Asia-Pacific Finan Markets (2018) 25:71–86

https://doi.org/10.1007/s10690-018-9239-4

Success Factors of Financial Derivatives Markets in Asia

Trin Sittisawad1 · Pariyada Sukcharoensin2

Published online: 22 February 2018

© Springer Japan KK, part of Springer Nature 2018

Abstract The objective of this study is to investigate the success factors of finan-
cial derivatives markets in Asia. The selected countries include Thailand, Malaysia,
Singapore, South Korea, Japan and Hong Kong. The success factors of financial deriva-
tives markets in Asia are examined by employing the panel regression. The empirical
results show that size, volatility, and liquidity of spot market are significant factors
for the success of financial derivatives markets in sample countries. Further, tick size,
contract size, and option-type also enhance trading volumes while product age is not
statistically significant. The results from this study provide important implications in
developing the financial derivatives market which plays an important role in the capital
market.

Keywords Asia · Derivatives market · Financial derivatives · Success model

JEL Classification G10

1 Introduction

During the past years, one of the most interesting topics in Asia has been the establish-
ment of ASEAN Economic Community (AEC). This economic establishment aims
to create the standardized market and production base amongst members, which will

B Pariyada Sukcharoensin
pariyada.s@nida.ac.th

1 AEC Securities Public Company Limited, 63 Athenee Tower, Wireless Road, Lumpini,
Pathumwan, Bangkok 10330, Thailand
2 Graduate School of Development Economics, National Institute of Development Administration,
118 Seri Thai Road, Klongchan, Bangkapi, Bangkok 10240, Thailand

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72 T. Sittisawad, P. Sukcharoensin

help enhance the capability to compete and bargain with other traders on regional
stages and will eventually become an important factor for global growth. Therefore,
the capital markets in each member country will have a key role in resource allocation
and are to become a propeller to move forward the ASEAN economy.
The ASEAN + 3 consists of 13 countries with more than 2 billion people or one-third
of the world population and total GDP of USD9 trillion (16% of world GDP) while
international reserve amounts to USD3.6 trillion (more than 50% of world reserve).
However, each member is still having unequal capital market development due to
differences in infrastructure such as currency unit, domestic regulatory landscape,
religion, and level of national development. There are both developed and developing
capital markets. According to Bekaert and Harvey (2003) and Antoniou et al. (1997),
it was found out that developing countries had lower efficiency and needed higher
efficiency of capital markets to increase the competitiveness.
Then, financial derivatives market plays an important role in enhancing the capital
market development. An efficient financial derivatives market will provide investors a
support to use derivatives as tools in hedging risk efficiently. Investing in derivatives
requires less amount of capital than in an underlying asset. Also, news and information
is faster reflected in the price of derivatives than in that of the underlying asset, which in
turn helps the underlying market to have more information for better decision making.
For a financial derivative market to be efficient, this depends largely on the success of
financial derivatives traded (Tsetsekos and Varrangis 2000). In Black (1986), Corkish
et al. (1997), Waweru and Yu-Kyung (2013), indicators for success were considered in
which trading volume of derivatives was the most popular. For derivatives with high
trading volume, it indicates investors’ attraction of using derivatives either for risk
hedging or for other investing strategies, which well fulfills the purpose of derivatives.
On the other hand, derivative with low or no trading volume shows an incapability to
use derivatives. The failure of newly futures contracts characterized by low trading
volume is also revealed in Carlton (1984) and Brorsen and Fofana (2001). Apart
from the trading volume, trading value of derivatives was another indicator; however,
considering an exchange rate difference, it is not proper to compare trading value
information of multiple countries. When we convert them to be the same currency, the
numbers may be affected by exchange rate difference and variability.
From Fig. 1, among the six countries, South Korea has the higher trading volume in
its financial derivatives market than markets in other countries, followed by Hong Kong
and Singapore. Excluding South Korea in Fig. 2 shows a better picture of competition.
From data in 2014, Thai financial derivatives market had financial derivatives trading
volume ranked 4th while Japan and Malaysia ranked 5th and 6th, respectively.
It can be seen that the Thai financial derivatives market is capable of competing if
it is highly improved. This leads to a question of what factors that cause a successful
financial derivatives market. Therefore, this study aims to learn the success of finan-
cial derivatives markets in Asia comprising countries in ASEAN + 3. The ASEAN
countries are Thailand, Malaysia, and Singapore while ASEAN + 3 covers South
Korea, Japan, and Hong Kong of which the development and history of the financial
derivatives markets are more comprehensive.

