry date of the contracts they trade. These contracts allowed market participants to hedge their currency risk with even more precision.
Chief Director of Financial Investments and Savings at South African National Treasury, Olano Makhubela said, “the currency futures were enabled in South Africa in 2007 after the Minister of Finance granted the approval to the JSE.”
He said, “This milestone decision by the Minister was informed by the need to continue deepening South Africa’s financial markets so that they can continue to deliver transparent, standardised and accessible financial products on a world-class and regulated platform like the JSE. The process embarked upon ten years ago is a testament to what we can achieve as South Africans if we work together, trust and respect each other, and are humble.”
Richard de Roos, Head of FX at Standard Bank Group, said it was an honour for the bank to have been involved in the creation of the currency derivatives market on the JSE.
He said, “It was a great pleasure to be part of the group of stakeholders including the JSE, South African Reserve Bank and the banking industry who brought currency futures to the exchange. This gave participants, individuals and institutions – previously restricted by exchange controls – the ability to gain access to and actively manage a portfolio of currency products. As a bank, this also enabled us to provide solutions for clients with non-transactional exposure to foreign currencies.”
Later, the exchange also created Quanto Futures which track the movement of both the euro/dollar and British pound/dollar exchange rates, but are settled at a fixed rate in rands and the funds used to buy them stay in South Africa. This allows investors to get exposure to the world’s most popular currency derivatives pairs without making use of their offshore allowance or exposing themselves to movements in the rand.
In 2014 the JSE also expanded its offering to include a range of African currency pairs. These futures and options offer exposure in the movement between the rand and the Nigerian naira, the Kenyan shilling, the Zambian kwacha and the Botswana pula.
Nemer said, “South Africa’s well-developed financial markets mean that we have a crucial role to play in facilitating the flow of investment, goods and services around our continent. The use of instruments to effectively hedge against currency risk greatly supports this.”
The JSE also offers futures which track the movement in the Rand exchange rate to the US, Canadian and Australian dollars, the Chinese Renminbi, the Turkish Lira, the Swiss Franc and the Japanese Yen. The rand/dollar currency pair remains the most actively traded currency pair on the JSE and constitutes around 80% of the total trade in the currency derivatives market.