TSEC Taiwan 50 Index Futures Operation Plan
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TSEC Taiwan 50 Index Futures Operation Plan Document Transcript

  • 1. TSEC Taiwan 50 Index Futures Operation Plan
  • 2. June 2003
  • 3. Content CHAPTER 1 ABOUT THE TSEC TAIWAN 50 INDEX*..........................................1 SECTION 1 COMPILATION OF TSEC TAIWAN 50 INDEX.........................................1 SECTION 2 TSEC TAIWAN 50 INDEX CONSTITUENTS...........................................4 CHAPTER 2 TAIWAN FUTURES EXCHANGE TSEC TAIWAN 50 INDEX FUTURES CONTRACT SPECIFICATIONS..............................................................7 SECTION 1 TSEC TAIWAN 50 INDEX FUTURES CONTRACT SPECIFICATIONS ...........7 SECTION 2 POSITION LIMITS.............................................................................8 CHAPTER 3 TRADING SYSTEM...........................................................................10 SECTION 1 TRADING FLOW..............................................................................10 SECTION 2 ORDER PLACEMENT........................................................................11 SECTION 3 TRADE MATCHING..........................................................................11 SECTION 4 DISCLOSURE OF TRADING INFORMATION............................................12 CHAPTER 4 CLEARING AND SETTLEMENT SYSTEM....................................13 SECTION 1 POSITION MANAGEMENT..................................................................13 SECTION 2 MARGIN OPERATION.......................................................................14 SECTION 3 SETTLEMENT OPERATION.................................................................15 SECTION 4 DETERMINATION OF DAILY SETTLEMENT PRICE ..................................15 SECTION 5 RISK CONTROL OPERATION..............................................................16
  • 4. Chapter 1 About the TSEC Taiwan 50 Index* The TSEC Taiwan 50 Index is the first index for Taiwan designed specifically for derivative and OTC trading in the Taiwan market. It is an ideal tool to gain exposure to the Taiwan market. Taiwan Stock Exchange Corporation (TSEC) enlisted the expertise of FTSE in the design and ongoing calculation of the TSEC Taiwan 50. TSEC has a long history of index compilation in the Taiwan market with unique authority and market acceptance. FTSE's internationally recognized standards compliment TSEC local expertise. The cooperation of the two institutes provide the TSEC Taiwan 50 with both domestic and international competitive advantages. Section 1 Compilation of TSEC Taiwan 50 Index The TSEC Taiwan 50 has been designed to represent the performance of the Taiwan stock market. All stocks listed on TSEC that meet the criteria for component stocks are eligible to join. Following the strict screening process, the top 50 stocks are selected by market capitalization to become index constituents. This selection process ensures that the TSEC Taiwan 50 is the most cost effective and tradable index for Taiwan. FTSE's free float methodology has been applied throughout the index, to ensure the weights within the index reflect the market capitalization available for investment. The bands are narrow at the lower end of the scale where greater sensitivity is required for accurate representation and broader at the higher end to ensure that the weightings of larger companies do not fluctuate unless a significant corporate event occurs. This system accurately reflects the investibility of a company, without subjecting the investor to frequent rebalancing and transactions costs. These bands are shown in Table 1 below. Table 1: Free Float and Index Weighting of Taiwan 50 Index Free Float Index Weighting Less than or equal to 5% Ineligible Greater than 5% but less than or equal to 15% Actual free float* Greater than 15% but less than or equal to 20% 20% 1
