From the June 01, 2010 issue of Futures Magazine • Subscribe!

Asian commodities volume boom missing Japan?

The Land of the Rising Sun is finding itself in a sort of shadow when it comes to futures trading. It is surrounded by go-go economies and countries with vibrant derivative industries that are pushing ahead while Japan’s industry -- and economy -- struggle.

To its west is Korea, with the Korean Exchange (KRX), home to the most actively traded options product in the world. The Kospi 200 options trades on average 11 million contracts a day. No doubt that will continue to grow as the KRX is planning to go viral with it later this year. In March, the KRX announced that the contract would be traded on Eurex in Europe during off hours in Korea. In a sort of Rube Goldberg technical wonder, the KRX and Eurex will be trading the Kospi 200 options nearly all day, transferring contracts to the other each day at the end of each trading period.

Further west is the leviathan known as China, which has moved into a market-based economy with the speed of a cheetah. Despite its on-again/off-again sometimes too hot to handle derivatives exchanges, the potential coming from this giant could overshadow anything else in Asia for decades to come. Already the Shanghai Futures Exchange leads in former Japanese staples: rubber and base metals, while its cousins, the Dalian Commodity Exchange and Zhengzhou Commodity Exchange have captured the soybean complex markets and sugar.

Southwest of Japan is Taiwan, which has aggressively pushed the growth of its exchange, the Taifex, which houses the Taiex stock index options, the fifth largest stock index options product in the world, trading about 286,000 contracts a day.

Click table to enlarge

Table

Beyond the Himalayas lies India, where financial products have gained a foothold with the National Stock Exchange’s Nifty 50 contract, one of the top four contracts in the world in terms of volume of all stock index futures products. Linking with the CME Group and another Asian engine, Singapore, and its exchange, the NSE’s growth -- at least in the financial arena -- promises to continue. The Singapore Exchange (SGX) has always been international, and with its relatively new CEO Magnus Bocker, whose OMX pedigree gives him intricate technology knowledge, the exchange and its commodity-based sister, the Singapore Commodity Exchange, have promise for a resurgence.

Japan has another worry with Singapore: its tax rules and regulations are attractive to many Japanese traders who have moved there, set up shop and developed a colony of talent.

None of the above is to say the derivatives industry in Japan is dead. After all, the Osaka Securities Exchange’s Nikki 225 mini futures contract trades more than 400,000 contracts daily, making it one of the most popular in the world. Although its larger contract competes nose to nose with the Singapore contract in volume, it actually is twice the size of the SGX contract.

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