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Securities Indices and Index Derivatives

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Securities Indices and Index Derivatives Appendix 8 1 Survey of Responses from IOSCO SRO Consultative Committee members Table 1 Whether broad based or narrow based indexes are traded and what other related products are traded IOSCO SRO Consultative Response Committee Member Athens Exchange S.A (ASE) According to the ASE, stock index derivatives products in Greece are only based on broad based indexes. In particular, the FTSE/ASE 20, FTSE/ASE Mid 40 and FTSE/ASE SmallCap Indices have been designed to provide real time measures of the Athens Stock Market on which index-linked derivatives can be traded. The FTSE/ASE 20 Index is the large cap index, capturing the 20 largest blue chip companies within the Athens market as agreed by the FTSE/ASE Indices Advisory Committee. The FTSE/ASE Mid 40 Index is the mid cap index and captures the performance of the next 40 companies as agreed by the FTSE/ASE Indices Advisory Committee. The FTSE/ASE SmallCap Index is the small cap index and captures the performance of the next 80 companies as agreed by the FTSE/ASE Indices Advisory Committee. Currently, index futures and index options on the FTSE/ASE 20 and FTSE/ASE Mid 40 are traded in Greece. Further, covered warrants are not listed and traded in the market but are expected to start trading in 2003 as listed products, and no foreign securities are included in these indexes. Australian Stock Exchange (ASX) Index futures and index options on the ASE are based on both broad-based and industry sector indices. Options are also traded and a property sector index is traded as a narrow-based industry index based on listed property trusts. Index warrants are traded and are based on the Australian benchmark index (S&P/ASX200) and also based on overseas indices (S&P 500 and Nikkei). In Australia, futures and options are based on domestic securities index benchmarks and warrants are available for trading over domestic and foreign securities indices. The S&P/ASX200 and S&P/ASX50 indices do include foreign securities subject to the rules governing construction and maintenance of an index. However in Australia, there are no indices specifically comprised of foreign securities only. Chicago Board Options Exchange Stock index derivative products based on both broad based indexes and narrow based indexes are traded at CBOE. Additionally, CBOE lists a series of structured products that are linked to various indices. Indexes based on entirely foreign securities and combination of foreign and domestic securities are traded on CBOE. Some of the indices are constructed and maintained by CBOE while others are constructed and maintained by third parties. Various methodologies are used for calculating index levels. Index levels are calculated and disseminated every 15 seconds during the trading day by the parties which maintain that index. Euronext N.V The Euronext market trades in stock index derivative products based on broad- based indexes and covered warrants based on both broad based and narrow based indexes. Currently, the indexes comprise of domestic securities only, foreign securities could be included if they fulfill the necessary criteria. Japan Securities Dealers Association JSDA has three types of stock indexes related to the JASDAQ market and these are JASDAQ Index, NIKKEI TENTOU Average Index and the JASDAQ-BLOOMBERG Index. With regard to the first two indexes, index 1 Organization without indexation relative to derivative products: Istanbul Stock exchange: As Turkey’s only securities exchange, ISE trades currency futures and is not involved with derivative products on equities; NASD: NASD’s focus is on the OTC (Over-the-Counter) derivative market and not on exchange-traded derivatives. rebalancing does not occur, since both indexes are calculated with all JASDAQ registered issues in the JASDAQ market unless an index component stock is newly listed or de-listed. The JASDAQ-BLOOMBERG index has not seen any effects such as increased volatility or volume in response to index rebalancing. London Stock Exchange There are a number of UK index derivative products, such as the FTSE 100 Futures and Options Contracts, which are based on UK equity indices. These standardized contracts are generally traded on LIFFE. The underlying components are traded on one of the Exchange’s markets. Other derivative products are traded such as individual equity options and universal stock futures (traded on LIFFE) and warrants (traded on the Exchange). National Futures Association Stock index derivative products based on broad-based market indexes are currently traded at NFA. These include products comprised of foreign securities. By 4th quarter 2002, narrow based indexes will also begin trading. Covered warrants are not traded at NFA. Each individual market place can construct and maintain their own indexes. Moreover, several exchanges may list a similar index. Osaka Securities Exchange Co. OSE lists futures, options and EFTS such as Nikkei 225, Nikkei Stock Index 300, FTSE Japan, MSCI Japan and DJIA. Sao Paulo Stock Exchange Stock index derivative products based