Thailand Futures Trading to Beat Cash Market in Five Years
Thailand Futures Exchange, the bigger of the country’s two futures bourses, expects equity derivatives trading to surge and surpass the cash market within five years amid increased hedging demand.
Equity and index futures and options transactions will jump as more investors trade the securities, Kesara Manchusree, the exchange’s managing director, said in an interview today. The number of trading accounts doubled to about 32,000 in the past year, she said.
“The stock futures market is set for substantial growth,” Kesara said in Bangkok. “Investors have realized the importance of derivatives to generate return and protect risk.”
Kim Eng Securities (Thailand) Pcl, the nation’s biggest brokerage, Asia Plus Securities Pcl and rivals are banking on derivatives trading to boost profit as falling fees cut earnings from cash transactions. Turnover jumped to a record in March as the stock market rally spurred demand for the securities to hedge against any declines in share prices.
Futures and options trading of the SET50 Index and 14 individual equities averaged 6.5 billion baht ($201 million) a day last month, according to the exchange’s Web site. That’s the highest since the bourse started operating in 2006 and a threefold increase from a year earlier.
Equity derivatives transactions in March were equivalent to about 26 percent of turnover on the Stock Exchange of Thailand, which averaged 24.7 billion baht a day in the month.
“The futures market is a new battlefield for brokerages because of its tremendous growth potential,” said Sanya Harnpatanakitpanich, assistant vice president for derivatives trading at Globlex Securities Co., the country’s biggest futures brokerage by trading volume. “Still, the growth is slower than it should be because of the lack of market makers for options.”
Globlex had the highest trading volume in the first two months, accounting for about 14 percent of total turnover, according to the futures exchange’s data.
Asia Plus, the country’s third-biggest stock brokerage, plans to sell more financial products including derivatives to boost its earnings growth, Chief Executive Officer Kongkiat Opaswongkarn told investors on March 5. The company had the sixth-highest trading volume on the futures exchange in the first two months.
The exchange has received permission from the U.S. Commodity Futures Trading Commission to allow U.S. residents to trade its contracts, Kesara said. It also plans to start bond and interest futures trading in the fourth quarter, she said.
Foreign investors accounted for about 15 percent of trading this year, compared with about 25 percent on the Stock Exchange of Thailand. The futures exchange, known as TFEX, was set up by the Stock Exchange of Thailand to allow “effective hedging,” according its Web site. It trades futures and options of the SET50 Index, a measure of Thailand’s 50 biggest publicly traded companies, as well as individual stocks and gold.
The Agricultural Futures Exchange of Thailand, controlled by the commerce ministry, is the nation’s other futures bourse. It trades contracts of agricultural products such as rubber and rice.