Global Exchange Derivatives Volumes A Statistical Overview

By Research & Planning Department Financial derivatives are much more popular than non-nancial derivatives, both in volume terms and in number of exchanges offering them. Contract volume is the preferred, although imperfect, measure for comparing exchange activity. Notional value, which may be a better measure in economic terms, is usually not readily available.

Global trading of exchange-traded futures and options (collectively referred to as derivatives in this article) is growing fast. According to data provided by the US-based Futures Industry Association (FIA) 1, global exchange derivatives volume2 rose from 2.4 billion contracts in 1999 to 9.9 billion contracts in 2005, representing an annual growth rate of 27 per cent (see Figure 1a). The growth rate is much higher than the 8 per cent in the global equity market3 over the same period according to the statistics of the World Federation of Exchanges (WFE) (see Figure 2). Nonetheless, equity market volumes are more volatile in the rst half of 2006 a total of 5.9 billion derivative contracts were traded, representing a pro-rata growth rate of 19 per cent over 2005, compared to a remarkable 42 per cent growth in global equity trading. Equity and derivatives market growth on statistics during the years was due partly to the increase in the number of exchanges reporting the statistics to the FIA or WFE but mostly to growth in trading activity 4.
1

Growth in global exchange-traded derivatives* (1999-2006H1)

12

(a) Contract volume

9.9 8.9 8.2

10

Billion contracts

8 6.2 6 4.4 4 2.4 2 0 3.0 5.9

1999

2000

2001

2002

2003

2004

2005

2006HI

800 700 600 Million contracts 500 400 300 200 100 0 1999 2000 282 232

(b) Open interest**

669 551 444 370 256 296

2001

2002

2003

2004

2005

Jun 2006

* Figures in each period are only summations of the available gures of exchanges covered in that period, which may vary (eg 58 in 1999 vs 59 in June 2006). ** Open interest gures are not adjusted for multiple counting of fungible products listed on more than one exchange. Nevertheless, such cases are relatively very small. Source: Futures Industry Association

The FIA is a membership organisation for which regular members are US-registered Futures Commission Merchants (FCMs). US and international exchanges and clearing houses as well as other intermediaries may apply as associate members. There are currently 39 exchange associate members. Statistics maintained by FIA include exchanges that are not its associate members. Global exchange derivatives volume in this article refers to the aggregate trading volume of derivatives on exchanges with data maintained by FIA. Global equity market in this article refers to the equity markets of members of the WFE. For instance, the volume of KOSPI 200 options on Korea Exchange (KRX) rose from 80 million contracts in 1999 to 2,535 million contracts in 2005, representing an annual growth rate of 78 per cent. This contract contributed 25 per cent of global derivatives volume in 2005. For the equity market, excluding the 10 WFE member exchanges which joined between 1999 and 2005, the compound annual growth rate of the global equity market for the period was 7 per cent.

2 3 4

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Global Exchange Derivatives Volumes A Statistical Overview

The FIA currently compiles statistics on the contract volume and open interest of derivative products offered by 59 exchanges, including most of the worlds major derivatives exchanges (see Appendix 1). Based on the FIA statistics, this article examines the relative position of HKEx among global exchanges and compares HKExs volume with exchanges offering similar product types.

Global exchanges equity trading value* (1999-2006H1)

60 49.8 42.3 40 US$ trillion 33.1 30 38.1 33.1 33.3 36.3 51.1 50

20

10 0

1999

2000

2001

2002

2003

2004

2005

2006HI

* Figures in each period are only summations of the available gures of exchanges covered in that period, which may vary (eg 46 in 1999 vs 51 in June 2006). Source: World Federation of Exchanges

Global Volume by Product Type

Over 90 per cent of global derivatives trading is in nancial derivatives. Among nancial derivatives, equity-related derivatives (on equity indices and individual equities) were the most actively traded product type in 2005 and remained so in the rst half of 2006 (65 per cent and 62 per cent of global volume in the respective periods). Next came interest rate products (26 per cent and 28 per cent in the respective periods) and nally currency products (2 per cent in both periods). Trading of non-nancial derivatives (the underlying assets of which include agricultural products, energy, precious metals and non-precious metals) contributed only 8 per cent of global volume in both 2005 and the rst half of 2006 (see Figures 3a and 3b). Among the 59 exchanges which report statistics to the FIA, 16 offer non-nancial (mainly commodity) derivatives only, 13 offer both nancial and non-nancial derivatives and 30 offer nancial derivatives only. The majority of exchanges offer equity index futures (33 exchanges) and equity index options (31) (see Appendix 1).

