The door to hard currency futures will be opened for Ukrainians

Photo: Eugeny Musienko

After the New Year the long-awaited hard currency futures on a UAH/USD pair may appear on the stock exchange.

“The National Bank of Ukraine decided to allow exchanges to begin trading of non-deliverable futures. Today, there are several derivatives, for example, futures on the index of stocks on the Ukrainian Stock Exchange (USE). Times are tough as the market is highly volatile. On the other hand, this is probably the best time to use instruments of risk hedging,” Head of the Currency Operations Administration and Market Analysis at the NBU Serhiy Ponomarenko said yesterday.

Initially, the NBU plans to grant access to this instrument for individuals and legal entities in order to see how the market reacts to this. After that, Ponomarenko said, commercial banks will be let onto the market.

By the New Year the NBU should determine at which rate (official, the rate of the interbank exchange or other) it should allow exchanges to issue hard currency futures. In order to engage in trading, stock exchanges must first coordinate the specifications of contracts with the NBU and after that with the National Securities and Exchange Commission (NSEC). This will take another month. “In order for certain currency valuables to be traded on future contracts as a basic asset, specifications should be agreed to with the NBU. At the moment, we are working on who will draft such an agreement and who will be responsible for it. After we reach these agreements, all exchanges will submit them to the NSEC and register them,” said Ponomarenko.

Selling like hotcakes

“This is by far the best news over the past two years for the stock market,” says Asset Manager at the Nettrader investment company Yuriy Bazhynov. Today, futures on a USD/UAH pair are the most relevant instrument on all financial markets in Ukraine,” says Managing Director of the Univer investment group Olekksiy Sukhorukov.

First of all, there is speculative demand, which cannot be fully satisfied on the market of basic assets due to a number of limitations. There is also, without a doubt, demand for hedging instruments, which at the moment can only be satisfied on external markets that are not accessible for many players. I anticipate that when futures will be traded based on the exchange rate of the dollar, they will reduce the volatility on the hard currency market,” he noted.

Bazhynov agrees with him, noting that the new instrument will allow the reduction of speculative demand for cash currency, protection of individuals and legal entities from devaluation, and also allow non-residents to hedge currency risks and help set a fair hard currency rate.

Hedging of currency risks is important for companies that take out loans in foreign currency (for example, from mother companies) or foreign investments. The sharp devaluation of the hryvnia complicates the fulfillment of obligations by such companies and worsens their financial standing and poses a risk to their reputation, added Director of the Perspektyva stock exchange Stanyslav Shyshkov.

Going public

Indeed, experts do not rule out the possibility that Ukrainian futures on a UAH/USD pair will be much more popular than the Moscow variant. Yesterday, the daily volume of trading of dollar/hryvnia futures on the Moscow exchange was approximately UAH 2.3 mn. “Given our recent patriotism, this will not be a competition. In essence, this instrument will work and develop only here,” says Director of the Finex Capital investment company Ihor Kohut. However, the financial expert does not believe in the prospects of the Ukrainian stock exchange as “Internet traders are not those players that will form the market”. “The derivatives market is institutionally totally different in comparison to the capital market. The basis of a classic capital market should be institutional investors: banks, investment funds, pension funds and insurance companies.

Hedgers are the main players on the derivatives market. In simple terms, clients of banks and investment companies are the main players. Physicists can only speculate, but those are not the same volumes,” he added. Most likely, hard currency futures will be issued on the USE as the management of this trading floor has already presented three forms of specifications of NBU futures. “We earlier had specifications at the rate of the EMTA, which is no longer applied, at the inter-bank exchange rate and at the official exchange rate,” said USE Chair Oleh Tkachenko. The volumes of trading through the new instrument will depend on what exchange rate is used as the basis. But the largest volumes of trading will only appear when banks enter this market.