Bringing the JGB Derivatives Market Forward
Osaka Exchange (OSE) recognizes the need to continually revise rules and introduce new products to accommodate the demands of an increasingly diverse range of investors and sophisticated trading methods. This page covers the main initiatives at OSE to bring the JGB derivatives market forward.
Derivatives Market Integration
In March 2014, Japan Exchange Group (JPX) integrated the TSE derivatives market into that of Osaka Exchange, and all derivatives trading operations including JGB futures and options were consolidated onto J-GATE.
The integration significantly enhanced market convenience by bringing a wide range of derivative products, including those based on Nikkei 225, TOPIX, and Japanese government bonds (JGB), onto a single platform and aligning the close of the night sessions of all derivative products (excluding Nikkei 225 VI Futures) to 3:00 a.m. the following day. Trading of 20-year JGB futures also resumed in April 2015.
Revision to Contract Specifications for 20-year Japanese Government Bond Futures
OSE took into account current market conditions when revising the contract specifications to raise liquidity in the 20-year JGB futures market. The revision facilitates hedging among investors in 20-year JGBs by bringing the interest rate for standardized 20-year JGB bonds closer to the prevailing interest rate and changing the deliverable grade to bonds with higher liquidity.
Developing Rules in Connection with the Introduction of Cross Margining at JSCC
Japan Securities Clearing Corporation (JSCC) introduced cross margining for the purpose of reducing the burden on IRS Clearing Participants for collateral obligations, by enabling offsetting of risks related to JGB futures and IRS (from September 2015).
Shortening of Period from Last Trading Day to Day of Settlement by Physical Delivery and Payment of JGB Futures Contracts (from Dec,2015)
The changes to the taxation system for public and corporate bonds, which will be made to facilitate the integration of taxation on financial income and gains, based on the FY2013 Tax Reform will come into effect on January 1, 2016.
With these changes, OSE made necessary revisions for JGB futures contracts, such as changing the calculation method of accrued interests in settlement by physical delivery and payment and shortening, by two business days, the period from the last trading day to the day of settlement by physical delivery and payment, from the perspective of reducing settlement risk and increasing trading opportunities.
Launch of First Ever Full-Scale Fixed Income Volatility Index in Japan (late of 2016)
Japan Exchange Group and Osaka Exchange as well as S&P Dow Jones Indices will jointly introduce the S&P/JPX JGB VIX Index, which measures the implied volatility of JGBs using options on JGB futures listed on OSE. Constructed using the methodology for the CBOE Volatility Index® (VIX® Index), the world's leading gauge of equity market volatility, the new benchmark will become the first ever full-scale fixed income volatility index available in the Japan market, with index calculation expected to start later this year.
New Products and Trading Rule Revisions with Launch of Next Generation Derivatives Trading System (mid of 2016)
OSE will list new products and revise the trading rule at the next generation derivatives trading system, Next J-GATE.
"Expansion of the derivatives market" is a key strategy for JPX as it aspires to become "the most preferred exchange in Asia." The development of Next J-GATE is a vital infrastructural initiative in support of this key strategy.
OSE aims to make the most of the enhanced system processing capacity and new functionalities that Next J-GATE promises to offer, to further improve convenience for investors and market participants. Also, OSE is considering introducing new products, trading rules, and functionalities to enhance market liquidity.
Calculation and Publication of “JPX JGB Futures Index Series (mid of 2016)
Japan Exchange Group, Inc. and Osaka Exchange, Inc. will calculate and publish the “JPX JGB Futures Index Series” as follows from cut over day of the next derivative trading system (Next “J-GATE”). The index series is calculated by applying a multiplier to the daily rate of return of the JGB Futures, where the index series consist of four (4) indexes (“JPX JGB Futures Index,” ”JPX JGB Futures Inverse Index,” ”JPX JGB Futures Leveraged Index,” and ”JPX JGB Futures Double Inverse Index”).
The indexes will be published once a day every day with a base date of the calculation of December 30, 2008 and the base value of 10,000 points. Making base value and the base date of the four (4) indexes same enables investors to compare the price movements of each index conveniently. OSE expects the new index series will be a new benchmark to JGB investments.
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