Cross-listing alliance for emerging markets derivatives is a positive step
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13 October 2011Anshuman Jaswal
In a significant development, HKEx (Hong Kong), BM&FBovespa (Brazil), Micex & RTS (Russia), NSE & BSE (India) and JSE (South Africa) have created an alliance to cross-list each other’s stock index futures and index options contracts. As part of this agreement, financial derivatives listed on each exchange will be traded in the local currency of every other exchange. This is the next step from the earlier bilateral alliances for cross-listing of derivatives and is also a response by these exchanges to the recent trend for mergers and acquisitions of various global exchanges. While the LSE and SGX moves might not have been successful, they certainly showed aggressive intent on part of these exchanges. Some of the emerging market exchanges have woken up to this threat and are now trying to expand their volumes though alliances rather than acquisitions, which at least some of them might not be able to go for in the short term. There is one caveat though. Just having such an alliance is not a guarantee for success and higher volumes. Many of the emerging markets do not have the maturity yet for investors to trade in foreign securities at a large scale. But this move will certainly offer much more choices to the investors in these markets. It will also help the exchanges to share their technical expertise in creating and developing various exchange-traded derivatives products. These exchanges are also some of the fastest growing in the world and their investors have had an appetite for derivatives products through the recent downturn. So, the move for the alliance is well-timed and it would be interesting to see how it is operationalized and whether it is successful. Finally, although this is an excellent move, it might not be large enough in magnitude to prevent the takeover of some of these exchanges (other than BM&FBovespa, which already has cross-ownership with CME).