Previously referred to as Single Stock Derivatives (SSDs), ES contracts will be a new product class on the SGX Securities Trading (SGX-ST) market. 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 will work with its Member firms to extend its current investor education programmes in the 2.5 months between now and when the contracts are launched. Among various activities, participating brokers will be organising product education seminars in collaboration with SGX at venues such as the SGX auditorium in Shenton Way.
“Extended Settlement contracts will be the first margin-based product in our securities trading market. The launch of ES contracts on SGX's securities platform will fill the current pressing need in the equity derivatives space for Singapore-based retail investors. It will also pave the way for more varied exchange-traded equity products to be introduced, and allow for hedging and arbitraging opportunities,” said Mr Chew Sutat, SGX Executive Vice President & Head of Market Development.
“The Securities Association of Singapore is pleased to have had the opportunity to work closely with SGX, and at many levels, to develop Extended Settlement contracts as a new product and to get the trading infrastructure ready for the launch. All 10 local brokers welcome the opportunity to play a key role in training and preparing the professionals and informing and educating the investing public on how this new product can serve them well. We are excited about Extended Settlement contracts creating new interest and adding depth to our securities market,” said Mr Lim Eng Hai, Chief Executive Officer of the Securities Association of Singapore.
ES contracts will offer the following benefits:
- Exchange-traded and -cleared ES contracts facilitate orderly and transparent trading of forwards/futures needs and reflect the views of investors. Specifically, all short positions in ES contracts will be matched against equivalent long positions and open interest will be transparent and published. Both long and short positions are margined and marked-to-market for system integrity.
- ES contracts enable more efficient margin-based trading. This provides better risk management for the industry and increased capital efficiency for long investors, which are especially relevant in volatile markets.
- SGX expects that with the participation of liquidity providers, exchange-traded ES contracts will facilitate increased liquidity in the cash market for underlying securities which are impacted, thus benefiting all investors in the marketplace.
The 10 stockbroking companies supporting the development and launch of Extended Settlement 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.
Annex
The key features of ES contracts are:
- Each contract will be for 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 23 January 2009 will have its LTD on 27 February 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. The 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.
