The development of equity derivative markets: An examination of current standards and challenges in emerging Asia

摘要

Purpose – Amid benign monetary policy in mature market countries and high liquidity-induced demand, lower risk premia have encouraged risk diversification into alternative asset classes outside the scope of conventional investment. The development of derivative markets in emerging economies plays a special role in this context as more institutional money is managed on a global mandate, with more and more capital being dedicated to emerging market equity. This paper aims to focus on these issues. Design/methodology/approach – This paper reviews the recent development of equity derivative markets in emerging Asia and informs a critical debate about market practices and prudential supervision. Goal of the paper is also to outline essential elements and key policy considerations in developing derivative markets. Findings – The supervision of emerging derivative markets depends on the expedient and tractable resolution of challenges arising from consistent risk management, risk mutualization, and prudential standards that guarantee market stability in crisis situations. In particular, further efforts are needed in areas of cash market liquidity, trading infrastructure as well as legal and regulatory frameworks based on a set of coherent principles for capital market development. Originality/value – The paper offers a comprehensive set of principles for the development of equity derivative markets based on the current state of equity derivative trading in emerging Asia. Given current efforts by national regulators in the region to implement comprehensive guidelines on derivatives and revise short selling restrictions, the scope of this paper has topical appeal from the perspective of market participants and regulators.