Tokyo Stock Exchange, Inc. (TSE) announces the result of the *questionnaire survey regarding specifications of 10-year JGB futures as shown below.
As for the modification of 10-year JGB Futures specifications, many trading participants
responded that any change of the specifications is unfavorable because it may
spoil the superior liquidity of the JGB Futures trading. On the other hand, some
participants insist that the maturity of deliverable bonds should be longer for
matching the cash and future price movement and that the notional coupon rate
should be lower to market level.
In this regard, TSE will hold "discussion group" meetings among some
of TSE trading participants who replied to the questionnaire for further discussion
on this matter.
Result of Questionnaire Survey
I. Summary of replies
(116 TSE trading participants replied to the questionnaire.)
1. Maturity of deliverable bonds
|
No. of company
|
*Trading share(%)
|
| Necessary to revise |
24
|
17.7
|
Not necessary to
revise or not appropriate to start
the study for revision at this moment |
53
|
76.1
|
| No opinion |
39
|
0.3
|
| Total |
116
|
94.1
|
*Trading share indicates the trading participants' share for the trading volume
of
10-year JGB Futures in 2001.
2. Coupon rate
| Necessary to revise |
25
|
20.8
|
Not necessary to revise or not
appropriate to start
the study for revision at this moment |
53
|
73.0
|
| No opinion |
38
|
0.3
|
| Total |
116
|
94.1
|
II. Representative comments of the trading participants
1. Maturity of deliverable bonds
(1) Necessary to revise
 |
Since CTD is currently JGBs with remaining maturity of 7 years,
10-year JGB Futures trading is not functioned as a hedging tool for cash JGBs
with remaining maturity of 10 years, which are traded most frequently among cash
market. Minimum maturity of deliverable bonds should be raised to 9 years. |
|
If minimum maturity of deliverable bonds is raised to 9 years,
JGBs with remaining maturity of 9 years, which are issued sufficiently and traded
actively, become CTD and risk of squeeze would be eased. |
|
(2) Not necessary to revise
|
|
Since CTD is currently JGBs with remaining maturity of 7 years,
participants can use 10-year JGB Futures as a hedging tool not only for JGBs with
remaining maturity of 10 years, but also for one with 5-year remaining maturity.
|
|
|
This also prompts speculators and arbitrageurs' participation,
and contributes to high liquidity in 10-year JGB Futures. There is no merit to
revise the specifications. |
|
|
JGBs issuing amount is increasing and Repo market is recently
developed in Japan. Therefore, risk of squeeze is limited. |
|
|
If TSE revises the specifications, the outstanding liquidity of
10-year JGB Futures would be threatened. |
|
|
If minimum maturity of deliverable bond is raised, 10-year JGB
Futures could not be used as a hedging tool for JGBs with 5-year remaining maturity.
In consideration of inferior liquidity of 5-year JGB Futures, it is uncertain
that the 5-year JGB Futures are functioning as the hedging tool alternatively. |
|
2. Coupon rate
(1) Necessary to revise
|
|
It should be lowered to 2 or 3%. |
|
|
More JGBs would have possibility to become CTD and risk of squeeze
would be eased. |
|
|
There is no problem for delivery option, which is very common
in the United States. Delivery option might be a business opportunity for arbitrageurs. |
|
(2) Not necessary to revise
|
|
Delivery option is not favorable and it affects on the liquidity
of JGB Futures trading. |
|
|
10-year JGB Futures currently work as a benchmark and important
hedging tool for 7-year interest rate and this should not be changed. |
|