on broad based indexes are traded on BOVESPA and they consist of domestic securities only. Sydney Futures Exchange A broad based stock index derivative product, known as the SPI 200 is traded on the SFE. The S&P/ASX 200 index contains foreign (New Zealand) stocks. Taiwan Stock Exchange Corp. --- Tokyo Stock Exchange --- Table 2 Which entities construct and maintain the underlying indexes IOSCO SRO Consultative Response Committee Member Athens Exchange S.A (ASE) The management of both the underlying and broad based indices are carried out by three groups, the FTSE/ASE Indices Advisory Committee; FTSE International Limited and Athens Exchange S.A. Australian Stock Exchange (ASX) In Australia, the Standard & Poors constructs and maintains the underlying indices traded on the ASX Futures and Options market. The Standard & Poors (S&P) Australian Index Committee is responsible for setting policy, determining index composition and administering the indices. Chicago Board Options Exchange Some of the indices are constructed and maintained by CBOE while others are constructed and maintained by third parties. Euronext N.V The Euronext Brussels Exchange constructs and maintains the underlying indexes – BEL20 Index. Japan Securities Dealers Association The JASDAQ-BLOOMBERG index is the one index that is maintained and calculated jointly with Bloomberg P.L, which also serves as the calculation agent. The index that is maintained and calculated independently by a third party is the NIKKEI-TENTOU index. Although it is not used as an underlying asset for any derivative products, it may be used as a benchmark of performance for some mutual funds. London Stock Exchange In the UK, FTSE International is responsible for the creation and calculation of most of the major UK equity and derivative indices, such as the FTSE 100, the FTSE All-Share, and the FTSE 100 Futures. FTSE International is an independent company co-owned by the London Stock Exchange and the Financial Times. Morgan Stanley Capital International Inc, (“MSCI”) is also an index provider and distributes data in respect of its various indices. National Futures Association Each individual market place can construct and maintain their own indices. Osaka Securities Exchange Co. --- Sao Paulo Stock Exchange BOVESPA constructs and maintains the stock indexes. Sydney Futures Exchange All index construction, calculation and maintenance is performed by Standard and Poors. Taiwan Stock Exchange Corp. --- Tokyo Stock Exchange TSE calculates Tokyo Stock Price Index (TOPIX), a composite index of all the common stocks listed on the First Section of TSE, which is the benchmark for Japanese stocks, and operates Japanese equities and futures & options markets. NIKKEI 225, which is calculated by Nihon Keizai Shimbun S&P/TOPIX 150 was created through a joint collaboration between TSE and Standard & Poor’s, and the derivatives based on it are listed on TSE. TSE and Standard & Poor’s have set up an Index Committee where both parties discuss the index component stocks and other related matters. Table 3 Methodology used to calculate index levels IOSCO SRO Consultative Response Committee Member Athens Exchange S.A (ASE) Last trade prices for securities as disseminated by the Athens Exchange S.A are used to calculate index levels every 30 seconds. Australian Stock Exchange (ASX) The indices are market-capitalization weighted indices and currently use the Global Industry Classification Standards (GICS) approach. From October 1, 2002, calculation of the index levels will move to a Free Float methodology. Chicago Board Options Exchange Various methodologies are used for calculating index levels. Euronext N.V As for the methodology used to calculate index levels, the BEL20 Index is used as a basket index based upon the Free Float adjusted market cap of the 20 biggest and most liquid companies. The index weighting methodology used for the underlying indexes is market capitalization adjusted for Free Float. The Euronext Brussels Index Compiler calculates the index levels. Index levels are calculated and disseminated on a tick change basis. The NSC trading platform is the source used for the prices of the component securities when calculating the index levels. Japan Securities Dealers Association --- London Stock Exchange The equity index values are based upon Exchange prices, which are received by FTSE International on a real-time basis. The process for calculating the composition of UK indices is very transparent and the market is fully aware of those securities that are to be moved following a re-weighting. In summary, FTSE International undertakes a quarterly re-weighting which determines the composition of the various indices for the next quarterly period. The re-weighting takes place on the third Friday of every quarter in March, June, September and December. MSCI also has a transparent process for calculating the composition of its indices. National Futures Association --- Osaka Securities Exchange Co. --- Sao Paulo Stock Exchange The index levels are calculated using the portfolio of the most liquid stocks where each component has an established quantity according to its market liquidity.
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