  • 5. Free Float Index Weighting Greater than 20% but less than or equal to 30% 30% Greater than 30% but less than or equal to 40% 40% Greater than 40% but less than or equal to 50% 50% Greater than 50% but less than or equal to 75% 75% Greater than 75% 100% * Actual free float will be rounded up to the next whole number. The TSEC Taiwan 50 Index is calculated and published in real-time (every 15 seconds) and disseminated by Taiwan Stock Exchange and major data vendors. The constituents of Taiwan 50 Index are classified according to the FTSE Global Classification System, a system that has been adopted worldwide by both exchanges and data vendors and regarded as the best definition of industry sector segmentation by investors globally. The TSEC Taiwan 50 is managed by the TSEC Taiwan 50 Index Committee, an independent committee of market practitioners. The Committee undertakes the quarterly reviews and approving changes to constituents to ensure an objective and independent management structure for the index. The index is reviewed quarterly in January, April, July and October, and constituent changes are implemented on the next trading day following the third Friday of the same month. The published and publicly available Ground Rules, detailing inclusion and ongoing maintenance methodology, make the Index highly transparent. The base date for Taiwan 50 Index is April 30, 2002 and the base index is set at 5,000. The Taiwan 50 Index is calculated by the algorithm descried below: (( p ×e ) ×s × f ) ∑ n1 n1 d n1 n1 n = 1, 2, ,3......., n n : The number of securities in the Index. p : Price; the latest trading price of the component stock (or the price at the closing of the Index on the previous day). e : Exchange Rate; the exchange rate required to convert the stock’s home currency into the Index base currency. 2
  • 6. s : Shares in Issue; the number of shares in issue used by FTSE for the stock, as defined in the Ground Rules. f : Free Float Factor; the factor to be applied to each stock to allow amendments to its weighting, expressed as a number between 0 and 1, where 1 represents a 100% free float. The free float factor for each stock is published by FTSE. d : Divisor; a figure that represents the total issued share capital of the Index at the base date. The divisor can be adjusted to allow changes in the issued share capital of the individual stocks to be made without distorting the Index. 3
  • 7. Section 2 TSEC Taiwan 50 Index Constituents Table 2: TSEC Taiwan 50 Index Constituents Date: 05/20/03 FTSE Global Classification Stock Name of Constituent Number of shares Free float Code in issue factor (%) Eco- Industry Industry Chinese English Name (in shares) Name nomic Sector Sub- Group sector 90 93 932 2409 友 達 光 電 AU Optronics 4,024,194,453 75.00 90 93 932 2353 宏碁 Acer 2,019,508,086 100.00 90 93 936 2311 日 月 光 Advanced Semiconductor 3,254,800,000 75.00 90 93 932 2357 華 碩 電 腦 Asustek Computer Inc 1,998,880,000 75.00 90 93 932 2352 明 基 電 通 Benq 1,681,051,025 75.00 80 87 879 2882 國泰 Cathay Financial Holding 8,307,489,100 50.00 金融控股 80 81 810 2801 彰 化 銀 行 Chang Hwa Bank 3,459,475,600 75.00 30 31 317 2105 正 新 橡 膠 Cheng Shin Rubber Industry 886,173,000 50.00 90 93 932 3009 奇 美 電 子 Chi Mei Optoelectronics 1,620,000,000 40.00 50 59 591 2610 中 華 航 空 China Airlines 2,542,614,446 30.00 80 87 879 2883 開發 China Development 10,769,673,737 100.00 Financial Holdings 金融控股 30 31 311 2204 中 華 汽 車 China Motor 1,304,100,635 40.00 10 18 188 2002 中 國 鋼 鐵 China Steel 9,267,992,933 50.00 80 81 810 2891 中 信 金 融 Chinatrust Financial Holding 4,605,426,788 75.00 控股 60 67 673 2412 中 華 電 信 Chunghwa Telecom 9,647,724,900 6.00 90 93 932 2475 中 華 映 管 Chungwha Picture Tubes 5,106,201,133 40.00 90 93 932 2323 中環 Cmc Magnetics Corporation 2,600,265,824 100.00 90 93 932 2324 仁寶電腦 Compal Electron 2,547,659,000 100.00 20 25 253 2308 台達電子 Delta Electronic Industrial 1,387,879,000 75.00 50 59 597 2603 長榮海運 Evergreen Marine 2,104,782,108 30.00 30 34 349 1402 遠東紡織 Far Eastern Textile 3,361,024,608 75.00 80 81 810 2892 第一 First Financial Holding 3,821,600,000 75.00 金融控股 10 11 113 1326 臺 灣 化 纖 Formosa Chemicals & Fibre 4,180,552,245 75.00 10 11 116 1301 臺 灣 塑 膠 Formosa Plastics Corp 4,534,733,509 100.00 4
  • 8. FTSE Global Classification Stock Name of Constituent Number of shares Free float Code in issue factor (%) Eco- Industry Industry Chinese English Name (in shares) Name nomic Sector Sub- Group sector 90 93 932 2409 友 達 光 電 AU Optronics 4,024,194,453 75.00 80 87 879 2881 富邦 Fubon Financial Holdings 8,291,437,344 75.00 金融控股 20 25 253 2317 鴻 海 精 密 Hon Hai Precision Co. 2,064,897,000 75.00 80 87 879 2880 華南 Hua Nan Financial Holdings 4,478,543,305 75.00 金融控股 90 93 932 2356 英 業 達 Inventec Co. 1,835,000,000 100.00 90 93 932 2301 光 寶 科 技 Lite-On Technology 1,909,438,288 100.00 90 93 936 2337 旺 宏 電 子 Macronix International 3,691,276,875 100.00 90 93 936 2454 聯 發 科 技 MediaTek 460,465,370 75.00 80 87 879 2886 兆豐 Mega Financial Holding 11,048,840,244 75.00 金融控股 90 93 932 2377 微 星 科 技 Micro-Star International 555,632,604 75.00 10 11 116 1303 南 亞 塑 膠 Nan Ya Plastic 6,214,479,521 75.00 90 93 936 2408 南 亞 科 技 Nanya Technology 3,100,000,000 40.00 30 34 341 9904 寶 成 工 業 Pou Chen 1,632,582,229 100.00 50 52 527 2912 統 一 超 商 President Chain Store 772,031,899 40.00 90 93 932 2382 廣 達 電 腦 Quanta Computer 2,461,842,835 50.00 90 93 936 2379 瑞昱 Realtek Semiconductor 527,838,732 100.00 半導體 90 93 936 2325 矽 品 精 密 Siliconware Precision 1,885,173,683 75.00 Industries 80 87 879 2890 建華 Sinopac Holdings 3,748,127,000 100.00 金融控股 90 93 936 2401 凌 陽 科 技 Sunplus Technology 694,950,000 75.00 80 87 879 2887 台新 Taishin Financial Holdings 3,631,623,623 100.00 金融控股 60 67 678 3045 台灣 Taiwan Cellular 4,502,683,512 46.55 大哥大 90 93 936 2330 臺 灣 積 電 Taiwan Semiconductor 18,622,886,745 75.00 40 43 435 1216 統 一 企 業 Uni-president Enterprises 3,442,245,800 100.00 5
