Warsaw Stock Exchange: Ten Years Of The Derivative Instruments Market

16 January 2008 was 10 years since the first day of trading in WIG20 index futures contracts on the Warsaw Stock Exchange. It was the first derivative instrument traded on the WSE. In the first year of trading, the annual volume of trading was 24 thousand contracts; in 2007, the daily volume of trading in WIG20 contracts was twice as high: 37.5 thousand contract per session on average.

WIG20 derivative instruments remain the most popular derivative instrument traded on the Warsaw Stock Exchange, best proof of the importance of the WIG20 index and of the right choice made 10 years ago. The volume of trading in WIG20 futures on the WSE is comparable to other mature European markets. Importantly, the WSE market has grown mainly thanks to individual investors with the active involvement of brokerage houses and market makers. The interest of Polish institutional investors and foreign investors in derivative instruments is currently growing fast which is a good sign for the future of this market segment. New regulations on short selling currently in preparation, the planned liberalisation of the rules of securities lending and allowing pension funds to use derivative instruments for hedging are additional important factors which will strengthen the derivatives market and improve the effectiveness and security of the entire market.

WSE investors can currently buy WIG20 contracts, mWIG40 contracts, TechWIG contracts (the introduction of subsequent series of the latter has been suspended), contracts on stocks of selected companies, currency contracts (US$/PLN and EUR/PLN), WIG20 options, and WIG index participation units.

The WSE is planning to introduce further instruments to trading: new currency contracts (PLN/GBP, PLN/CHF, contracts on currencies other than PLN), new stock and index contracts. After the launch of short selling and securities lending, the WSE will reintroduce trading in stock options.

The past year was special for the derivatives instruments market. The total volume of trading in all derivative instruments was close to 10 million instruments, compared to only 24 thousand instruments in 1998. The average monthly volume of trading is now 825 thousand instruments. In August and in November 2007, the monthly volume was over 1 million instruments. The volume of trading in futures contracts in 2007 was up by 50% year on year, and the volume of trading in options up by 21%.

The number of investors interested in this market segment grew fast. There were 2,416 registered Individual Investor Numbers (NIK) at the end of 1998, compared to 46,259 at the end of 2007. The market grew mainly thanks to individual investors. In 2002-2006, their share in the volume of trading in futures contracts ranged from 63 to 84% (it was 57% at the end of H1 2007). Their share in options trading in 2003-2006 was 69-76% (50% at the end of H1 2007).

The share of Polish institutional investors in the derivatives instruments market is growing. According to a recent survey of the share of investors in the trading volume, their share was over 30% in contracts and 39% in options at the end of H1 2007. By value, their share in the contracts market grew by 55% and in the options market by 137% compared to H2 2006.

The Warsaw Stock Exchange is steadily strengthening its position on the European market. According to Q1-2 2007 statistics, the WSE ranked number one in CEE by the volume of trading in index and stock derivative instruments. The WSE ranked fifth in Europe by the volume of trading in index futures contracts and eighth by the volume of trading in main index futures contracts.

In total, 14 classes and 137 series of derivative instruments were traded on the WSE at the end of 2007. There were 13 Market Makers active on the market and 29 Exchange Members had access to derivative instruments.

According to H2 2007 statistics, DM BO? was the most active broker on the WIG20 futures market (19.7% share in the volume of trading) while DI BRE was the most active broker on the WIG20 options market (22.9% share).

Share of Brokerage Houses in Trading in WIG20 Contracts and Options (H2 2007)

Source: WSE

WSE CEO Ludwik Sobolewski said, “The growth of the Warsaw Stock Exchange, an in particular the derivative instruments market, would not have been possible and will not be possible without the active involvement of individual investors and market makers. Thank you for your commitment; we hope you will remain committed, also with the support of institutional and foreign investors.”