Exchange Traded
From 123CFD
This blurb may be too ambitious calling Exchange Traded CFDs ‘the future’, they are not an established product as of yet and thus the hype surrounding them has not been justified. The SFE (Sydney Futures Exchange), now owned by the ASX is at the back end of a new instrument named Exchange Traded CFDs. This idea is so good that there is speculation many other exchanges around the globe are seeking to implement a similar system. The SFE is set to launch the worlds first CFD market of this kind in late September and already has most of Australia’s largest market participants lining up for a piece of the action.
Basically the goal is to create a regulated market for trading CFDs, where individual traded are monitored by an authorized government body. The ultimate purpose for this type of market is perfect transparency. The simple workings of exchange traded CFDs are that the broker or provider is required to hedge every CFD transaction by actually purchasing the shares on the market its self. This will give perfect synchronization between the CFD traders and the price movements of the underlying exchange. Essentially, Exchange Traded CFDs aim to include all the desirable components we associate with stock exchanges along with all the desirable components associated with trading CFDs.
Contents |
[edit] Exchange Traded Contracts For Difference
Exchange Traded CFDS are a new form of contract for difference that will be traded through an exchange based mechanism. These instruments will enjoy the traditional benefits of leverage enjoyed by over the counter contracts for difference but with reduced transaction costs from the central counter clearing model negating the financing charges traditionally imposed by third party cfd providers. Additional features include transparency, enhanced liquidity, risk management, regulatory and supervisory characteristics associated with normal exchange traded products. . As one of the fastest growing product sectors in the financial markets in recent years, the SFE will list a suite of Exchange Traded CFDs in the second quarter of 2007. By combining the attributes of exchange traded CFDs and the liquidity provided by a number of key Designated Price Makers, Australian traders and investors will benefit from a well regulated and competitively priced Exchange Traded CFD market place.
Current CFD providers focus on either the direct market access or market maker models. CFDs are currently available in listed and/or over-the-counter markets in the United Kingdom, Germany, Switzerland, Italy, Singapore, South Africa, Australia, and most recently New Zealand. In a world first, The Sydney Futures Exchange (SFE) will become the first exchange globally to offer exchange traded Contracts for Difference (CFDs. Only accredited brokers will offer exchange traded cfds and multiple market makers have been appointed to facilitate liquidity. CFDs traded through the newly developed exchange will essentially function the same as current otc contracts for difference except the transaction method will be through SYCOM (the Sydney Futures Exchange) trading platform instead of the traditional market maker or Direct Market Access models. The suite of ASX CFDs will include CFDs on ASX's Top 50 Stocks, major global equity indices, key FX crosses and commodities.
One of the benefits of the new exchange traded products include reduced Exposure to Broker Failure: The SFE Clearing Corporation (SFECC) will provide central counter-party clearing i.e. trades are carried out with SFECC and not with the original party to the trade. The positions are managed by SFECC via the established margining system currently used by the global futures market. The trades will be backed by the Exchange Clearing Guarantee Fund which negates creditworthy exposure that exists under non-exchange CFD brokers and traders. Additional market regulation will be provided through the Australian regulator ASIC who will oversee the activities of the entire market. ASX regulation teams will be responsible for monitoring any unusual activity and trading conditions deemed to be unfair thereby safeguarding participants.
[edit] ASX CFDs
The ASX (who owns the SFE) will be the first provider of Exchange Traded CFDs.
- UPDATE - The initial launch date for exchange traded CFDs was supposed to be mid September. Due to the credit crunch, uncertainty in the global markets and the number of CFD/Margin traders that have hit their calls they have delayed the launch of their exchange traded platform early November.
[edit] What are ASX CFDs?
The difference is determined by reference to an 'underlying' instrument - a share, index, FX rate or commodity and reflected in the transparent ASX CFD order book. ASX CFDs are fundamentally different to the current Over-the-Counter (OTC) CFD because they are the only CFDs traded on ASX. They also offer price transparency, exchange independence and greater investor protection. ASX CFDs will initially include:
- The top 50 stocks listed on ASX
- Key global equity indices
- A range of major foreign currency exchange rates
- Selected commodities
ASX CFDs will be listed on the market operated by the Sydney Futures Exchange (SFE). Access to this market will be possible through a large network of both full service and discount brokers.
[edit] Advantages of trading ASX CFDs?
Price Transparency
- All prices and market depth are fully transparent in the ASX CFD order book. This reflects ASX’s statutory obligation to conduct fair, orderly and transparent markets. OTC markets do not have this obligation.
- Importantly, while prices and market depth are transparent, your identity remains anonymous. This minimises market impact costs (especially those related to others identifying an individual’s trading patterns and trading ahead of him/her).
Exchange Independence
- ASX, as issuer of the CFDs, does not take a position in the trade. The ASX is, therefore, never in conflict with the client
- ASX ensures all trades are executed on a strict price/time priority. Price/time priority means the first person to enter the best price is traded against first.
Greater Investor Protection
- CFD advisers will have completed an ASX CFD accreditation program. This ensures they have achieved acceptable standards of knowledge of ASX CFDs. We will shortly be posting a list of ASX Accredited Advisers.
- There is also no need to worry about the other party to your trade meeting their trade obligations or their financial robustness. Counterparty risk is transferred to the clearing house (SFE Clearing Corporation) and the performance of the trade is guaranteed by SFE Clearing Corporation.
- All margin requirements are calculated by SPAN, recognised as the world’s leading margining methodology.
- SFE Clearing Corporation’s clearing & settlement facilities are supervised by ASIC and monitored by the RBA.