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Success Factors of Financial Derivatives Markets in Asia 73

Trading Volume (million contracts) 4,500.00

4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
-
2007 2008 2009 2010 2011 2012 2013 2014
Bursa Malaysia Derivatives Hong Kong Exchanges Japan Exchange
Singapore Exchange Thailand Futures Exchange Korea Exchange

Fig. 1 Trading volume of financial derivatives in Thailand, Malaysia, Singapore, South Korea, Japan, and
Hong Kong during 2007–2014

160.00
Trading Volume (million contracts)

140.00

120.00

100.00

80.00

60.00

40.00

20.00

-
2007 2008 2009 2010 2011 2012 2013 2014
Bursa Malaysia Derivatives Hong Kong Exchanges Japan Exchange
Singapore Exchange Thailand Futures Exchange

Fig. 2 Trading volume of financial derivatives in Thailand, Malaysia, Singapore, Japan, and Hong Kong
during 2007–2014

2 Literature Reviews

Financial derivatives markets in both developing and developed countries carefully

consider several measures and derivatives characteristics before each derivative is
registered for trading. For example, the Chicago Mercantile Exchange (CME), which
is the largest and most successful derivatives market, will consider each derivatives
before registration by benchmarking with various factors such as transparency, price
volatility, competitiveness of underlying assets, non-existence of proper hedging tools,
lack of governmental control or too stringent regulation, and product standardization
quantitatively and qualitatively, product competitiveness, strategy, and product sup-

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port. So, when the criteria are strict, the higher chance of success for those derivatives
products after registration.
Previous empirical studies on the success of derivatives employ panel regression
model or logit regression model. Each model has pros and cons. For the panel regres-
sion model, Black (1986) was the first to analyze success factors of derivatives which
he used to predict if the derivatives to be registered would be successful in the US
derivatives market. The model applies the cross market approach in which if there is a
similar derivative with higher liquidity and hedging effectiveness, the newly-registered
derivatives would have less chance of success. On a contrary, if there is no similar
derivative, the chance of success would be higher. In Black (1986)’s study, out-of-
samples were used to measure the predictability of the model which revealed that the
model was capable to correctly predict the success of the derivatives. Moreover, he
tested the municipal bond futures which were about to register on the CME. The model
predicted that it would be successful, in line with the result after that which showed
high trading volume.
Then, Corkish et al. (1997) indicated that Black (1986) used the trading volume
of only 3 years after registration to justify the success. Some derivatives contracts
could have daily trading volume of more than 1000 contracts but faced failure in
later years. Thus, they further developed Black (1986)’s model to analyze the success
factor of derivatives in the London International Futures Exchange (LIFFE). After that
Waweru and Yu-Kyung (2013) studied the success factor of derivatives in Asian Pacific
developing countries. They further adjusted Corkish et al. (1997) to analyze factors
that affect the trading volume in developing countries in Asia during 1995–2013.
The features behind the success or failure of futures contracts were also investigated
in Johnston and McConnell (1989), Bialkowski and Jakubowski (2012), Till (2014)
and Garcia et al. (2015). Nevertheless, these studies only focus on factors related
to the characteristics of underlying assets and some common characteristics of the
derivatives. On the other hand, Bialkowski and Koeman (2018) provided different
view regarding the dimensions of spot market design contributing to the success of the
associated futures market while Bekkerman and Tejeda (2017) investigated the roles
of market participants in supporting futures markets.
For logit regression which is another methodology employed in exploring the suc-
cess factors, Bialkowski and Jakubowski (2012) studied the Single Stock Futures in
Eurex during 1994 and 2009 by justifying the success if that derivative had higher
daily average open interest than that of the Eurex. The strength of this model is on
the use of the underlying assets’ characteristics and additional characteristics of the
derivatives such as contract size, price range, and contract life to find success factors
of derivatives in the Single Stock Futures. However, the criteria set up might not be
suitable with data from different multiple countries.
This study aims to find factors that contribute to success in financial derivatives
markets which is the first study applying both panel and logit regression models.
Panel data from sample countries are analyzed employing both the characteristics of
the derivatives and underlying assets along with some qualitative variables.

