Currency futures are almost here!

Last night I attended a JSE presentation on Rand futures, which are to be listed on Yield-X. JSE together with its partners have been working on this over the last couple of years. In his Budget Speech on 21 February 2007, Minister of Finance Trevor Manual stated, " ... further developing South Africa's financial markets and increasing liquidity in the currency market by permitting the JSE to establish a Rand futures market."

I consider this to be an exciting development, for hedgers and traders alike. A currency future contract is a contract that allows market participants to trade the underlying exchange rate for a period of time in the future. The underlying instrument of a currency future contract is the rate of exchange between one unit of foreign currency and the South African Rand. Dollar/Rand contracts will be the first to be traded, with many more currency futures contracts expected to follow thereafter.

The initial margin is 6.45% on the near contract. This translates into 15.5 times gearing.

So who can trade currency futures?

• Individuals and foreigners
• Pension Funds and Long-term insurance companies using 15% offshore allocation;
• Asset managers using 25% foreign allocation.

Corporates wishing to trade currency futures need to obtain exchange control approval from the SARB.

The currency futures are expected to start trading from the middle of June.