  • 9. FTSE Global Classification Stock Name of Constituent Number of shares Free float Code in issue factor (%) Eco- Industry Industry Chinese English Name (in shares) Name nomic Sector Sub- Group sector 90 93 932 2409 友 達 光 電 AU Optronics 4,024,194,453 75.00 90 93 932 2303 聯 華 電 子 United Microelectronics 15,474,845,646 75.00 90 93 936 2388 威 盛 電 子 Via Technologies 1,191,854,000 75.00 90 93 936 2344 華 邦 電 子 Winbond Electronics 4,425,297,193 75.00 30 31 311 2201 裕 隆 汽 車 Yulon Motor Co. 1,829,146,403 50.00 *Source: Taiwan Stock Exchange All rights in the TSEC Taiwan 50 Index vest in the Taiwan Stock Exchange (“TSEC”) and FTSE International Limited (“FTSE”). “TSEC” is a trademark of TSEC and is used by FTSE under licence. Neither TSEC, FTSE nor TAIFEX shall be liable (including in negligence) for any loss arising out of, reliance on or use of the TSEC Taiwan 50 Index or the contents of this publication by any person 6
  • 10. Chapter 2 Taiwan Futures Exchange TSEC Taiwan 50 Index Futures Contract Specifications Section 1 TSEC Taiwan 50 Index Futures Contract Specifications Contract Description Underlying ● TSEC Taiwan 50 Index Abbreviation ● Taiwan 50 Futures Ticker Symbol ● T5F Trading Hours ● 08:45AM-1:45PM Taiwan time Monday through Friday of the regular trading days of the Taiwan Stock Exchange Contract Size ● NT$500 x Index Delivery Months ● Five delivery months, including spot month, the next calendar month plus next three quarter months of the March, June, September, and December cycle Daily Settlement ● The last trading price of the closing session or otherwise determined by the Price TAIFEX according to the Trading Rules for TSEC Taiwan 50 Index Futures. Daily Price Limit ● ±7% of previous day's settlement price ● One index point (NT$500) Minimum Price Fluctuation Last Trading Day ● The third Wednesday of the delivery month Final Settlement ● The first business day following the last trading day. Day Final Settlement ● The final settlement price of the contract is set based on the index obtained by Price calculating the volume-weighted average price of the component stocks of the index within the first 15 minutes after the beginning of the trading period of the final settlement day as provided by the Taiwan Stock Exchange. Provided that there is no trade price established in the first 15 minutes, the closing price of the previous trading day or the ex-right reference price of the componenet stock shall be taken as the trade price. 7
  • 11. Contract Description Settlement ● Cash settlement Position Limit ● Total open position of contracts held at any time is limited as follows: 1. Individuals: 300 contracts. 2. Institutional investors: 1000 contracts. 3. Institutional investors may apply to TAIFEX for an exemption from position limit for hedging purpose. 4. Position of futures dealers is not limited. Margin ● The initial and maintenance margin level set by the FCM for its customers shall not be less than those required by the TAIFEX. ● The margin level will be adjusted and announced by the TAIFEX in accordance with the Criteria and Collecting Methods regarding Clearing Margins. Section 2 Position Limits A. Setting position limits In reference of the systems adopted by other exchanges, some exchanges do not have position limits for index futures contract (e.g. EUREX and KOFEX), and some have regulation only over net long or net short position in respect of any one contract month (e.g. CBOT, CME, and KSE). In consideration of the maturity of our market, the needs for market management and the importance of upholding trading security, position limits are set to preclude the situation where specific investors attempt to manipulate market prices by holding many Taiwan 50 futures contracts. The aggregate open position of contracts held by a trader at any one time shall conform to the limits set forth below: 1. Individuals: 300 contracts. 2. Institutional investors: 1000 contracts. 3. The open position of contracts held by futures dealers is not limited. 4. Institutional investors may apply to TAIFEX for an exemption from position 8