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Success Factors of Financial Derivatives Markets in Asia 75

3 Research Methods

This study uses secondary panel data which consist of annual time-series since the
first trading day of derivatives until 2014, number of financial derivatives contracts
traded, underlying asset market value, return volatility of underlying assets, turnover
of underlying assets, contract size of financial derivatives, tick size of financial deriva-
tives, and age of financial derivatives. Further, cross-sectional data also consist of
data from six countries including the developed countries (Singapore, South Korea,
Japan, and Hong Kong) and the developing countries (Thailand and Malaysia). Data
are collected from Datastream and Thomson Reuter Eikon.
This study employs panel data containing two dimensions which are a cross-
sectional dimension and a time series dimension. The collection of panel data takes
time and costly than the collection of either cross-sectional or time series data. How-
ever, panel data enhances data availability and greater capacity for modeling complex
models. Further, benefits of using panel data over the cross-sectional data is the hetero-
geneity of data in which different value determination of dummy variables creates a
variety of analyses. Panel data also reduces correlation problems in variables resulting
in higher degree of freedom and efficient estimation (Baltagi 2001; Hsiao 2007).
The model is modified from the success model of Waweru and Yu-Kyung (2013) by
adding factors that involve the characteristics of financial derivatives, which is shown
in Eq. (1). If i is country 1 to n and t is period:

VOLit  β0 + β1 SSIZEit + β2 SVOLit + β3 SLQit + β4 CSit

+ β5 TICKit + β6 AGEit + β7 DFIRSTit + β8 DFUit + it (1)

where VOL it is the trading volume of financial derivatives, SSIZE it is the size of
underlying asset market, SVOL it is the return volatility of underlying asset, SLQit is
the liquidity of underlying asset market, CS it is the contract size, TICK it is the tick
size of financial derivatives, AGE it is the age of financial derivatives, DFIRST it is the
dummy variable which equals to 1 if it is the first derivatives traded in the market, and
DFU it is the dummy variable specifying the futures contract.
These variables are chosen to investigate the success of financial derivatives. In
general, successful derivatives have high trading volume while those which are not
successful have low trading volume. In this research, the trading volume of financial
derivatives is used as an explained variable to show success of financial derivatives
(Waweru and Yu-Kyung 2013).
The size of an underlying asset market (SSIZE) is measured from annual market
value of each derivatives’ underlying asset. Black (1986) found that derivatives which
had large underlying market would have higher chance to succeed or higher trading
volume, in line the study from Corkish et al. (1997) who studied factors that affected
growth of trading volume in Eurex market. They found a positive relationship between
the size of underlying asset market and growth of derivatives’ trading volume. Also,
Tashjian and Weissman (1995) found that the size of the underlying asset market
highly correlated with the success of derivatives.
Spot market volatility (SVOL) can be measured from the standard deviation of
annual return of the spot market. Rutledge (1984) performed a causality test between

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trading volume and price volatility in which he found statistically significant that the
movement of the trading volume was a result of a change in price volatility. Cornell
(1981) concluded in his study that derivatives of which underlying assets were com-
modities should have an underlying asset market with sufficient price volatility. Black
(1986) found that derivatives having high price volatility had higher chance to succeed
or higher trading volume than those having lower price volatility. For spot market liq-
uidity (SLQ), it shows a degree of difficulty to trade underlying assets. If the underlying
asset market has high liquidity, it would attract many investors and speculators, which
caused a chance of using financial derivatives to hedge their investments, increase
gearing ratio in the investing status or even trading arbitrage. This study measures the
liquidity of underlying asset markets from turnover by volume, a ratio between annual
trading value and average annual value of listed companies. The supporting research
from Chordia et al. (2001) found that high liquidity markets would attract investors
and cause higher trading volume.
Contract size (CS) can be measured from the multiplier stated in the contract. Bollen
et al. (2003) found that a small contract size could increase derivatives’ popularity due
to their lower affordability and easier access to trade. Large investors also benefited
from the small contract size as this would increase the accuracy of transactions to better
hedge or speculate their positions. On the contrary, the small contract size increased
trading costs, both the commission and fee which normally are calculated per contract.
Further, tick size (TICK) is measured from the movement of derivatives’ price floor.
A widened tick size would decrease the amount of traded prices, which causes easier
matching. On the other hand, derivatives’ age (AGE) is measured from amount of
years that derivatives have been traded on an exchange. The longer they have been on
the market, the more popular they are due to more information for decision making.
According to Waweru and Yu-Kyung (2013), first derivatives to be traded in the
financial derivatives market (DFIRST ) were well taken care of by the regulator as it
would be a starting point of derivatives market development. Another dummy variable
represents futures instruments (DFU), differing from options as these two instruments
have different characteristics.
Regarding data analysis, first step is selecting successful derivatives to find factors
that lead to success. Successful derivatives are those derivatives having high trad-
ing volume during past 3 years which implies the attractiveness to investors in using
derivatives for several purposes. Besides, derivatives with low trading volume imply
that they do not attract investors to trade. The derivatives firstly launched may take
times for investors to understand the product features, so 3-year trading data is appro-
priate to justify success of the derivatives (Black 1986; Corkish et al. 1997). Then,
in this study, data are categorized into four quartiles. Quartile 1 (Q1) is a group of
derivatives having least trading volume while Quartile 4 (Q4) is a group having highest
trading volume. Results are as follows:

