Singapore Exchange unveils Total Return Futures
John Davis and Sean McMahon
April 8, 2019

In a first for Asia, Singapore Exchange has announced the creation of Total Return Futures. The futures solution will be pegged to the Nikkei 225 Index and expands SGX’s portfolio of risk-management solutions. The SGX Nikkei 225 Index TRF will be a listed solution that replicates all aspects of the standard Nikkei 225 Index total return swaps. The new trading instrument, which will allow investors to trade the implied equity repo for teh first time, will be introduced May 13.

SGX’s creation of TRF will help clients meet new Basel III regulation and rules covering uncleared OTC contracts. These regulations are taking a toll on client capital and balance sheets.

“We are launching a solution that perfectly meets our market participants’ needs for trading opportunities with increased transparency and less risk. This is the first product of its kind in Asia, which is testament to our ability to quickly respond to market requirements,” said Michael Syn, head of derivatives at SGX.

Currently, Nikkei 225 Index total return swaps are transacted over-the-counter. TRF will deliver contract months listed up to 10 years. TRF is taking advantage of Japan’s massive, mature securities borrowing and lending market. Japan is known as a major market for structured products created in the current low-yield environment. The country’s market for total return swaps grew by offering investors access to returns of a basket of stocks while hedging financing costs.

“Repo is a new class of interest rate product that complements our comprehensive Japan equity derivatives offering, enabling participants to risk-manage both costs and benefits in Asia’s largest securities financing market. The TRF also supports our customers in meeting global financial market regulations,” Syn said.

SGX created the SGX Nikkei 225 Index Futures in 1986. SGX works with Nikkei Inc. on options on the Nikkei 225 Index and Asia No. 1 dividend index market.