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While exchange consolidation has been a defining trend among the world’s largest exchanges in recent years, a host of emerging market exchanges have been growing rapidly, launching new products and setting their sights on international expansion.
The Taiwan Futures Exchange (TAIFEX) is a leader among this group. Established in 1997 as the sole futures exchange in Taiwan, TAIFEX offers trading in futures and options across equities, indices, FX, interest rates and commodities.
As with many emerging market exchanges, its flagship product is the local index. Options on the benchmark index, the Taiex, are the most heavily traded products at the exchange accounting for 72% of trading volume in 2015, making it the 5th most heavily traded equity index option in the world.
Volumes on the exchange surged by 30% for the second consecutive year last year on the back of expanded international participation, the launch of new products and increased local educational efforts.
“Following our continuing marketing efforts to foreign institutions and roadshows, the foreign participation, combining the trading from overseas and foreign proprietary trading houses in Taiwan, increased from 26.87% in 2014 to 33.22% in 2015,” said Dr Len-Yu Liu, Chairman of TAIFEX.
“Foreign trading participation also marked a second consecutive high in 2015, reaching 33% of total volume.”
Now the exchange is seeking to further grow foreign participation. It has extended the trading hours on ETF futures and options linked to Chinese stock indices and expanded the daily price fluctuation limit on major products from 7% to 10%.
In February, the SEC granted TAIFEX a Class Relief meaning that US market participants can trade equity options and the newly listed ETF options on the exchange, and in July, the CFTC certified the exchange’s Topix futures allowing US investors to trade the contract, in addition to 6 other futures products that have previously been certified, including TAIEX futures.
This follows a linkage deal with Deutsche Bourse in 2014, which enabled Eurex to listTAIFEX products and created an 18-hour trading and clearing cycle.
New products and growth strategy
The recent growth on the exchange has been complemented by a number of new product launches. In 2015, TAIFEX launched RMB futures, Topix futures and an ETF option suite. In Q4 it will launch Nifty 50 futures in partnership with the National Stock Exchange Group in India.
The exchange is also set to upgrade its trading system in the second half of the year.
Dr Liu said: “Looking forward, TAIFEX will continue to enhance the market depth and breadth, to break down the limitations on market operation, to ease the market access to broaden international participants, and to engage in strategic alliance with international exchanges with an aim to being an outstanding exchange in the international community.
“TAIFEX continues its ongoing effort on streamlining procedures and enhancing the quality of services to market participants.
TAIFEX will also continue to refine and relax the trading and clearing rules and bylaws, so as to keep abreast with international norms and enhance TAIFEX’s competitiveness among global peers.”
TAIFEX has applied to ESMA for third country recognition to complement its CFTC and SEC certifications and is conducting extensive international roadshows in overseas markets to further increase international participation.
The market has been open to foreign investors since 1998 and accessing the market is relatively straightforward.
Offshore firms must first appoint a qualified local agent or representative. This representative will assist in the opening of an account and compliance with local reporting rules.
Offshore foreign investors, except individual traders trading under an undisclosed omnibus account, need to obtain an ID number from the Taiwan Stock Exchange. Again, this will be arranged by the local representative.
Both direct and omnibus accounts are available at TAIFEX. A foreign FCM can open an omnibus account with a local FCM, provided that they both meet the criteria stipulated by the Taiwanese regulator.
The criteria for local FCMs are mostly concerned with capital levels. The criteria for foreign FCMs are primarily two-fold: firstly, the foreign FCM must be a qualified member of a recognized overseas exchange. Secondly, it must not have been sanctioned by its local regulator within the last year or defaulted on a futures contract within the last three years.
TAIFEX provides products across several classes include equity index futures and options, equity futures and options, interest rate futures, FX futures and options, and commodity futures and options. TAIFEX has continuously enhanced its technology and services in trading, clearing and settlement to ensure a fair and orderly marketplace. With a vision to be a world-class exchange befitting the fast-evolving marketplace, TAIFEX is poised to extend its global reach and stands as a primary derivatives exchange in Asia.
Taiwan Futures Exchange