Q1: Trading volume between 0 and 160,000 contracts a year.

Q2: Trading volume between 160,001 and 4,700,000 contracts a year.
Q3: Trading volume between 470,000,001 and 18,000,000 contracts a year.
Q4: Trading volume more than 18,000,000 contracts a year.

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Success Factors of Financial Derivatives Markets in Asia 77

Derivatives in Q4 are derivatives with highest trading volume during the past 3 years,
which can be considered as successful. Q1, Q2, and Q3 are derivatives that are not yet
successful and are used in quantitative analysis.
To study impacts of various variables to financial derivatives’ trading volume, a
variable showing success, panel regression is employed while Hausman’s specification
test is used to consider which model is to be applied along with test statistics from
Schwarz information criterion showing the capability to predict out of samples of
the model. Further, the robustness check is also performed using white test to solve
heteroscedasticity problem of the model.

4 Empirical Results

This study investigates the factors contributing to success in financial derivatives in

Asia comprising Thailand, Malaysia, Singapore, South Korea, Japan, and Hong Kong.
Statistics in Figs. 1 and 2 show financial derivatives’ trading volumes during 2007 and
2014 of the sample countries. It is found that Korea Exchange has the highest trading
volume in financial derivatives among the six countries, although trading volume has
shown a declining trend since 2012 from a regulation in speculation control. Other
markets show a small change in trading volume.
Table 1 shows descriptive statistics of variables used in the study. Data are on a
yearly basis categorized in each country’s order, which comprise the average, median,
maximum, minimum, standard deviation, skewness, kurtosis, number of futures con-
tracts, and number of options used as samples.

4.1 Financial Derivatives Products in Asia

Derivatives traded in the financial derivatives markets of the six countries are largely
different both in terms of the varieties of financial derivatives which investors can buy
and types of financial derivatives that receive popularity in the market. There are six
products in Thai financial derivatives market. Four of which are those that underlie
SET50 Index Futures Index, SET50 Index Option, Sector Index Futures, and Single
Stock Futures. Another group consists of those that underlie interest rate futures and
USD futures. According to Table 2 showing number of contracts traded in the Thai
financial derivatives market and Table 3 showing open interests of Thai financial
derivatives during 2008 and 2013, overall, trading volume of financial derivatives
and open interests of Thai derivatives market have highly increased. In 2008, total
trading volume in the market was only 2,148,620 contracts while in 2013, it increased
7.75 times. Similar to the trading volume, the open interests during the same period
increased 14.98 times.
Derivatives products which have high trading volume and open interests are those
in SET50 Index Futures and Single Stock Futures. Products which have decent trading
volume and open interests are those in USD futures and SET50 index options while
products which have low trading volume are in sector index futures and interest rate
futures with amounts of contracts not exceeding 500 a year and no open interests.
SET50 Index Futures were the most popular in 2008, contributing more than 95%

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 Table 1 Descriptive statistics. Source: Datastream
78

