Asian markets battle over futures

THE SIMMERING battle for Asian financial market supremacy between Hong Kong and Singapore has erupted into a full scale war centred on the futures exchanges of the two territories.

The Singapore International Monetary Exchange (Simex) announced it would resume trading in Hong Kong stock exchange futures on 23 November, adding to its portfolio of futures contracts on other markets such as the Japanese, Taiwanese, and more recently, the Thai market.

Hong Kong futures exchange, which is a quarter the size of Simex, reacted to the news with a mixture of dismay and fury. Around 80 per cent of its business is drawn from trade in the Hang Seng Index contract.

First it threatened to deny access to market information providers, such as Reuters, if they supplied real time data on Hang Seng Index futures to the Singapore market. Next it decided to extend its opening hours to bring Hong Kong in line with Singapore. Now it is having to look again at its high transaction fees. In Singapore fees are much lower.

The Hong Kong authorities say they are worried that the opening of another market in local stock exchange futures will give speculators a back door option for playing the market and destabilising the local currency by means of a so called "double play" under which share prices are depressed, interest rates forced up and pressure is exerted to break the fixed link between the Hong Kong and US dollar.

When the Hong Kong government embarked on its share buying spree last August, aimed at defeating this double play, it also plunged into the futures market. Although they have disclosed what stocks were bought and how much was spent, they still refuse to say what positions were taken in the futures market.