RTS plans raft of new derivatives - Incisive Media

exchangesFrom the land of the bear, a bull emergesThe Russian stock exchange’s options and futures market, known as FORTS, has seen healthygrowth in trading volumes and a diversity of users of new and existing products – each healthy forhedge funds – as its head Roman Goryunov tells David Walker...The portion of Russia’s mainexchange possibly of most interestto hedge funds – and its most rapidlygrowing – is the ‘Futures andOptions on RTS’ portion, alsoknown as FORTS.“Our system of futures andoptions is the leading derivativesmarket in Russia and is among theleading 20 futures markets in theworld,” explains Oleg Safonov, RTSpresident (pictured, right).“The futures and options markethas been developing very effectivelyfor five years,” Safonov said in late2006, “and, in 2006, the commoditiessection began to operate and westarted futures in gold.”Add to this equity and indexfutures and options, bond futures,short-term futures and currencyderivatives (RUR/USD futures andoptions on futures) and the range ofinstruments FORTS offers is broad.Weather derivatives are plannedto be launched, but no sooner thanSeptember 2007 (to be constructedin conjunction by RTS and weatherforecaster RosHydromet). Morethan 13,000 participants served byaround 180 professional marketparticipants have taken advantageof the various instruments offeredon FORTS.“The commodities section will bea large and important part becausewe consider commodity futures tobe a major development of futuresmarkets in Russia. We are planningto issue a large number of futuresand other assets.” Urals oil, dieseloil and gold futures are amonginnovations, as are derivativesbased on petroleum and avgas. Thefutures contracts on Urals oil arecash-settled with settlement basedon pricing from Platts. Diesel oilfutures are physically delivered.“For the Russian market, the priceof petroleum products is not highlycorrelated to the world prices foroil,” says Roman Goryunov, vicepresidentand head of FORTS, “sousing the futures in Urals oil tohedge petroleum products is notyet effective, so we may create aninstrument on petroleum products,not oil, to increase the effectivenessof being able to hedge risks in themovement of prices.”Goryunov adds the derivativesdivision of the RTS stock exchangeenjoyed daily trading volume ofover 500 contracts per day in late2006, equivalent to $500m-$600m.Its bread and butter by volume inthe third quarter of 2006 was futuresand options on securities (64.14%),followed by futures and options onthe RTS Index (31.91%) and thencommodities futures (2.12%), futuresand options on bonds and interestrates (1.26%) and FX futures andoptions (0.57%).“RTS is among the leading 20derivatives exchanges in the worldfor futures and we are the leader forfutures on shares,” he adds.FORTS offers more than 27types of contracts, representingdifferent segments of the market,from equity derivatives futures andoptions, to index instruments – bothfutures and options – instrumentsbased on bonds and instruments ofthe money market.“We also have those based onthe rouble/dollar exchangerate and futures on interestrates and on commodities,”Goryunov notes.“We can all see howactively and seriously theRussian market has grownfrom the point of view ofprices and from the pointof view of volumes andmore and more peopleand companies are thinkingabout hedging their positionswhen investing inRussia,” he says.“The demand for FORTS we haveseen recently shows hedging interestis very serious. At the moment, thederivatives market gives one theopportunity to hedge positions inrouble assets, so if you are investingin assets which are situated inthe rouble zone in Russia you canhedge the position rouble/dollar tohave a guaranteed yield from the“RTS is among the leading 20derivatives exchanges in the worldfor futures and we are the leader forfutures on shares.”sergey nazarov, renaissance investment managementpoint of view of currency, and havethe opportunity of considerablyincreasing your investment possibilitiesby using futures and options.”Goryunov has already seen arbitrageopportunities between markets,and trades connected to trading infutures in euros against instrumentstraded on international markets.“We are also seeing considerableinterest in the arbitrage between theoptions market for equityand discrepancy inmarkets when theprices for Russianassets are higherin the internationalmarketthan in the localmarket,” headds.RTS indexoptions andfutures were introducedAugust 2006,and the volume ofopen interest was$1.4bn. Now, itis them o s tliquid contract in the Russianmarket place.In the past 18 months, FORTShas introduced futures on 30-yearRussian Eurobonds and futures on10-year bond loans of the city ofMoscow, diesel oil futures, futureson RTSc and RTSo.From around mid-2006, there hasbeen trading in futures on shorttermrouble interest rates, instrumentsin high demand due to thedynamics of Russia’s fixed incomemarket, as Goryunov explainedlast October.“Over the past few years inRussia, there has been a situationin which short-term rates were on alow level. Overnight rates were 1%-2% as a connected contract to theextremely high bank liquidity andoil prices.“Recently, we have seen the interestingtrend where the overnightand other short-term rates arerising and participants with a greatvolume of short money financingare finding that the jolly times theyhad in the past would not continueand they have to find instrumentsto hedge their positions,” he says.“It is also an interesting move tohave futures in agricultural productslike grain and sugar becausethere are quite large volumes ofboth of those goods produced inRussia. The domestic market isclosely correlated to the worldcommodities market and arbitrageopportunities could be possiblebetween such contracts, whichcould be highly interesting to globalparticipants in financial markets.”Goryunov adds industry playersas well as financial markets professionalsare becoming “more andmore active because there are moreand more interesting instrumentslike index contracts. We are alsoseeing a serious increase by internationalinvestors.“The increase in the qualityand size of the investor base givesgrounds for the future increase inthe liquidity in the market. Now,the Russian market in derivativescannot be regarded as somethingexotic or completely new. It’s anestablished and liquid and reliablemarket.”The central party inall transactions made inthe FORTS is the RTSClearing Centre.