  • 12. limit for hedging purpose. The size of Taiwan 50 futures contract might be bigger than other futures contracts listed on TAIFEX, but TSEC and FTSE plan to authorize domestic securities investment trust institutions to issue exchange-traded fund (ETF) on Taiwan 50 index to render the index tradable. ETF units are traded in the secondary market, but their creation and redemption take place in the primary market. Because these activities involve the trust of large blocks of stocks, which might be carried out by participating dealers (PD) as planned, PDs will then have considerable hedging needs. When there is certain amount of discount or premium existing between ETF price and net asset value, PD can bring the price back to balance through the creation and redemption mechanism, while investors can engage in arbitrage through futures trade to let the market price effectively reflect the real-time information. B. Definitions of traders The term “trader” in the description of position limit refers to the same individual or institutional investor. The accounts of same individual or institution investor with different futures commission merchant (FCM) are combined together in the calculation of position limit. C. Over-limit actions Upon finding that the open position held by a certain trader exceeds the position limit set forth above, TAIFEX may ask all FCMs to stop accepting new orders from said trader or order FCM to liquidate specific positions of such trader in order to uphold market order. 9
  • 13. Chapter 3 Trading System The trading system for Taiwan 50 Futures is basically the same as that of TAIEX futures as described below: Section 1 Trading Flow The trading of Taiwan 50 futures, like other stock index futures, is carried out electronically by the following process: Client FCM TAIFEX Information Vendor Fill out order form Place order Accept order TIME - S TAMP - 1 N Control operation - check margin Return order and account position Y Place the order Trading system TIME - S TAMP - 2 Inquire order Receive order status confirmation Accept order Inquire trade Display maret information status Inquire trade Trade confirmation confirmation TIME-STAMP- Enter order 3 book for Display market matching information Mail trade statement Produce trade statement Mail account Produce monthly account statement statement 10
  • 14. Section 2 Order Placement Orders may be market order or limit order based on the price instruction. A market order is an order to buy or sell a stated amount of contracts at the best price available; a limit order is an order to buy or sell a stated amount of contracts at a specified price, or at a better price if obtainable. FCMs may accept orders other than the above two types, such as stop-loss order. Particulars to be indicated in the order sheet are the same as those for stock index futures currently on the market, including order No., FCM code, customer’s account No., ticker symbol, quantity, price (market/limit), buy/sell, and open/offset. Section 3 Trade Matching Orders in the trading system are matched by the following principles: 1. Price priority and time priority, that is, execution priority will be given to orders with the better bid/offer prices; if the prices are the same, execution priority will be given to orders that enter the system earlier. 2. Market order has precedence over limit order. 3. When order quantity decreases, the priority of the order stays unchanged; when order price changes or order quantity increases, the order is considered a new order. Matching is carried out on competitive auction basis at the opening of market, then order by order during market hours, and on competitive auction basis again at closing session. That is, all orders accepted by the system before market opens are matched by competitive auction based on the principles mentioned above (but orders are ranked randomly if their prices are identical). And, opening price is the price that satisfies the greatest number of trades where buy orders registered with prices higher than the determined price or sell orders with prices lower than the determined price must be all filled. During market hours, orders are matched order by order where each new order or quote that enters the system will go into the order book to find its matching. At closing session, trading prices are again determined by competitive auction. 11