Global volume by product type (2005 & 2006H1) (million contracts)

(a) 2005
Non-Precious Metals 98 (1%) Energy 275 (3%) Agriculturals 331 (3%) Currency 166 (2%) Precious Metals 55 (1%) Others* 2 (0.02%)

(b) Jan-Jun 2006

Non-Precious Metals 58 (1%) Energy 172 (3%) Agriculturals 205 (3%) Currency 116 (2%) Precious Metals 41 (1%) Others* 1 (0.01%)

Individual equities 2,357 (24%)

Equity indices 4,080 (41%)

Individual equities 1,463 (25%)

Equity indices 2,252 (38%)

Interest rates 2,537 (26%)

Interest rates 1,637 (28%)

* Others are derivatives on weather, lumber, fertiliser, plastics, commodity indices, etc. Source: Futures Industry Association

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Ranking of Exchanges by Derivatives Volume

Korea Exchange (KRX), Eurex and the Chicago Mercantile Exchange (CME) are the top three exchanges by contract volume. They together contributed 49.8 per cent and 46.6 per cent of the global volume respectively in 2005 and the rst half of 2006. HKEx ranked 35th and 31st in the respective periods. Dalian, the largest of the Mainland China exchanges, ranked 17th in both periods (see Figures 4a and 4b).

4
3,000 2,500

Global ranking of exchanges by derivatives volume (2005 & 2006H1)

(a) 2005
2,593

HKEx: 35th position

Million contacts

2,000

1,500

1,249 1,090

1,000

758

675 468 449 269 205 202 199 163 145 132 108 104 99 26

500

Chicago Mercantile Exchange

Chicago Board Options Exchange

International Securities Exchange

New York Mercantile Exchange

Chicago Board of Trade

Korea Exchange

Euronext

Eurex

National Stock Exchange of India

Mexican Derivatives Exchange

Philadelphia Stock Exchange

American Stock Exchange

Dalian Commodity Exchange

BOVESPA, Brazil

Pacic Exchange

OMX Exchanges

1,400 1,241 1,200 1,000

(b) Jan-Jun 2006 HKEx: 31st position

Million contacts

824 800 600 400 200 0 401 387 338 705

300 149 133 132 130 128 101 99 93

BM&F, Brazil

68

66

Chicago Mercantile Exchange

Chicago Board Options Exchange

International Securities Exchange

New York Mercantile Exchange

Korea Exchange

Chicago Board of Trade

Euronext

Eurex

Mexican Derivatives Exchange

National Stock Exchange of India

Philadelphia Stock Exchange

Dalian Commodity Exchange

American Stock Exchange

BOVESPA, Brazil

Pacic Exchange

OMX Exchanges

Source: Futures Industry Association

BM&F, Brazil

HKEx

HKEx
19

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45

Global Exchange Derivatives Volumes A Statistical Overview

Ranking of Exchanges by Financial Derivatives Contract Volume

HKEx currently offers only nancial derivatives. They are products on individual equities (stock futures and stock options), equity indices (Hang Seng Index (HSI) Futures and Options, H-shares Index Futures and Options, FTSE/ Xinhua China 25 Index Futures and Options, and Mini-HSI Futures and Options) and interest rate and xed income products (One-month and Three-month HIBOR Futures and Three-year Exchange Fund Note Futures). In terms of contract volume of nancial derivatives, HKEx ranked 24th among a total of 43 reporting exchanges offering such products during the rst half of 2006. Again, KRX, Eurex and CME were the top three exchanges, contributing 51 per cent of global volume of nancial derivatives in the period (see Figure 5).

Global ranking of exchanges by contract volume of nancial derivatives (2006H1)