Country Mean Median Max Min SD Skewness Kurtosis

123
Thailand DVolume (mn) 1.85 0.67 6.71 0.01 2.17 0.92 − 0.13
Futures 1 SSIZE (US dollar) 99,203.50 110,708.30 215,440.06 – 85,723.64 0.01 − 1.75
Options 1 SVOL 0.22 0.21 0.38 0.14 0.07 0.86 0.6
SLQ 0.76 0.72 0.97 0.54 0.14 0.09 − 1.35
CS (US dollar) 17.07 6.59 33.21 5.80 12.38 0.27 − 2.17
TICK (US dollar) 1.43 0.34 3.32 0.06 1.49 0.24 − 2.17
AGE (year) 4.50 4.50 8.00 1.00 2.29 – − 1.24
Malaysia DVolume (mn) 1.10 0.80 3.17 – 1.06 0.54 − 1.2
Futures 1 SSIZE (US dollar) 188,667.73 175,128.18 335,422.62 50,620.57 90,452.38 0.09 − 1.3
Options 1 SVOL 0.16 0.11 0.60 0.07 0.12 2.55 7.61
SLQ 0.25 0.25 0.41 0.14 0.06 0.42 1.38
CS (US dollar) 14.47 14.43 16.35 12.85 1.23 0.23 − 1.47
TICK (US dollar) 5.62 6.58 8.17 1.44 2.48 − 1.01 − 0.8
AGE (year) 9.30 8.00 19.00 2.00 5.16 0.42 − 1.11
Singapore DVolume (mn) 0.00 0.00 0.01 0.00 0.00 2.42 7.15
Futures 2 SSIZE (US dollar) 0.10 0.06 0.23 0.02 0.09 0.3 − 1.91
Options 0 SVOL 0.20 0.19 0.45 0.08 0.09 1.17 2.03
SLQ 0.47 0.20 1.33 0.13 0.39 0.95 − 0.38
CS (US dollar) 7.50 7.50 10.00 5.00 2.50 0 − 2.27
TICK (US dollar) 16.22 10.00 25.00 2.00 8.05 0.04 − 1.8
AGE (year) 7.50 7.50 14.00 1.00 3.59 – − 0.65
South Korea DVolume (mn) 976.51 83.79 3671.66 0.66 1255.27 0.87 − 0.86
Futures 1 SSIZE (US dollar) 493,489.06 391,526.52 973,291.95 39,202.25 309,832.42 0.16 − 1.53
Options 1 SVOL 0.26 0.25 0.54 0.11 0.11 0.63 − 0.32
T. Sittisawad, P. Sukcharoensin
 Table 1 continued

Country Mean Median Max Min SD Skewness Kurtosis

SLQ 1.28 1.33 2.01 0.45 0.36 − 0.35 − 0.39

CS (US dollar) 449.27 436.53 592.28 353.31 53.78 0.66 0.19
TICK (US dollar) 22.46 21.83 29.61 17.67 2.69 0.66 0.19
AGE (year) 10.18 10.00 18.00 1.00 4.87 − 0.08 − 1.09
Japan DVolume (mn) 8.13 7.15 28.79 0.00 8.30 0.84 − 0.21
Futures 1 SSIZE (US dollar) 21,581.52 21,226.80 30,979.62 12,490.34 5385.28 0.1 − 0.81
Options 1 SVOL 0.22 0.22 0.45 0.09 0.07 1.33 3.35
SLQ 0.15 0.15 0.20 0.11 0.02 0.43 − 0.12
CS (US dollar) 46.53 11.33 128.92 7.61 44.82 0.51 − 1.6
TICK (US dollar) 0.10 0.09 0.13 0.08 0.01 0.76 − 0.32
AGE (year) 15.15 16.00 26.00 1.00 6.87 − 0.36 − 0.81
Hong Kong DVolume (mn) 5.20 2.32 23.03 0.01 5.91 1.42 1.35
Success Factors of Financial Derivatives Markets in Asia

Futures 4 SSIZE (US dollar) 700,790.47 550,374.13 1,790,123.68 – 547,661.46 0.75 − 0.69
Options 2 SVOL 0.24 0.21 0.63 0.11 0.11 1.49 2.4
SLQ 0.66 0.68 1.49 0.14 0.31 0.73 0.22
CS (US dollar) 4.74 6.43 6.47 – 2.44 − 0.75 − 1.43
TICK (US dollar) 4.74 6.43 6.47 – 2.44 − 0.75 − 1.43
AGE (year) 9.59 8.00 28.00 1.00 6.77 0.84 − 0.01

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Table 2 Trading volume of derivatives in Thailand during 2008–2013. Source: TFEX Annual Report, 2013

Year SET50 Index SET50 Index Single Stock USD futures Total
futures options futures

