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The smart place for derivatives trading celebrates 30 years of growth

Zwilling office

This year, Osaka Exchange - JPX celebrates the 30th anniversary of two of its flagship products, Nikkei 225 and TOPIX index futures. As it looks back on three decades of remarkable growth, the Exchange takes great pride in the position it has achieved as one of the world’s most active derivatives markets.

Nikkei 225 Future & TOPIX Futures trading Volume 1988 - 2018

There are many reasons why the Exchange has grown so phenomenally. One reason, of course, is the pioneering role it has played in bringing index-based derivatives to market. But it also owes its success to an unflagging commitment to transparency and professionalism, and an ongoing drive to expand and extend the range of products it offers the world’s investors.

With both futures and options, the Exchange gives investors more strategic tools to work with. Nikkei 225 options, which are also fast approaching their 30th anniversary, saw the introduction of weekly contracts in 2015 that provide investors with more precise hedging opportunities to manage risks from short term exposures.

Nikkei 225 Options Trading Volume 1988–2018_ol

Today, Nikkei 225 and TOPIX futures attract a broad range of investors. Domestically, banks, insurance companies, investment trusts, and other institutional investors continue to be major participants in the market. In addition, overseas investors are also playing an increasingly important role, contributing to a varied investor mix and active order flow that ensure high market liquidity.

Nikkei 225 Futures 2018 Trading Volume by Investor Type_ol
TOPIX Futures 2018 Trading Volume by Investor Type_ol

The introduction of Nikkei 225 mini futures in 2006 has helped drive particularly rapid growth on the Exchange over the past decade. Not only has the Nikkei 225 mini proved highly popular with individual Japanese investors and contributed to growth in overall trading volume, it has also helped bring overseas investors into the market to further heighten liquidity.

Nikkei 225 mini Futures 2018 Trading Volume by Investor Type_ol

Another significant driver of growth has been the Exchange’s night session. Since trading hours were extended to 05:30 JST in 2016, the night session has become even more responsive to U.S. and European market movements, and provides overseas investors with ready access to the Exchange during their own core trading hours. Night session liquidity is high, with trades accounting for as much as 40% of total trading volume.

Night Session Trading Volume & Share_ol

Throughout its history, Osaka Exchange - JPX has been an innovator in derivative investments. In 2016, it introduced futures contracts based on the TSE Mothers index of small cap companies with high growth potential. Recent campaigns to encourage engagement by hedge funds and high-frequency traders have boosted on-screen liquidity, and with the introduction of a TSE Mothers ETF in 2018, both futures and spot markets for the index have become increasingly active.

TSE Mothers Index Futures Trading Volume & Open Interest_ol

Other recent innovations include the June 2018 introduction of flexible options, which combine the flexibility of OTC contract terms with the security and convenience of listed clearing. Additionally, in July of 2018, maturities for Nikkei 225 futures and options were extended from the previous maximum of 5 years to 8 years, making it easier for investors to incorporate derivatives into long-term investment and portfolio management strategies. At the same time, tick sizes for Nikkei 225 options were reduced from JPY 5 to JPY 1 to improve on-screen liquidity.

Niseko Westin

Looking forward to the future
With global market demand for index traded derivatives continuing to increase, President and CEO Hiromi Yamaji is upbeat about the future. Taking the lead in promoting a host of new initiatives, he is determined to move the Exchange forward, and remains committed to the goal of making Osaka Exchange - JPX the world’s most dynamic and attractive derivatives trading platform.

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