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SGX FX futures volumes top 1 million contracts for second consecutive month despite reduced volatility


Market Updates














07 November 2017
SGX FX futures volumes top 1 million contracts for second consecutive month despite reduced volatility
  • Monthly volumes remain above 1 million contracts for October despite trading activity headwinds caused by reduced volatility and trading holidays in several markets.
  • Aggregate Open Interest for SGX FX futures grows 26% m-o-m.
  • SGX USD/CNH Futures saw 18% m-o-m growth in Open Interest, slight slowdown from the Golden Week holidays in China.
  • The Gandhi Jayanti and Deepavali holidays in India impacted trading momentum, with lower volatility affecting SGX INR/USD Futures trading volumes in in October, while Open Interest grew 40% m-o-m.

The 19th Congress of the Chinese Communist Party, held every five years, was a key event in October and was watched with interest around the world. The week long congress aimed to set a broader tone for the Chinese economy and it culminated in a vision statement that suggested a more “market” driven economic policy, and a focus on stable and sustained growth and prosperity for various sections of society. This direction is positive for Chinese assets as the country looks to charter a new growth path for the next few decades.


However, this widely anticipated event also led to a slowdown in trading across most China-linked assets and products. After experiencing record highs in September, FX markets in October saw reduced volatility. While the aggregate volume for all FX futures on SGX has now crossed 1 million contracts for two consecutive months, the activity in October [1,041,417 contracts] was down from September [1,293,796 contracts], in part due to the Golden Week holiday in China and Gandhi Jayanti / Deepavali holidays in India. Despite this, the average daily trading volumes largely sustained the momentum seen in recent months. While the average daily volume (ADV) for all FX contracts for October was 54,265 contracts, slightly lower than the 61,628 in September due to suppressed volatility, this is still 39% above the levels in August. At 59,106 contracts, the aggregate Open Interest for all SGX FX futures was up 26% m-o-m.



Data Source: SGX


USD/CNH trading takes a breather after a whirlwind September; Open Interest grows 18%


Given the party congress and public holidays in China and Hong Kong, reduced volatility was expected across most Chinese-linked assets and products during the month. The effect showed in a slow start to the month. Liquidity in the FX markets improved when China's FX reserves were reported on 9 October to be up for the eighth month in a row and immediately pushed SGX USD/CNH Futures volumes above US$ 1 billion notional on the day. The offshore yuan further strengthened to a 2-week high, after PBOC set firmer than expected official fix on 10 October. SGX USD/CNH Futures volumes surged in tandem, as market watchers considered the move an attempt to stabilise currency ahead of the key national leadership meeting. The currency pared the gains in the last week of the month and ended the month depreciating against the greenback as the yuan central parity rate set by PBOC moved to 6.6397 on October 31 from 6.6369 at the end of September.


With the US dollar weakening in recent months, the renminbi has strengthened over this year even on a trade weighted basis and the country has even been praised by the US Treasury in their foreign currency report released mid-October for acting to avoid “disorderly” depreciation. However, the Implied Volatility has also been inching up and that has helped sustain the momentum of trading activity at SGX. SGX has recorded 30 days with notional trading volume in excess of US$ 1 billion in second half of 2017. Prior to this, this had only been achieved three times since the launch of the contract on SGX in October 2014, and only for the first time in January this year, and is further proof of SGX’s growth as the venue of choice for market participants looking to hedge currency market risk.


Data Source: SGX, Bloomberg


The average daily trading and the market share for SGX USD/CNH Futures have remained robust even as the total trading volumes on SGX USD/CNH Futures were slightly muted. The average daily volume for SGX USD/CNH Futures stood at US$ 1.04 billion, 22% below the US$ 1.33 billion in September but 26% percent above the US$ 823 million a day in August. The open interest for SGX USD/CNH Futures also jumped 18% to 19,964 contracts (US$ 2.00 billion) from 16,965 contracts (US$ 1.70 billion) at the end of September. With a 277% increase in volume y-o-y, SGX’s share of the USD/CNH Futures market continues to grow at 75% with several other exchanges combining to constitute the remaining 25%.


Data Source: SGX, Bloomberg


SGX sustains trading momentum in the INR/USD Futures despite holidays


The month of October had several holidays in India that interrupted trading momentum in the FX markets. The spillover effect was also felt in the SGX INR/USD Futures market as the overall trading volume for the month was lower at 823,149 contracts, down from nearly a million contracts in September.


However daily trading volumes for SGX INR/USD Futures consistently crossed US$ 1 billion and did so on 18 days in October against 11 days in September. This has now happened 74 times this year and is a good indication of further deepening of the market liquidity for SGX INR/USD Futures.


Despite a global drop in INR futures volumes in October on account of reduced volatility, the average daily trading volume in the month [US$ 1.33 billion a day] was still 41% more than the US$ 945 million a day seen in August, while slightly below the US$ 1.47 billion seen in September. With 823,149 contracts traded in October, SGX INR/USD Futures have continued to show a solid 89% growth y-o-y. The Open Interest for SGX INR/USD Futures in October increased to 36,278 contracts, up 40% from the end of the previous month.


Data Source: SGX, Bloomberg



The Indian macro themes have remained consistent most of the year, with fixed income flows remaining robust. The other aspects such as a stable political environment, progressive, action oriented leadership and a promise of market reforms have helped to attract capital inflows. Fixed income inflow from Foreign Portfolio Investors has grown significantly this year as the average yields remain high. They have taken their exposure to nearly 4% of sovereign debt issued by the Indian Government. A strengthening (and relatively stable) rupee has also helped investors, with 4.7% appreciation year to date, further enhancing the returns.


The benchmark equity indices remain at around all-time highs, supported by the robust inflows in domestic equity funds and despite the outflow of foreign institutional money in the last 3 months as a result of global equity reallocation. Aided further by the appreciation in the currency, benchmark equity indices have generated over 30% returns this year (USD adjusted).



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