Economic Web Page of Olga Kandinskaia

In line with my past experience and publications I am interested in pursuing further research in Financial Derivatives, particularly as it refers to Cyprus, where I have lived for the last 8 years. The idea of starting a futures market within the Cyprus Stock Exchange has been circulating for several years already, but so far very few steps have been taken towards its implementation and to my knowledge very little research has been conducted in this area. While taking extra efforts to position itself as a regional financial center Cyprus cannot keep ignoring the area of derivative exchange-traded instruments, like financial futures and options on futures. Being traded on organized exchanges with transactions being cleared through an independent clearing system, these instruments provide useful, readily available and totally transparent risk management mechanisms. They lack the many shortcomings of over-the-counter derivatives (OTC options, credit default swaps, etc), which recently have come under severe critics for playing a major role in triggering the modern financial crisis.
Exchange-traded derivatives have been gaining tremendous popularity in the last 20 years all around the world, and especially in Europe, with trading volumes continuing to grow steadily at fantastic rates (20-30%) each year. Even with the impact of the current financial crisis the overall growth trend was still positive. Last year the total number of futures and options contracts traded on the 69 exchanges tracked by the Futures Industry Association rose 13.7% over 2007 (*) .
Here are some examples, which give insight into what opportunities Cyprus may be losing. A good number of recently established national derivatives markets have demonstrated exceptional volume results even despite the highly unfavorable economic conditions. E.g. the Russian futures market RTS experienced a 65% increase in volume in 2008, ranking now No 11 in the world list of top derivative exchanges (see table 1 below). Its stock index futures, which are now ranking No 16 in the list of top equity index futures and options (see table 2), rose in volume 155% last year, and only 5-6 years ago they were non-existent.
Trading volume on the Turkish Derivatives Exchange, established in 2001, reached more than 54 million contracts in 2008, an increase of 119% over 2007, with equity index futures being the leading contracts. The increase in volume for the previous year (2007 in comparison with 2006) reached 263%.
Since Cyprus has a tendency to look at the example of Greece, let’s consider the Athens Derivatives Exchange. Formed in 1999, it showed in 2008 less spectacular results than many other newly established futures markets, but still positive – 9% growth in trading volume, with most of it also in equity futures contracts. Do futures markets play any useful role in the country’s economy? Why would Cyprus want a futures market?
Futures contracts are not just the tools for financial speculation as some may wish to portrait them. They are significant economic indicators, which provide a clear signal as to where the spot markets are heading. Investors use futures prices as financial forecasts. The study by Dimitris Kenourgios from Athens University of Economics & Business under the title “Price Discovery In The Athens Derivatives Exchange: Evidence For The Ftse/Ase-20 Futures Market”, which was conducted in 2004, just a few years after the first Greek futures started, already revealed “the presence of a bi-directional causality between stock index spot and futures markets, indicating that the newly established ADEX can provide futures contracts that serve as a focal point of information assimilation and fulfill their price discovery”. There is every indication that futures on the General Index of CSE could evolve eventually into an important financial indicator for local and foreign investors. Therefore Cyprus needs to look into the possibility of starting a local futures market. I feel that with my knowledge in this area, which I have been studying for the last 17 years, and with my practical experience as a futures broker in 1992-93, the time when Russia was starting its first futures market, I could make a meaningful contribution to this research.

