• Bloomberg


Osaka Securities Exchange Co. is considering offering rebates to customers willing to make a market in futures, offering a hedge against swings in the Nikkei 225 stock average, according to Matthias Rietig, executive adviser to the board.

The exchange plans to offer maker-taker pricing, which pays the suppliers of bids and offers and charges those executing against them, to boost liquidity and volumes for contracts on the Nikkei Stock Average Volatility Index.

Futures on the gauge, a measure of expected movement in stocks over the next 30 days, began trading in February. Average daily volume for the contracts, worth ¥10,000 each, was 40 in June and 44 and July, according to data from the bourse.

The Osaka bourse, in the process of merging with Tokyo Stock Exchange Group Inc., is the only venue in Japan where it is possible to trade futures on the Nikkei 225.

Stock volatility futures have been traded on public exchanges in the U.S. since 2004. The securities surged in popularity after the 2008 financial crisis, when investors sought to hedge against large market swings.

“We’re currently doing a consultation on if it’s attractive or not,” Rietig said of the pricing model, noting that it would probably happen in October.

The Nikkei volatility index was created by Nikkei Inc. and Nomura Securities Co.’s Quantitative Research Center. The Osaka exchange began calculating the index in November 2010. The index fell 0.7 percent to 20.69 Tuesday, indicating investors expect to see a 5.9 percent swing in the Nikkei 225 in the next 30 days.

Volatility-index futures were created as exchange-traded alternatives to derivatives bought directly from banks that allow investors to take a position on the direction of the market with a bank or dealer.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.