2008 2,099,098 45,684 3838 2,148,620

2009 2,522,465 95,504 145,758 3,075,318
2010 2,471,302 107,317 969,353 4,519,436
2011 4,316,437 107,993 1,578,092 10,027,116
2012 4,034,460 54,057 2,168,037 396,138 10,457,928
2013 5,688,404 65,409 8,415,967 239,345 16,664,126

Table 3 Open interests of derivatives in Thailand during 2008–2013. Source: TFEX Annual Report, 2013

Year SET50 Index SET50 Index Single Stock USD futures Total
Futures Options Futures

2008 22,096 473 178 22,747

2009 18,961 302 3337 28,281
2010 25,553 797 35,356 77,955
2011 22,421 955 9514 56,452
2012 36,920 1569 154,366 12,065 238,981
2013 37,496 1640 282,282 5622 340,778

of the market volume, and saw higher trading volume and open interests afterwards.
However, since 2013, the most popular product is Single Stock Futures with a sharp
increase in trading volume and open interests.
From Table 4 showing the number of financial derivatives contracts traded in
Malaysia since 2008–2013, overall, trading volumes of financial derivatives in
Malaysia has not highly increased, a growth of 22.6% during 5 years of study. The
derivatives products with high trading volume are in FTSE Bursa Malaysia KLCI
futures (FKLI) followed by 3-month KLIBOR futures, showing only two products
with acceptable volume. This might be from religious restrictions. Moreover, the most
popular products are derivatives having commodities as underlying assets such as palm
oil or gold. By this fact, other financial derivatives rather than those in FKLI cannot
attract investors.
Table 5 shows open interests of derivatives in Malaysia during 2009–2013 where
palm oil futures have the largest open interests, more than 70 percent of total market.
For financial derivatives, there is only FTSE KLCI futures which have continually
increasing open interests while those of others are decreasing.
In Singapore Derivatives Market, there are five products which are equity index
products, dividend index products, foreign exchange products, interest rates products,
and commodities. Most of the derivatives products have foreign market indices as
underlying assets. From Table 6, it shows the most popular product in 2013 is Japan
Nikkei 225 futures which has very high trading value while the second highest is
China A50 futures. The MSCI Taiwan futures and the India Nifty futures rank third

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Success Factors of Financial Derivatives Markets in Asia 81

Table 4 Trading volume of derivatives in Malaysia during 2009–2013. Source: Bursa Malaysia Annual
Report, 2013

Year FKLI 3-month Gold futures 1 Other products Total

KLIBOR (OCPO2 and
futures OKLI3)

2009 2,000,000 126,690 – – 2,126,690

2010 2,000,000 95,477 – – 2,095,477
2011 2,500,000 92,775 – – 2,592,775
2012 2,100,000 50,946 – 6314 2,157,260
2013 2,700,000 16,791 24,253 7831 2,748,875

Table 5 Open interests of derivatives in Malaysia during 2009–2013. Source: Bursa Malaysia Annual
Report, 2013

Year Crude palm oil FBM KLCI Others Total

futures (FCPO) futures (FKLI)

2009 76,366 14,827 31,948 123,141

2010 88,544 21,837 21,770 132,151
2011 112,720 23,505 16,194 152,419
2012 173,649 30,550 9866 214,065
2013 151,486 40,473 4534 196,493

Table 6 Trading volume of derivatives in Singapore during 2009–2013. Source: www.sgx.com

Year Japan Nikkei 225 MSCI Taiwan China A50 futures India Nifty futures
futures futures

2009 27,590 15,932 – 8749

2010 29,228 15,926 1773 12,592
2011 28,862 17,810 5617 14,973
2012 37,040 17,544 16,839 15,203
2013 28,276 17,806 24,424 17,156

and fourth in trading values, respectively where the increasing trend can be observed
since 2009.
The financial derivatives products in South Korea can be separated into three groups
namely derivatives underlying in equity, in interest rates, and in exchange rate. Tables 7
and 8 show trading volume and open interests of financial derivatives in South Korea
during 2008–2012, respectively. Financial derivatives shown in the table are those with
high trading volume. Overall, trading volume and open interests of financial derivatives
in South Korea market have increased, but in 2012 trading volume declined from the
regulation to control market speculation in KOSPI200 options, which have the highest
trading volume in the world or more than 95% of total market trading volume. This
has clearly impacted the trading volume and open interests to decrease while other

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Table 7 Trading volume of derivatives in South Korea during 2008–2012. Source: eng.krx.co.kr

