On 5 December 2016, the Budapest Stock Exchange (BSE) launched market making for two maturities in the BUX index on its futures market with the aim of improving liquidity and increasing turnover. Market making is currently available for the BUX index maturing in December 2016 and 2017, but the spectrum of products may be expanded later on. Richárd Végh, CEO of BSE, said the following about the development: ‘Implemented in collaboration with market participants and KELER, this development fits well into BSE’s strategy adopted earlier in the year, which aims to enhance the relevance of the futures market, besides expanding the range of issuers, i.e. the supply side.’
The market makers will be Erste Befektetési Zrt. and OTP Bank Nyrt. Thanks to market making being supported by a fee reduction offered to these companies, the margin between the buy and sell side may be reduced for BUX futures contracts, thereby allowing product liquidity to improve, ultimately resulting in increased interest from investors and growing turnover.
‘In the 2000s, the popularity of BUX futures trading among active investors with a larger risk appetite was legendary; therefore, by launching market making at BSE, we are expecting not only new investors, but also for the old ‘BUX-ing’ to make a comeback’, Richárd Végh said. ‘However, it is important to note that those interested in futures trading should be familiar with the potential risks involved in this type of investments, given that positions taken through futures market transactions may yield exceptionally high returns, but at the same time carry a higher level of risk.
Through leverage, the futures market makes allows investors to take valuable positions with small capital investments’, the CEO added.
BSE’s expanding line of futures products currently includes futures products based on individual shares, FX and interest, besides those based on the share index.
‘As a clearing house ensuring the secure and effective settlement of transactions carried out in capital and energy markets, operating on both the Hungarian and the international stage, KELER KSZF supports the market making launched in BUX index futures trading by offering reasonable fees, making such products even more attractive for investors’, said Károly Mátrai, CEO of KELER KSZF.
Géza Ráner, Director of Trading at Erste Befektetési Zrt., added: “Deservedly popular in the past, BUX futures trading is now expected to get another boost from market making. As market participant, we consider ensuring sufficient liquidity a top priority.”
Key parameters of BUX futures market making
* During free ‘period, with regard to each Stock Exchange Product, the Market Maker must honour its obligation to enter orders for minimum 70% of the trading hours covered by the market making obligation, calculated on a monthly basis, having a maximum of three days among all Stock Exchange Days in a month when the Market Maker is not able to meet its obligation to enter orders for a minimum of 70% of the trading hours, but without performance falling under 50% on any of these days.’
** For instance, at launch there will be market making in the December 2016 and January 2017 maturities, while at the beginning of January 2017 there will be in the January, February and December 2017 maturities.