  • 15. Section 4 Disclosure of Trading Information The same as the practice for TAIEX futures, TAIFEX only accepts order input by FCMs for Taiwan 50 futures and does not disclose any such information to the market before it opens. After trading starts, the system will, in line with the practice of EUREX, OM and foreign information vendors (e.g. Reuters and Bloomberg) transmit trading information on each order to information vendors on real-time basis, for fixed-hour disclosure will undermine the timeliness and truthfulness of the displayed information under the order by order matching method. The disclosed information includes day’s opening prices for each delivery month, trading price, number of contract executed, bid/ offer prices and volume, day’s high/low, total trading volume and real-time information on the spot. Regarding order information, disclosure is planned the same as that of TAIEX futures, that is information on five best bid and offer prices will be disclosed. At the start of closing session, orders are accepted, but order information will not be updated until after the last competitive auction at the time of closing, upon which, the remaining five best bid and offer prices are disclosed at the time trading volume and closing prices are disclosed.   12
  • 16. Chapter 4 Clearing and Settlement System The clearing and settlement system and operational flow for the Taiwan 50 futures are planned as follows: A. Position Management Position management for Taiwan 50 futures will be the same as that for other futures contracts of TAIFEX, that is, the opposite positions of the same delivery month for the same product in the same account are automatically offset. B. Margin Calculation Margin required for Taiwan 50 futures will be the same as that for other stock index futures of TAIFEX, that is, margin is set for covering single-day index volatility risk. C. Settlement Operation The futures contracts will be settled by cash. D. Determination of Daily Settlement Price The same method for determining daily settlement price of other stock index futures will be employed, that is, in principle, the trading price at closing session of Taiwan 50 futures will be taken as daily settlement price. E. Risk Control Operation The risk control operation for Taiwan 50 futures will be the same as that for other TAIFEX futures contracts. Section 1 Position Management The position management operation is described as follows: 1. Account position is calculated on real-time basis during the market. 13
  • 17. Positions are entered according to the “new/offset code” of the transaction records and processed by way of automatic offsetting. 2. The trader should indicate new or offset order by the established code; if the offset order is transacted but the trader does not have sufficient balance in the account for offset, offset will be carried out for offsettable positions, while the remaining open lots are treated as new positions. Such data are viewed as offset error and available for FCM query. 3. TAIFEX will also make daily new position error data available for FCM inquiry; if the new order is transacted and the trader has position in the account available for offset, offset will be carried out and the remaining open lots are treated as new position. 4. TAIFEX will make position balance information available for FCM inquiry. If the trader does not provide sufficient margin for open position in the account and fails to meet the margin call by the prescribed deadline, FCM may liquidate the open position of the customer. 5. When applying for position adjustment due to account error, FCM should check first the position balance of the customer. 6. For position adjustment, FCM should transmit the data to the TAIFEX settlement system via its subsystem to correct the position structure of a customer before the prescribed deadline (2:15PM, Monday ~ Friday). Section 2 Margin Operation The purpose of setting margins to cover the loss from single-day price fluctuation within certain periods is to guarantee performance of contract and prevent trade default due to wild price volatility. The margin calculation for Taiwan 50 futures will adopt the method as that for TAIEX futures, that is, estimate the greatest possible variation of the price of underlying by market risk. The clearing margin for Taiwan 50 futures will be calculated by contract size times risk coefficient. The risk coefficient is calculated based on the movements of the stock index of the futures contract within certain periods to cover 99.7% of the single-day price volatility risk. 14
