Absa Capital, one of South Africa’s leading investment banks, today listed South Africa’s first basket futures instruments on the Johannesburg Stock Exchange (JSE) in response to growing local and international demand for innovative derivative products.
Basket futures are futures on a basket of equities and give buyers representative exposure to the underlying index by imitating the share price movement in that sector.
The new product is now available because of ‘Can-Do’ futures that were recently introduced by the exchange. ‘Can-do’ futures allow the listing of customised futures products such as basket futures.
Absa Capital has listed 7 baskets: retail, construction, banks, platinum, gold, travel and real estate.
They are aimed at institutional and retail investors and designed to give clients liquid, leveraged and cost effective exposure to certain sectors. The basket prices will be publicly quoted on SAFEX and its clearing members will guarantee all trades as per normal.
Basket futures, like index futures will be cash settled.
Jared Coetzer from the Absa Capital Equity Derivatives Sales desk says: “These baskets diversify the share specific risk through the exposure to multiple shares within a specific sector. Investors will therefore be able to have access a sector or theme with only one trade making it a highly cost effective way to gain exposure to a sector or theme.”
Dealing costs are the same as single stock futures.
Coetzer says that the equities within the basket will have an initial weighting based on the market capitalisation within each index at the time of listing.
“But these weightings will change as the prices of the equities fluctuate throughout the life of the future.”
The basket is created according to a set of rules which enable Absa Capital to give representative exposure to a sector or theme by imitating the index through the purchase of a future on at least 3 but no more than 6 equities.
Investors wanting to trade in the basket futures will deal though the Absa Capital dealing desk.
Coetzer notes that Absa Capital drew on its global affiliation with Barclays Capital and advanced local technology platforms to bring basket futures to the SA market because worldwide there has been strong growth in demand for derivatives.
“We attribute this to continued competition and growth in the hedge fund industry - which use derivatives extensively – because of increasing pressure to utilize all tools possible to generate returns.
The JSE is now running the largest Single Stock Futures Market in the world.
Between January and March 2007 the JSE traded more than 44 million contracts.
The next biggest market was India with 30 million contacts being traded in the same period.
Note to the editor:
About Absa Capital
Absa Capital, a division of Absa Bank Limited (Absa) and affiliated to Barclays Capital, is a leading South African investment bank with global reach, offering clients financing, risk management and advisory solutions in a wide range of currencies and structures across the globe.
The baskets are as follows:
|Murray and Roberts
|Rand Merchant Bank
|City Lodge Hotels
|Real Estate Basket