OREANDA-NEWS. December 02, 2015. The MSCI Singapore Index (SiMSCI) is designed to reflect the performance of large and mid-cap segments of the Singapore stock market. With 28 constituents, the index covers approximately 85% of the free float-adjusted market capitalization of the Singapore equity universe. As of the end of October, the 10 year annualised total return of the SiMSCI was 6.3% compared to the MSCI World Index total return of 4.4%.

SGX Implements Contract Size and Ticks Size Change to Enhance Efficiency

On 2 November, the contract multiplier and minimum tick size for the MSCI Singapore IndexSM Futures (SiMSCI Futures) contract were halved to S\\$100 and 0.05 index points respectively. The change aims to increase the tradability of the SiMSCI Futures and to allow market participants to better hedge their Singapore equity exposure.

A modest 8,120 lots of SIMSCI futures were traded on the first day of implementing the contract specification changes, as most market participants adopted a wait-and-see stance.  However, trading interest in the SiMSCI Futures contract soon picked up momentum.

The halving of the tick size has reduced the bid-offer spread of the front month contracts from approximately 3.8 bps to 2.6bps during T session (as illustrated in Chart 1), providing greater cost efficiency to market participants especially those who rolled their positions.

Source: Singapore Exchange as of 27 November 2015

The SiMSCI Futures contract continues to gain traction with the average daily notional value traded growing 21% year-on-year. A total of 564,174 contracts exchanged hands in November and open interest stood at 101,753 contracts at the end of the month.

During the November expiry, 93% of open interest was rolled into December 15 contracts, higher than the 1-year historical average of 92%.  The strong roll activity was driven by 1-tick wide spread (at 0.05 index point) on screen, as well as brokers facilitating block trades.  We observed that the volume weighted average price (VWAP) for calendar spread over the past six monthly rolls has been mostly negative. This negative cost of roll means that the back month contract (e.g. Dec15) is valued higher than the front month (e.g. Nov15) contract, indicating that investors holding long positions would have benefited from rolling their positions into the next month.

Enhanced SiMSCI Futures Contract

The contract multiplier for SiMSCI Futures contract is S\\$100. Based on a futures price of 323.5, the notional value of one SiMSCI Futures contract is now S\\$32,350. Due to the smaller notional size, initial and maintenance margins have been reduced to S\\$1,540 and S\\$1,400 respectively.

Market participants with a portfolio of relevant Singapore stocks are able to hedge their directional exposure with the SiMSCI Futures contracts. Unlike equities, a future contract permits shorting and the use of higher leverage. A trader only needs an initial margin of S\\$1,400 to gain an exposure to S\\$32,350 of Singapore equities, assuming a futures price of 323.50.

With more than 16 hours of trading at SGX each day, investors are able to make use of both the regular T session (8.30 am to 5.15 pm Singapore Time) and the T+1 session (6.15 pm to 2.00 am Singapore Time) of the SGX SiMSCI futures contract to hedge their exposure during Asian, European and US time zones.

Contract Specifications for Enhanced MSCI Singapore IndexSM Futures

SiMSCI Futures (Ticker code: SGP)
Underlying Stock  Index MSCI Singapore Free IndexSM
Contract Size

S\\$100 x SGX MSCI Singapore Index Futures Price ? S\\$34,480

(Assuming futures price of 344.8)
Contract Months 2 nearest serial months and Mar, Jun, Sep and Dec months on 1-year cycle
Minimum Price Fluctuation 0.05 index point (S\\$5)

Trading Hours

(Singapore Time)

 T session: 8.30 am - 5.15 pm*
T+1 session: 6.15 pm - 2.00 am (next day)
Last Trading Day Second last business day of the expiring contract month
Settlement Basis Cash settlement
Final Settlement Price Value of the MSCI Singapore Free Index computed based on the Special Quotation methodology applied on each component stock of the index on the last day following the Last Trading Day

*includes 4 minutes of Pre-closing and 1 minute of Non-Cancel Period at the end of the session

Futures Contracts are one type of Specified Investment Products (SIPs) under MAS’ proposed regulatory framework to introduce measures for intermediaries to safeguard the interests of individual investors for products with features which may be more complex in nature. Investors now have the opportunity to assess their qualifications to trade SIP or enhance their product underlying through SGX online portal available here.