  • 18. Section 3 Settlement Operation 1. Operating principles (1) Taiwan 50 futures contracts will be settled by cash. (2) If a trader has open (unsettled) position after the closing of the last trading day for the contract, TAIFEX will settle those contracts during the business hours of the final settlement day by the final settlement price, and charge or pay the trader on net cash basis. (3) The final settlement day is the first business day following the last trading day. 2. Operation (1) The settlement operation starts at 9:30AM on the final settlement day (the first business day following the last trading day) for the delivery month. (2) If clearing members have unsettled position after the closing of the last trading day, TAIFEX will carry out cash settlement by the final settlement price. (3) The final settlement price of the contract is set based on the index obtained by calculating the volume-weighted average price of the component stocks of the index within the first 15 minutes after the beginning of the trading period of the final settlement day as provided by the Taiwan Stock Exchange. Provided that there is no trade price established in the first 15 minutes, the closing price of the previous trading day or the ex-right reference price of the componenet stock shall be taken as the trade price. Section 4 Determination of Daily Settlement Price The determination of daily settlement price for Taiwan 50 futures contracts refer to that of other stock index futures of TAIFEX, that is, after closing each day, daily settlement prices are determined according to the established method to calculate the gain or loss of open positions and published in the market. Daily settlement prices of Taiwan 50 futures contracts are calculated by the following principles: 1. The daily settlement price of a Taiwan 50 futures contract is the trade price at closing. 2. If there are no trade price during closing session of the day, the average of the highest bid and lowest offer during competitive auction of the closing session will 15
  • 19. be used as daily settlement price. 3. If there are no bids during closing session for competitive auction, the lowest offer price will be taken as daily settlement price; if there are no offers, the highest bid will be taken as daily settlement price. 4. If there are no bids nor offers for far month futures contracts for competitive auction during the closing session, the day’s settlement price of the spot month contract plus the difference between settlement price of spot month contract and that of said far month contract on the previous business day will be taken as the settlement price for said far month contract. 5. If none of the methods described above are able to decide the daily settlement price or the settlement price thus calculated is obviously unreasonable, TAIFEX will decide the price. Section 5 Risk Control Operation The prevailing Measure for Market Position Monitoring Operation of TAIFEX for risk control of clearing members will still apply as described below after the introduction of Taiwan 50 futures: 1. Control of order placement The total of margin and premium required for newly added futures and option contracts of individual clearing member shall not exceed its excess margin deposits. 2. Control of margin and position (1) TAIFEX carries out mark-to-market the margin and premium accounts of clearing members between 9:30 ~ 9:40, 11:00 ~ 11:10, and 12:30 ~ 12:40 each day. When there is wide fluctuation in the market, TAIFEX will undertake mark-to-market at any time as deemed necessary. When the equity in clearing member’s margin and premium accounts fall below the total clearing margin required for open positions in futures and option writing, the clearing member must make additional margin deposit in one hour. (2) Adjusted net capital ratio 16
  • 20. Adjusted net capital∕ ( total margin required for open positions of futures + open positions in option writing) (3) Concentration risk The percentage of the open positions of Taiwan 50 futures held by each clearing member to the total open interest of the same contract shall not exceed the prescribed level, unless the total open position of the clearing member is less than 1,800 lots. (4) Margin call in excess of certain percentage of ANC The difference between equity in margin and premium accounts of clearing member and total clearing margin required for open positions in futures and option writing when the former is less than the latter / adjusted net capital. 17