Osaka Exchange Offers First Nikkei Volatility Futures

The Osaka Securities Exchange Co. started offering Nikkei 225 Volatility Index futures today, the first exchange-traded Japanese securities that allow investors to hedge against swings in the stock market.

The futures on the volatility index, a measure of expected movement in stocks over the next 30 days, began trading a week after Hong Kong’s exchange started offering similar products. At the 3:10 p.m. close, 49 contracts expiring March 13 worth 10,000 yen ($123) each had changed hands at the Osaka bourse.

Stock volatility futures have been traded on public exchanges in the U.S. since 2004. They were created as alternatives to derivatives that allow investors to take a position on the direction of the market with a bank or dealer.

“This is clearly a good opportunity for volatility players,” Cedric Dechavanne, a Hong Kong-based equity derivatives strategist for Societe Generale SA, told Bloomberg News. “Growing demand for tail risk hedging coupled with investors’ willingness to invest in transparent and listed products has pushed volume on European and US futures on volatility indexes higher.”

The securities surged in popularity after the 2008 financial crisis, when investors sought to hedge against large market swings.

The Nikkei volatility index was created by Nikkei Inc. and Nomura Securities Co.’s Quantitative Research Center. The Osaka exchange began calculating the index in November 2010, according to a statement from Nikkei.

The index rose 3.7 percent to 21.60 today, indicating investors expect to see a 6.2 percent swing in the Nikkei 225 Stock Average in the next 30 days.

Since the Hong Kong Exchanges & Clearing Ltd. began offering futures on the HSI Volatility Index last week, 28 contracts have changed hands, with each worth HK$5,000 ($645).

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