Race to the Center: Competition for the Nikkei 225 Futures Trade

October 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the impact of changes in margin requirements on returns, transaction volumes, and price volatility of Nikkei 225 futures on the Osaka Securities Exchange (OSE) and the Singapore International Monetary Exchange (SIMEX). An increase in margin requirement on one exchange is shown to reduce trading volume in the implementing exchange and to shift trade to the competing exchange. Price volatility or returns are not systematically affected by changes in margin requirements. The loss of OSE’s market share of Nikkei futures trade is partly due to the increased transactions costs (relative to SIMEX), including the margin requirement.

Subject: Arbitrage, Commodities, Currencies, Financial institutions, Financial markets, Futures, Futures markets, Money, Stock markets

Keywords: Arbitrage, cash market, Currencies, Futures, Futures markets, futures price volatility, GARCH, Global, margin requirements, market share, OSE contract size, OSE futures, OSE margin requirement, SIMEX contract size, SIMEX contracts number, SIMEX futures market return, SIMEX volume, Stock markets, substitution effect, trading volume, WP

Pages:
50
Volume:
1996
DOI:
https://doi.org/10.5089/9781451941579.001
Issue:
117
Series:
Working Paper No. 1996/117
Stock No:
WPIEA1171996
ISBN:
9781451941579
ISSN:
1018-5941

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