Table 1. Top Derivative Exchanges Worldwide

Ranked by Number of Futures and Options Traded and/or Cleared in 2008*
Rank	Exchange	Jan-Dec 2008	Jan-Dec 2007	% Change
1	CME Group (includes CBOT and Nymex) *	3,277,645,351	3,158,383,678	3.8%
2	Eurex (includes ISE) *	3,172,704,773	2,704,209,603	17.3%
3	Korea Exchange	2,865,482,319	2,777,416,098	3.2%
4	NYSE Euronext (includes all EU and US markets) *	1,675,791,242	1,525,247,465	9.9%
5	Chicago Board Options Exchange (includes CFE) *	1,194,516,467	945,608,754	26.3%
6	BM&F Bovespa *	741,889,113	794,053,775	-6.6%
7	Nasdaq OMX Group (includes all EU and US markets) *	722,107,905	551,409,855	31.0%
8	National Stock Exchange of India	590,151,288	379,874,850	55.4%
9	JSE South Africa	513,584,004	329,642,403	55.8%
10	Dalian Commodity Exchange	313,217,957	185,614,913	68.7%
11	Russian Trading Systems Stock Exchange	238,220,708	143,978,211	65.5%
12	IntercontinentalExchange (includes US, UK and Canada markets) *	234,414,538	194,667,719	20.4%
13	Zhengzhou Commodity Exchange	222,557,134	93,052,714	139.2%
14	Boston Options Exchange	178,650,541	129,797,339	37.6%
15	Osaka Securities Exchange	163,689,348	108,916,811	50.3%
16	Shanghai Futures Exchange	140,263,185	85,563,833	63.9%
17	Taiwan Futures Exchange	136,719,777	115,150,624	18.7%
18	Moscow Interbank Currency Exchange	131,905,458	85,386,473	54.5%
19	London Metal Exchange	113,215,299	92,914,728	21.8%
20	Hong Kong Exchanges & Clearing	105,006,736	87,985,686	19.3%
21	Australian Securities Exchange (includes SFE) *	94,775,920	116,090,973	-18.4%
22	Multi Commodity Exchange of India	94,310,610	68,945,925	36.8%
23	Tel-Aviv Stock Exchange	92,574,042	104,371,763	-11.3%
24	Mercado Español de Opciones y Futuros Financieros	83,416,762	51,859,591	60.9%
25	Mexican Derivatives Exchange	70,143,690	228,972,029	-69.4%
26	Tokyo Financial Exchange	66,927,067	76,195,817	-12.2%
27	Singapore Exchange	61,841,268	44,206,826	39.9%
28	Turkish Derivatives Exchange	54,472,835	24,867,033	119.1%
29	Mercado a Termino de Rosario	42,216,661	25,423,950	66.1%
30	Tokyo Commodity Exchange	41,026,955	47,070,169	-12.8%
31	Italian Derivatives Exchange	38,928,785	37,124,922	4.9%
32	Bourse de Montreal	38,064,902	42,742,210	-10.9%
33	Tokyo Stock Exchange	32,500,438	33,093,785	-1.8%
34	National Commodity & Derivatives Exchange	24,639,710	34,947,872	-29.5%
35	Oslo Stock Exchange	16,048,430	13,967,847	14.9%
36	Budapest Stock Exchange	13,369,425	18,827,328	-29.0%
37	Warsaw Stock Exchange	12,560,518	9,341,958	34.5%
38	Tokyo Grain Exchange	8,433,346	19,674,883	-57.1%
39	Athens Derivatives Exchange	7,172,120	6,581,544	9.0%
40	Malaysia Derivatives Exchange	6,120,032	6,202,686	-1.3%
41	OneChicago	4,012,281	8,105,963	-50.5%
42	Kansas City Board of Trade	3,965,924	4,670,955	-15.1%
43	Climate Exchange (includes ECX and CCFE) *	3,295,908	1,322,079	149.3%
44	Central Japan Commodity Exchange	3,272,665	6,549,417	-50.0%
45	Thailand Futures Exchange	2,148,620	1,230,666	74.6%
46	New Zealand Futures Exchange	1,459,088	1,651,038	-11.6%
47	Minneapolis Grain Exchange	1,409,002	1,826,807	-22.9%
48	Wiener Boerse	1,129,619	1,316,895	-14.2%
49	Dubai Mercantile Exchange	330,379	223,174	48.0%
50	Kansai Commodities Exchange	183,999	164,743	11.7%
51	Mercado a Termino de Buenos Aires	155,755	177,564	-12.3%
52	US Futures Exchange	22,955	8,110	183.0%
* See the exchange groups table for a breakdown of volume among affiliated exchanges. Note: Ranking does not include exchanges that do not report their volume to the FIA.

(*)Source: Galen Burghardt, Will Acworth. 2008: A Wild Ride. Global Futures and Options Volume Rises 13.7%, but Credit Crisis Damages Liquidity in the Core Markets. Futures Industry Magazine, March/April 2009.

Table 2. Top 20 Equity Index Futures and Options Worldwide

Ranked by Number of Contracts Traded and/or Cleared in 2008
Rank	Contract	Jan-Dec 2008	Jan-Dec 2007	% Change
1	Kospi 200 Options, KRX	2,766,474,404	2,709,844,077	2.1%
2	E-mini S&P 500 Futures, CME	633,889,466	415,348,228	52.6%
3	DJ Euro Stoxx 50 Futures, Eurex	432,298,342	327,034,149	32.2%
4	DJ Euro Stoxx 50 Options, Eurex	400,931,635	251,438,870	59.5%
5	SPDR S&P 500 ETF Options *	321,454,795	141,614,736	127.0%
6	Powershares QQQ ETF Options *	221,801,005	185,807,535	19.4%
7	S&P CNX Nifty Futures, NSE India	202,390,223	138,794,235	45.8%
8	S&P 500 Options, CBOE	179,019,155	158,019,723	13.3%
9	iShares Russell 2000 ETF Options *	151,900,495	154,059,054	-1.4%
10	S&P CNX Nifty Options, NSE India	150,916,778	52,707,150	186.3%
11	Financial Select Sector SPDR ETF Options *	119,671,026	39,130,620	205.8%
12	E-mini Nasdaq 100 Futures, CME	108,734,456	95,309,053	14.1%
13	Dax Options, Eurex	104,939,881	91,850,835	14.3%
14	Nikkei 225 Mini Futures, OSE	95,446,729	49,107,059	94.4%
15	Taiex Options, Taifex	92,757,254	92,585,637	0.2%
16	RTS Index Futures, RTS	87,469,405	34,228,973	155.5%
17	TA-25 Options, TASE	81,483,701	94,520,236	-13.8%
18	Kospi 200 Futures, KRX	64,835,148	47,758,294	35.8%
19	Mini-sized $5 DJIA Futures, CME	55,348,312	40,098,882	38.0%
20	CAC 40 Futures, Liffe	49,242,000	44,668,975	10.2%
* Traded on multiple U.S. options exchanges

RESEARCH INTERESTS