TSEC Taiwan 50 Index Futures
June 2003
Background
 The current TAIEX index and sector indices deviate measurably from
most cash portfolio held by stock investors, adding to the difficulty of
utilizing hedging and arbitrage strategies, and affects
 the price discovery function of futures market;
 the market mechanism to maintain effective prices; and
 the precision and efficiency of futures trading strategies
 Most renown stock index futures contracts use the index composed by a
fixed number of component stocks as underlying to facilitate hedging
purpose and, thereafter, the development of futures markets.
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Background
 TAIFEX Products at a Glance
TAIEX
Futures
(07/98)
Electronic
Sector Index
Futures
(07/99)
Finance Sector
Index Futures
(07/99)
Mini-TAIEX
Futures
(04/01)
Daily average (contracts)
TAIEX
Option
(12/01)
Equity
Option
(01/03)
Total
98
2,233
99
3,653
714
155
4,522
00
4,944
1,512
654
7,100
01
11,659
2,807
1,596
2,334
856
19,252
02
16,661
3,367
1,479
4,210
6,316
32,033
03
19,217
3,357
3,410
4,451
45,508
1,512
77,455
2003 data up to May 30
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Contract Specifications
Underlying: the TSEC Taiwan 50 Index
Abbreviation ：Taiwan 50 Futures
Ticker symbol：T5F
Trading hours：8：45 AM～1：45PM Taiwan
time on trading days of Taiwan Stock Exchange
Contract size：NT$500 × Index
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Taiwan 50 Index Futures Contract Specifications
 Delivery months: Five delivery months, including spot
month, the next calendar month plus next three quarter
months of the March, June, September, and December cycle.
 Daily price limit：±7% of previous day's settlement price.
 Last trading day：The third Wednesday of the delivery
month.
 Final settlement day：The first business day following the
last trading day.
 Settlement：On net cash basis.
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Contract Multiplier－ 500
 Contract size＝TSEC Taiwan 50 Futures Index × NT$500
 The medium contract size accommodates the features of the
index and encourages participation of institutional investors by
meeting their needs
 Establishing market segregation from TAIEX futures reduces
crowding out between the two products, while taking into
account both the needs of institutional and individual investors
 Reducing trading cost
 Larger contract size (than TAIEX future) is more in tune with
international trend
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Contract Multiplier－ 500
 In reference to international practice and based on contract size, a
proper integer multiple is set for the conversion between futures
contract and the ETF to facilitate hedging, arbitrage and regular
trading.
50 ETF
shares
1 futures contract
20 futures
contracts
1 ETF basket
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Trading System
 Order
 Order placement：limit order or market order.
 Orders are accepted starting at 8：30AM.
Matching
 8：45 (market open)：competitive auction.
 8：45 ～13：40 ：Match order by order.
 13：40 ～13：45 (market closing): competitive
auction.
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Settlement System
 Position Management
 Opposite positions of the same delivery month for
the same product in the same account are
automatically offset.
 Margin Calculation
 Margin calculation will be the same as that for stock
index futures of TAIFEX, that is risk coefficient is
used to estimate the greatest possible variation in the
price of underlying to cover single-day index
volatility risk.
 Cash settlement
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Market Participants
Futures market
participant
Securities dealers
Mutual fund companies
Market
participants QFII
Futures dealers
Banks and insurance
companies
CPO
Other juristic persons
Individuals
ETF market participants
Primary
Secondary
market
market
Participating
securities
firms,
Institutional
investors
Institutional
investors,
Small traders
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Needs of ETF Market for Futures Products
 Hedging needs—ETF issuing market (creation and
redemption)
 ETF participating firms that create or redeem ETF
shares can use futures products for hedging when they
face price risk arising from time difference.
 When ETF participating firms intend to engage in
arbitrage trading, they can resort to futures trading
when buying or selling a basket of stocks is hard to
execute.
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Needs of ETF Market for Futures Products
 Needs of hedging —ETF trading market
 After the TSEC Taiwan 50 Index ETF is listed on the TSEC, its
fluctuation will reflect the fluctuation of all component stocks.
 Institutional or individual investors can use futures products to
hedge the risk of ETF price volatility.
 Needs of arbitrage
 Price imbalance in the spot market, EFT market and futures
market may be corrected using futures products.
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