By Chew Xiang

10 November 2009, Pg 7  (c) 2009 Singapore Press Holdings Limited

AUSTRALIAN researchers studying the impact of a number of Singapore Exchange-traded index futures say trading of futures in satellite markets benefits the home market as well.

The Capital Markets Cooperative Research Centre study 'suggests that despite the competitiveness among the onshore and offshore markets, a mutually beneficial volume relationship exists between them.'

Alex Frino and Wong Jin Boon of the University of Sydney, and Frederick Harris of Wake Forest University said that arbitrage trading and the expansion of investor base through cross-listing were possible reasons for this entwined relationship.

The researchers said they wanted to test if the existence of an onshore market caused order migration from the domestic to foreign markets.

The report, titled 'The relationship between satellite market and home market volumes: evidence from cross listed Singapore futures contracts' examined the relationship between MSCI Taiwan Index futures contracts listed on SGX with the component stocks listed on the Taiwan Stock Exchange and Taiwan Futures Exchange (Taifex) futures contracts.

Over a five-year sample period, a 10 per cent rise in the turnover of the MSCI Taiwan Index futures leads to a 0.78 per cent increase in turnover for the component stocks and 1.63 per cent for Taifex futures.

The researchers studied other cross-listed products such as the Nikkei 225 and Nifty Index futures and found a similar relationship. While intuitively the cross listing of a futures contract in a foreign market is perceived as competition, trading activities post-listing tend to increase.

'In light of our findings, the relevant exchanges might wish to formulate a plan that involves promoting arbitrage trading amongst the simultaneously traded cross-listed securities (and the component stocks) to entice even more trading by global financial institutions,' they wrote.

Thomas Tey, SGX senior vice-president and head of product management said: 'We have always believed that our provision of a one-stop, pan-Asian equity derivatives platform increases trading in these products, in part due to the margin efficiency benefits.'

'We are pleased by the findings of this study as it validates that we are on the right path.'