Table of Contents:

Futures market contracts

Table 10 presents a selection of futures contracts, and their specifications39 listed on the South African exchange (the JSE). The specifications of the individual share futures contracts are shown in Table 11. There are close to 200 individual equity / share futures contracts (also called single-stock futures) listed on the JSE.

FUTURES CONTRACT	FTSE/JSE TOP 40 INDEX FUTURE	FTSE/JSE GOLD MINING INDEX FUTURE	FTSE/JSE SA LISTED PROPERTY INDEX	BOND FUTURES
		GLDX	SAPI	VARIOUS
INSTRUMENT	FTSE/JSE Top 40 Index	FTSE/JSE Gold Mining Index Future	FTSE/JSE SA Listed Property Index	Various listed bonds -e.g. R201, R203
CONTRACT SIZE	R10 x Index Level	R10 x Index Level	R10 x Index Level	R100 000 nominal
EXPIRY DATES & TIMES	15h40 on 3rd Thursday of Mar, Jun, Sep & Dec. (or previous business day if a public holiday)	13h40 on 3rd Thursday of Mar, Jun, Sep & Dec. (or previous business day if a public holiday)	13h40 on 3rd Thursday of Mar, Jun, Sep & Dec. (or previous business day if a public holiday)	12h00 on the first business Thursday of February, may, August & November
QUOTATIONS	Index Level (no decimal points)	Index Level (no decimal points)	Index Level to Two Decimal points	Ytm (generally) for settlement on the delivery date
PRICE MOVEMENT	One Index Point (R10)	One Index Point (R10)	0.01	1/10th point
SETTLEMENT METHOD	Cash Settled	Cash Settled	Cash Settled	Delivery of the physical bond

Table 10: Selection of JSE contracts and specifications

FUTURES CODE	Various
UNDERLYING INSTRUMENT	The various listed companies
CONTRACT SIZE	100 x the share price (e.g. share price 85.25, future price R8,525.00) 110 x the share price for NEDQ
EXPIRY DATES & TIMES	If the contract is a constituent of any of the traded indices, 15h40 on the 3rd Thursday of Mar, Jun, Sep & Dec. (Or the previous business day if a public holiday) If the contract is not a constituent of any of the traded indices, 17h00 on the 3rd Thursday of Mar, Jun, Sep & Dec. (Or the previous business day if a public holiday)
QUOTATIONS	Price per underlying share to two decimals
MINIMUM PRICE MOVEMENT	R 1 (R 0.01 in the share price)
EXPIRY VALUATION METHOD	If the contract forms a constituent of any of the traded indices then, arithmetic average of 100 iterations taken every 60 seconds between 14h01 and 15h40 will be used. If the contract does not form a constituent of any of the traded indices then, the official closing price determined by the JSE Securities Exchange will be used
SETTLEMENT METHOD	Physically settled in terms of Rule 8.4.7.

Table 11: Individual share futures contracts listed on the JSE

Risk management by a futures exchange

An exchange (in this case the South African JSE) states boldly that its risk management philosophy "...is very simple - You stand good for your client.' What this means is that each member will carry its client's losses if the client defaults just as each clearing member will carry its member's (for whom it clears) losses if the member defaults. This pyramid structure forms the basis of the... Risk Management Structure." The structure is depicted as in Figure 13.

risk management by Safex

Figure 13: risk management by Safex

The responsibility of appropriate risk management is placed on the shoulders of the clearing members who, in turn, pass this accountability onto the members for whom they clear, i.e. the non-clearing members. They, in turn, risk manage in terms of the rules of the exchange which stipulates the "levying" of a margin deposit.

As noted, the exchange requires a margin deposit to be paid by all participants when they take on a position in futures. This margin is registered in the name of the client or member, and it is equivalent to between 2% and 8% of the value of the contract. This is a reflection of the parameters of the risk that is associated with trading in the futures market in one day. As noted earlier, the initial margin is reassessed each day by the exchange and brings into play the variation margin.

Ultimately, the risk that the exchange bears is the risk that one of the clearing members defaults, whether the result of a non-clearing member causing it to default or as a result of its own activities. However, this is remote, as the clearing members are all major banks.