“Extended Settlement contracts will be the first margin-based product in our securities trading market. It is important to the industry, and the training and education programmes will equip brokers, trading representatives and their clients with the necessary knowledge to understand and benefit from the product. We appreciate the efforts from all parties that have enabled the successful industry-wide testing, and we will now work with them to focus on training and investor education,” said Mr Chew Sutat, SGX Executive Vice President & Head of Market Development.
“It is important that we allow enough time for the investing public to get to know what Extended Settlement contracts are, and how the product can work for them. We support the revised launch date,” said Mr Lim Eng Hai, Chief Executive Officer of the Securities Association of Singapore.
ES contracts will be a new product class on the SGX Securities Trading (SGX-ST) market. Its launch is aimed at expanding the current suite of equity products available to investors. The new product allows investors to buy into an underlying stock listed on SGX at the transacted price on the day of the trade, for settlement at a specified future date.
Investors will have to put up an initial margin to trade ES contracts, which will be marked to market. ES contracts provide investors with an exchange-listed and -traded alternative to unregulated over-the-counter trades.
To familiarise investors with the benefits and risks of trading the new product, SGX continues to work with its Member firms on investor education programmes. Among various activities, participating brokers organise product education seminars in collaboration with SGX at venues such as the SGX auditorium in Shenton Way.
The 10 stockbroking companies supporting the development and launch of ES contracts are AmFraser Securities, CIMB-GK Securities, DBS Vickers Securities, DMG & Partners Securities, Kim Eng Securities, Lim & Tan Securities, OCBC Securities, Phillip Securities, UOB Kay Hian and Westcomb Securities.
The key features of ES contracts are detailed in the Annex.
1The inaugural ES contracts will start trading on 20 February 2009 instead of 25 February 2009, to give investors more trading days to familiarise themselves with this new product.
Annex
The key features of ES contracts are:
- Each contract tenure will be about 35 days, starting from the 25th of each month until the last trading day (LTD) of the contract month, i.e. the 31st of the following month.
- If the 25th and/or 31st are non-trading days, the contract will start from and end on the last trading days before those dates. For example, an ES contract that starts trading on 24 April 2009 will have its LTD on 29 May 2009.
- Settlement will take place by way of delivery of the underlying securities on LTD plus three days (LTD+3). If bought on the first day of the ES contract, this gives investors up to 38 days to settle the contracts with the actual securities – 35 days longer than for normal securities investments.
- Margins, which are a fraction of the full trade value, are required to be paid to trade ES contracts. SGX’s margins range from 5% to 20% of the cost of one lot of the underlying stock. The full amount of the trade is payable on settlement day, which is LTD+3.
Disclaimer:
SGX and its affiliates accept no liability whatsoever arising from investors trading in SGX-listed products. Investors should seek advice from a professional financial adviser regarding the suitability of SGX-listed products, taking into account their specific investment objectives, financial situation and particular needs before trading in, or adopting any investment strategies involving, SGX-listed products.