1,400 1,241 1,200 1,000

HKEx: 24th position

Million contacts

824 800 600 400 200 0 382 338 337 695

300 149 133 132 128 101 99 93

68

19

Chicago Mercantile Exchange

Chicago Board Options Exchange

Korea Exchange

Chicago Board of Trade

International Securities Exchange

Euronext

Eurex

Mexican Derivatives Exchange

National Stock Exchange of India

Philadelphia Stock Exchange

American Stock Exchange

BOVESPA, Brazil

Pacic Exchange

OMX Exchanges

Source: Futures Industry Association

Contract Volume vs Notional Value

Contract volume is a convenient but not necessarily fair measure for comparison of derivatives trading activity across exchanges. This is because derivative contracts vary greatly in size. Notional value is perhaps a better measure in economic terms. Notional value is the value of the underlying assets represented by the derivative contracts traded. For illustration purposes, Table 1 shows the contract volume and the approximate notional value of a number of selected index futures products on a number of exchanges. In the rst half of 2006, S&P 500 Futures on the CME had a contract volume over 40 per cent smaller but a notional value 80 per cent larger than FTSE 100 Index Futures on Euronext.liffe; Nikkei 225 Futures contracts on Singapore Exchange (SGX) had a contract volume 60 per cent larger than HKExs HSI Futures but the two had comparable notional values. However, notional values are difcult to compile in practice. As the market price of the underlying asset varies, a contract traded at one time may differ in notional value from the same contract traded at another time. A complete set of exchange statistics based on notional value is therefore much more difcult to obtain than one based on contract volume.

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BM&F, Brazil

HKEx

Contract volume and notional value of selected index futures (2006H1)

Exchange Index futures CME E-mini S&P 500 Futures KRX KOSPI 200 Futures Eurex DAX Futures Chicago Board of Trade Mini-Dow Jones Futures Osaka Securities Exchange Nikkei 225 Futures Euronext.liffe FTSE 100 Index Futures SGX Nikkei 225 Futures CME S&P 500 Futures HKEx HSI Futures Taiwan Futures Exchange TAIEX Futures HKEx H-shares Index Futures Contract size* (US$) (end-Jun 2006) 63,510 87,417 180,574 55,751 135,227 106,844 67,614 317,550 104,729 41,954 43,679 Contract volume (Jan-Jun 2006) 129,451,013 25,386,479 21,614,162 13,951,804 13,600,308 13,088,130 9,771,412 7,734,116 6,109,153 5,295,890 2,420,491

Table 1 Approximate notional value# (US$m) 8,301,983 2,324,140 3,891,682 775,219 1,919,545 1,379,938 690,295 2,479,392 631,429 223,802 103,693

* The contract size of an index futures contract at the end of June 2006 is calculated by multiplying the month-end closing index by the contract multiplier. # Notional value of the contract volume during the period is an aggregate of the estimated notional values of monthly volumes. The monthly notional value is estimated by multiplying the month-end closing index by the contract multiplier and the monthly contract volume. Exchange rates used were month-end gures. Sources: Reuters for index closing levels, Hong Kong Monetary Authority for exchange rates, Futures Industry Association for contract volume.

Nevertheless, the WFE has endeavoured to maintain derivatives statistics of members of the International Options Market Association (IOMA) since 2003. IOMA members are mostly WFE members operating derivatives markets (see Appendix 2). The WFE statistics are number of contracts traded and notional value in each of the six selected product types (all are nancial derivatives) stock options, stock futures, stock index options, stock index futures, bond options and bond futures. However, not all exchanges are able to provide notional values on their products. Figure 6 shows the ranking of WFE/IOMA exchanges by notional value of stock index futures, for which most exchanges had data available, for the rst half of 2006. HKEx ranked 8th out of 28 exchanges for which data was available 5.

6
16,000 14,000 12,000

Ranking of WFE/IOMA exchanges by notional value of stock index futures (Jan - Jun 2006)
14,473

HKEx: 8th position

US$ billion

10,000 8,000 6,000 4,000 2,000 0

9,232

3,092

2,303 1,892 1,162 886 755 540 459 278 277 271 206 167

96

26

22

0.3

0.2 <0.1 <0.1 NA

Chicago Mercantile Exchange

Euronext.liffe

Thailand Futures Exchange

Sydney Futures Exchange

Singapore Exchange

Bursa Malaysia Derivatives

National Stock Exchange of India

Mexican Derivatives Exchange

Osaka Securities Exchange

Athens Derivatives Exchange

Australian Stock Exchange

BME Spanish Exchanges

Budapest Stock Exchange

Tel Aviv Stock Exchange

NA: Not available Source: World Federation of Exchanges

5 Of

these exchanges, 25 were among the 33 exchanges with statistics on stock index futures maintained by FIA (see Appendices 1 and 2).

Santiago Stock Exchange

Bombay Stock Exchange

Chicago Board of Trade

Korea Exchange

Eurex

JSE, South Africa

Bourse de Montral

Borsa Italiana

Wiener Brse

TAIFEX, Taiwan

Warsaw Stock Exchange

Tokyo Stock Exchange

Oslo Brs

HKEx

OMX

October 2006

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Global Exchange Derivatives Volumes A Statistical Overview

Appendix 1. List of exchanges covered by FIA statistics and their traded derivatives (as of June 2006)
Financial derivatives Exchange Equity index futures Equity index options Stock futures Stock options Interest rate products Currency products Nonnancial derivatives

1. 2. 3. 4. 5. 6. 7. 8. 9.

