HKEX is seeking CFTC certification for the new contracts. The move intensifies competition with SGX, which already has a CFTC-certified futures contract for Taiwan.
The HKFE (Hong Kong Futures Exchange), a subsidiary of HKEX (Hong Kong Exchanges and Clearing Limited), has expanded its licensing agreement with MSCI Limited to include the broad-based MSCI Taiwan 25/50 Index.
HKFE plans to launch USD denominated MSCI Taiwan 25/50 Index Futures and MSCI Taiwan 25/50 Net Total Return Index Futures on 28 September 2020, subject to regulatory approvals.
Of the 37 new futures and options contracts announced in May as part of a ten-year licensing agreement with MSCI, 33 new contracts have been launched, including MSCI Taiwan (USD) Index Futures and MSCI Taiwan Net Total Return (USD) Index Futures, launched in early July.
CFTC (Commodity Futures Trading Commission) has granted certification to 23 of the new MSCI contracts launched by the HKFE, allowing them to be offered to US persons, but this did not include the two existing MSCI Taiwan index futures contracts.
The MSCI Taiwan 25/50 Index takes into account certain investment limits that are imposed on regulated investment companies under the US Internal Revenue Code; thus the two new contracts are expected to be certified by the CFTC.
In July, SGX (Singapore Exchange) similarly launched a futures contract based on the FTSE Taiwan RIC Capped Index. The contract is CFTC-approved for offer and sale in the US, according to the product factsheet.
The SGX FTSE Taiwan Index Futures contracts have a pre-opening session starting at 8.30am, and trading session start at 8.45am. HKEX’s existing Taiwan contracts start trading at 9.00am.
Starting on 28 September 2020, HKEX will introduce a pre-open trading session at 8.30am and advance the opening of the trading session to 8.45am – for both the existing and new Taiwan contracts.
Comparing the after-hours session, SGX allows trading until 5.15am (T+1), while HKFE allows trading until 3.00am.
HKEX is offering a 100 percent trading fee waiver for all its MSCI Taiwan contracts, which intensifies competition with SGX for derivatives traders seeking exposure to Taiwan. HKEX is clear in its statement that it is looking for market participants to migrate their trading to Hong Kong.
“HKEX’s MSCI Taiwan equity index futures are geographically the closest offshore traded futures to the Taiwan market, offering investors the opportunity to optimise latency and enhance price discovery,” said HKEX Head of Markets Wilfred Yiu. “With these latest products, we will complete the current phase of the MSCI futures suite and actively help support our customers in migrating their open interest to HKEX.”
Meanwhile, the HKFE is seeking SFC (Securities and Futures Commission) approval to enhance the CBPL (Capital-Based Position Limit) framework by late August 2020 to provide more capacity for activities such as “migrating their book of MSCI index derivatives to Hong Kong”. The changes are also said to be aimed at ensuring clearing participants’ risk exposures are commensurate with their financial strength.
HKEX plans to complete the listing of all MSCI futures contracts in the current phase on 28 September 2020, including the launch of three non-USD futures products – the MSCI Singapore Free (SGD) Index Futures, MSCI Japan (JPY) Index Futures, and MSCI Japan Net Total Return (JPY) Index Futures – which have not yet received regulatory approvals.
The final contract in the licensing agreement – MSCI Taiwan (USD) Index Options – is expected to be launched in the fourth quarter of this year.
The full list of MSCI derivatives contracts is available here.