Why We're Excited to Build a New Options Product in Japan
Plenty of investors know the Nikkei 225 Index, but how many are familiar with the TOPIX?
Popular with institutional investors, the TOPIX is a diversified equity index reflecting the economic fundamentals of the Japanese economy. Commanding a significant amount of AUM, it’s often the index institutional investors are benchmarked against.
The TOPIX may be in for another boost, as Optiver is now providing on-screen liquidity in TOPIX options on the Osaka Exchange (OSE). Read our full release here.
Boasting significant liquidity and volumes, as well as a broad user base across domestic and foreign institutions, retail and market makers, options on the Nikkei 225 index are currently the leading product for traders of Japanese markets. Optiver is already a leading liquidity provider in Nikkei 225 options both on-screen and in the block market.
But we feel there's room for more than one world-class index options product on the OSE – and the TOPIX is the obvious candidate.
While the Nikkei 225 is a leading global benchmark, the TOPIX has a more diversified constituent set and arguably better reflects the fundamentals of the Japanese economy. Approximately $234 billion is invested in ETFs tracking the TOPIX on the Tokyo Stock Exchange, compared with around $120 billion in Nikkei 225 funds, according to Bloomberg. Options on the index currently trade predominantly OTC. A small amount also trade on the OSE via block (J-NET).
“We see these products as complementary to Nikkei 225 options and believe there’s enough interest to warrant providing liquidity on-screen,” says Sam Tagliabue, Optiver’s Head of Wholesale Trading in Sydney.
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Multiple index derivatives on a single exchange aren't uncommon; in fact, many of the world's leading exchanges support more than one index product. For instance, S&P 500, Nasdaq 100 and Russell 2000 index options all trade on the CME. Hang Seng Index and Hang Seng China Enterprises Index options both trade on the HKEX. Eurex hosts trading in both Euro Stoxx 50 and DAX index options.
Growing on-screen volumes of TOPIX options would help establish a second leading equity index product on the exchange, putting the OSE in this same class.
“Developing the on-screen liquidity in this product over time is something we very much look forward to working on together with the OSE and other partners,” says Darcy Harding, Head of Index Options Trading at Optiver in Sydney.
For more information please contact:
Nippei Yasuoka, APAC Institutional Trading
APAC Corporate Strategy team