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SCMP Reporter

FUTURES contracts on Australia's three largest capitalised stocks made a stronger than expected debut on the Sydney Futures Exchange (SFE), aided by a rally in the underlying shares.

  Traders said about 700 contracts were traded in the three shares yesterday.

 ''We would expect to see bigger volumes than that for them to be a success,'' said Nick Hales, a futures trader at ANZ McCaughan Securities. ''But for the first day, it's a good start.''    The three contracts are on oil, steel and mining giant Broken Hill Proprietary Co, on global media concern News Corp and on National Australia Bank, the nation's largest privately owned commercial bank.

 BHP drew the most interest as the physical shares rocketed about 3.8 per cent to a three-month high of A$18.26 (about HK$102.07). About 533 futures contracts on the stock were traded, Mr Hales said.

 About 161 contracts were sold on National Australia Bank, while News Corp, which did not feature prominently in the stock market yesterday, saw only 15 lots traded.

 The SFE said it was among the first futures markets in the world to offer such contracts.

 ''Share futures are likely to become a vital risk management tool for small and large investors, with these contracts providing an efficient hedging mechanism for specific stocks,'' said Les Hosking, chief executive of the futures exchange.

  Stock futures contracts allow investors to bet on whether a share price will rise or fall over a fixed period of time. The three new Sydney contracts are cash settlement only; investors do not take possession of shares when a contract expires.

 The system works like this: a pension fund holding a number of bank stocks in its overall stock portfolio might fear that banking shares are in for a rocky stretch. Rather than sell the shares - and possibly buy them back later - the fund could short the stock futures contract on National Australia Bank, which usually mirrors movements in all banking share prices.

 In effect, that means that the fund would take out a contract that earns a profit if the National Australia Bank share price drops. If National Bank shares drop in value, the fund would lose money on the value of the physical shares but could offset that loss by a profit on the futures.

 John Morgan, an investment adviser at fund manager Mercantile Mutual, said the new contracts faced a chicken-or-egg problem. They need large volumes to attract more investors but investors will hold back until they see large volumes.

 ''Institutions will be happy to buy them if they become liquid,'' he said. ''It's a cheap way of playing stocks.''   Meanwhile, the exchange reported a net surplus after tax of $11.28 million for last year compared with $9.23 million in 1992.

   SFE said in its annual report volume rose 22.3 per cent last year to 21.48 million futures and options contracts, making it the world's 10th most actively traded futures exchange.

   In 1992, turnover was 17.56 million contracts.

   The SFE said it might revive the wool contract along with new commodity based futures. The SFE started life as the Sydney Greasy Wool Futures Exchange in 1960.

   The report said operating revenue was $44.44 million, up from $41.47 million in 1992. Investment income totalled $20.80 million compared to $20.59 million.

     The SFE said its after-hours screen dealing system SYCOM traded 1.11 million contracts last year, up 76 per cent on the previous year.

   The exchange said the results included a full year contribution from The New Zealand Futures and Options Exchange (NZFOE) for the first time.

     It said volumes were a little below expectations in New Zealand. However, a sound financial result was achieved after the introduction of tight budgeting procedures.

   The SFE said the introduction of terminals in Australia to provide access to the New Zealand market was expected to give impetus to the New Zealand market this year.



Top three Australian firms surprise analysts with strong futures debut