OREANDA-NEWS. As noted last week in the Market Update - Spotlight on Nikkei Dividend Futures as Japan Dividend Yields Spike long-term Japanese government bond (JGB) yields hit record lows in February, widening the spread between Nikkei 225 Index dividend yields and yields for 10-year JGB to 1.98% points on 24 February which at that time was the widest spread in around three years.

During the month of February the Nikkei 225 Index declined 8.5% compared to the Straits Times index (STI) which gained 1.4%. The three most active Nikkei 225 Index Structured Warrants comprised of two Call Warrants and a Put Warrant which are due to expire this week. By comparison the three most traded Hang Seng Index Structured Warrants comprised of two Put Warrants and a Call Warrant with all three due to expire at the end of March.

The three most traded FTSE China A50 Index Structured Warrants comprised of two Call Warrants with 10,000 and 11,500 strike prices and an 8,000 Put Warrant. The 8,000 Put Warrant generated the lowest intraday volatility of the three, which stood at an average intraday volatility of 7% for the month of February. This compared to average intraday volatility of 10% for the 10,000 Call Warrant and 18% for the 11,500 Call Warrant.

The intraday volatility of the three most traded Structured Warrants across the underlying indices are tabled below. Statistics of  the three stocks that were the underlying for the most traded Structured Warrants on single stocks are also tabled below for comparative purposes. As shown, while the intraday volatility amongst the different Structured Warrants did vary, liquidity was present in both the least volatile and most volatile of the Index Structured Warrants.

 

Market Quality Indicators

  

Counter Name

Stock Code

Bid-Ask Spread (S$)

Quoted Best Depth (S$)

Quoted Best Depth (Vol)

Average Intraday Volatility

HSI 18400 MB EPW160330

BPEW

0.00279

86,160

716,280

17%

HSI 19800 MB ECW160330

BPYW

0.00304

81,692

780,300

22%

HSI 17600 MB EPW160330

BPXW

0.00309

64,272

740,326

19%

FTSECHINAA50 11500 MBECW160428

BMVW

0.00197

45,514

974,885

18%

FTSECHINAA50 10000 MBECW160629

BPKW

0.00141

101,962

619,527

10%

FTSECHINAA50 8000 MBEPW160629

BPLW

0.00102

166,960

1,000,156

7%

NIKKEI225 16000 MB ECW160311

BHXW

0.00280

22,514

172,305

30%

NIKKEI225 18000 MB ECW160610

BONW

0.00170

169,402

1,645,643

24%

NIKKEI225 15500 MB EPW160311

BIBW

0.00177

14,328

202,068

30%

STI 2750 MB ECW160630

BOFW

0.00114

80,553

1,635,832

13%

STI 2650 MB EPW160429

BOIW

0.00131

17,689

229,574

9%

STI 2650 MB ECW160831

BPWW

0.00128

150,507

1,600,708

8%

UOB MB ECW160705

BNKW

0.00114

31,333

409,610

11%

UOB MB EPW160601

BKIW

0.00176

16,252

89,282

8%

UOB MB ECW160711

BPTW

0.00123

28,002

189,113

8%

DBS MB ECW160711

BPJW

0.00108

24,090

357,535

13%

DBS MB ECW161004

BQEW

0.00109

70,397

504,370

10%

DBS MB EPW161003

BNOW

0.00503

53,748

193,090

4%

KEPCORP MB ECW161101

BPHW

0.00106

23,983

310,009

8%

KEPCORP MB ECW161212

BNSW

0.00106

28,991

390,014

14%

KEPCORP MB ECW161205

BPUW

0.00107

44,097

272,329

7%
             

Source: SGX (data as of 29 Feb 2016)

Warrants issuers appoint Designated Market-Makers to enhance liquidity for investors. Liquidity can be defined as the ease with which an asset can be bought or sold, and market participants typically use “bid-ask spread “and “quoted best depth” to measure the liquidity of its listed securities.

Bid-ask spread is the difference between the best prevailing buy and sell prices, and a tighter spread implies closer buy and sell prices, which makes it easier for investors to buy or sell their warrants at more competitive prices. Quoted best depth refers to the value of warrants available at the best prevailing buy and sell prices and the average quoted best depth value for these twenty-one warrants was between S$14,328  – S$169,402.  Quoted best depth can also be measured in the number of warrants available at the prevailing best buy and sell prices, which was between 89,282 – 1,645,642 warrants.

However, there are instances where the Designated Market-Makers are not required to provide liquidity, such as when the value of the warrant falls below the minimum price of $0.001 or when the underlying stocks or indices are closed for trading in their respective markets. 

Specified Investment Products

Structured warrants are an example of Specified Investment Products (SIPs). The MAS has introduced measures for intermediaries to safeguard the interests of individual investors investing in SIPs, which are products with features that might be more complex in nature. SGX’s Japan-related equity derivatives also comprises the Yen Nikkei 225 Index Futures and Warrants, USD Nikkei 225 Index Futures, and the Nikkei Dividend Futures.