American Stock Exchange Australian Stock Exchange Bolsa de Mercantile Futures, Brazil* Borsa Italiana (Italian Derivatives Market)* Boston Options Exchange Bourse de Montral* BOVESPA, Brazil Budapest Stock Exchange, Hungary* Bursa Malaysia Derivatives Berhad*

10. CBOE Futures Exchange* 11. Central Japan Commodity Exchange* 12. Chicago Board of Trade* 13. Chicago Board Options Exchange* 14. Chicago Mercantile Exchange* 15. Dalian Commodity Exchange, China* 16. Eurex* 17. Eurex US* 18. Euronext* 19. Fukuoka Futures Exchange, Japan 20. HKEx* 21. ICE Futures, UK* 22. International Securities Exchange 23. JSE, South Africa* 24. Kansai Commodities Exchange, Japan 25. Kansas City Board of Trade, USA* 26. Korea Exchange* 27. London Metal Exchange, UK* 28. MEFF Renta FIJA of BME Spanish Exchanges* 29. MEFF Renta Variable of BME Spanish Exchanges* 30. Mercado A Termino De Buenos Aires (MATBA) 31. Mercado A Termino De Rosario (ROFEX)* 32. Mexican Derivatives Exchange (MEXDER)*

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Financial derivatives Exchange Equity index futures Equity index options Stock futures Stock options Interest rate products Currency products

Nonnancial derivatives

33. Minneapolis Grain Exchange, USA* 34. National Stock Exchange of India* 35. New York Board of Trade* 36. New York Mercantile Exchange* 37. New Zealand Futures Exchange 38. OMX Exchanges* 39. OneChicago* 40. Osaka Mercantile Exchange 41. Osaka Securities Exchange 42. Oslo Brs 43. Pacic Exchange 44. Philadelphia Stock Exchange 45. Singapore Exchange (SGX)* 46. Shanghai Futures Exchange* 47. Sydney Futures Exchange* 48. Taiwan Futures Exchange (TAIFEX)* 49. Tel-Aviv Stock Exchange 50. The Tokyo Commodity Exchange* 51. Tokyo Financial Exchange* 52. Tokyo Grain Exchange*# 53. Tokyo Stock Exchange* 54. Turkish Derivatives Exchange 55. Warsaw Stock Exchange 56. Wiener Brse, Austria 57. Winnipeg Commodity Exchange, Canada* 58. Yokohama Commodity Exchange, Japan# 59. Zhengzhou Commodity Exchange, China Total number of exchanges
Products

33 31 19 26 26 16 29

offered by the exchange.

* Associate members of FIA.

#

Yokohama Commodity Exchange merged into Tokyo Grain Exchange in April 2006.

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Global Exchange Derivatives Volumes A Statistical Overview

Appendix 2. List of exchanges and their selected derivatives covered by WFE derivatives statistics (as of June 2006)
Exchange 1. 2. 3. 4. 5. 6. 7. 8. 9. American Stock Exchange Athens Derivatives Exchange Australian Stock Exchange BME Spanish Exchanges Bombay Stock Exchange Borsa Italiana Bourse de Montral BOVESPA, Brazil Budapest Stock Exchange, Hungary Stock index Stock index futures options Stock futures Stock options 29 31 17 26 16 8 Bond futures Bond options

10. Buenos Aires Stock Exchange 11. Bursa Malaysia Derivatives Berhad 12. Chicago Board of Trade 13. Chicago Board Options Exchange 14. Chicago Mercantile Exchange 15. Eurex 16. Euronext.liffe 17. HKEx 18. JSE, South Africa 19. Korea Exchange 20. Mexican Derivatives Exchange (MEXDER) 21. National Stock Exchange of India 22. OMX Exchanges 23. Osaka Securities Exchange 24. Oslo Brs 25. Philadelphia Stock Exchange 26. Santiago Stock Exchange 27. Singapore Exchange (SGX) 28. Sydney Futures Exchange 29. Taiwan Futures Exchange (TAIFEX) 30. Tel-Aviv Stock Exchange 31. Thailand Futures Exchange 32. Tokyo Stock Exchange 33. Warsaw Stock Exchange 34. Wiener Brse, Austria Total number of exchanges
Products

offered by the exchange.

Exchanges not included in FIA statistics

50

October 2006