Volatility product fails to attract investors on debut

PUBLISHED : Tuesday, 21 February, 2012, 12:00am
UPDATED : Tuesday, 21 February, 2012, 12:00am


The debut of Asia's first futures product on volatility, the Hang Seng Index Volatility Index futures, was cold-shouldered by investors yesterday, trading only 15 contracts.

Just 13 exchange participants took part in the trading of the product, including both institutional and retail brokers.

The HSI Volatility Index futures were launched by the Hong Kong Exchanges and Clearing, operator of the Hong Kong stock exchange, aiming to tap into institutional investors' growing need to hedge against market volatility.

The futures, traded on the Hong Kong stock exchange, offer investors an alternative to variance swaps, where investors have to take a position on the movement of a stock or an index with another financial institution.

However, even if financial institutions welcomed the futures as another positive sign of the development of Asia's fast-growing derivatives market, institutional investors showed little desire to actually buy the product.

Simon Yung, a director and head of warrant sales at Standard Chartered Bank, said that while the industry welcomed more alternatives on how to manage portfolio risks during market swings, market players would still like to 'wait and see' how effective the futures would be as a hedging instrument.

But Calvin Tai, the head of the trading division at HKEx, insisted the number of contracts was 'encouraging' and in line with expectations.

The market needed more time to 'warm up' and was testing the product with small-size trades, he said.

He added that HKEx would continue to organise educational and promotional activities with both retail and institutional investors.

The Osaka Securities Exchange has also announced plans to launch futures on the Nikkei Stock Average Volatility Index next Monday.