Year KOSPI200 3-year KTB USD futures KOSPI200 Total

futures futures options

2008 66,433,767 15,910,800 6,658,144 2,766,474,404 2,855,477,115

2009 83,117,030 20,050,788 41,161,819 2,920,990,655 3,065,320,292
2010 86,762,976 27,863,654 65,693,568 3,525,898,562 3,706,218,760
2011 87,274,461 34,140,210 70,212,467 3,671,662,258 3,863,289,396
2012 62,430,640 29,728,075 53,549,300 1,575,394,249 1,721,102,264

Table 8 Open interests of derivatives in South Korea during 2008–2012. Source: eng.krx.co.kr

Year KOSPI200 3-year KTB USD futures KOSPI200 Total

futures futures options

2008 97,940 125,125 151,591 2,709,692 3,084,348

2009 106,151 140,381 914,825 3,271,808 4,433,165
2010 105,097 146,758 825,555 4,095,555 5,172,965
2011 81,702 202,901 587,673 2,303,903 3,176,179
2012 112,812 207,504 714,092 662,967 1,697,375

Table 9 Trading volume of derivatives in Japan during 2011–2013. Source: www. tfx.co.jp

Year Nikkei 225 futures TOPIX futures Nikkei 225 options 10 year JGB
futures

2011 29,371,654 14,228,547 4,630,065 7,209,562

2012 37,506,240 16,710,007 5,767,127 9,481,403
2013 53,561,632 23,102,699 9,789,980 8,568,919

types of derivatives in KOSPI200 futures, 3-year KTB futures, and USD futures have
higher open interests.
In Japan, there are six types of financial derivatives products which are 3-month
Euroyen futures, options on 3-month Euroyen Futures, 6-month Euroyen LIBOR
futures, over-night call rate futures, exchange forex margin contract, and exchange
equity index margin contracts. From Table 9, the most popular products in the Japanese
market is exchange forex margin contracts although trading volume since 2011–2013
has been declining. Others popular products in TFX are exchange equity index mar-
gin contracts and interest rate futures contracts, respectively, which saw an increasing
trend of trading volume during 2011 and 2013. However, the volume is still small
compared with the exchange forex margin contracts.
Last, the Hong Kong financial derivatives market has five types of products traded
in the market which are equity index products, equity products, currency products,
interest rate and fixed income products, commodities products, and gold futures. From
Table 10, the most popular product is H-Shares index futures which continuously has
an increasing trend, followed by Hang Seng index futures, which was once the most

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Success Factors of Financial Derivatives Markets in Asia 83

Table 10 Trading volume of derivatives in Hong Kong during 2009–2013. Source: www.hkex.com.hk

Year Hang Seng index Mini Hang Seng H-Shares index Mini H-Shares
futures index futures futures index futures

2009 21,031,085 8,300,654 12,429,800 992,224

2010 23,085,833 10,294,537 15,003,870 1,845,116
2011 20,353,069 8,545,847 15,923,813 1,560,515
2012 19,580,330 7,853,800 20,871,257 2,252,621
2013 17,067,247 6,959,838 21,984,297 2,038,841

Table 11 Open interests of derivatives in Hong Kong during 2009–2013. Source: www.hkex.com.hk

Year Hang Seng index Mini Hang Seng H-Shares index Mini H-Shares
futures index futures futures index futures

2009 88,816 7359 94,734 1867

2010 86,409 5129 106,277 1520
2011 139,344 6638 181,909 2276
2012 107,304 5835 217,646 3608
2013 99,195 7472 259,173 3588

traded product in Hong Kong since 2009–2010 but saw a declining trend in 2011–2013.
Table 11 shows open interests of derivatives in Hong Kong which is in line with the
trading volume.

4.2 Success Factor Analysis

From the aforementioned data separated by trading volume, derivatives in Q4 have

the highest trading volume showing the success to attract investors to use derivatives
in various objectives. Results of value estimation from the success model using panel
regression are shown in Table 12.
According to the results from three types of value estimations using panel regres-
sion, it is found that the value estimation from Pooled OLS Model was the most
suitable considering both Hausman test and the comparison of the lowest SIC. Under-
lying asset characteristics both the size and liquidity positively affected the trading
volume of successful financial derivatives with 95% statistical confidence. This shows
the importance of the size and liquidity of the underlying asset market in attracting
investors to trade derivatives in order to hedge the risk, increase profitability gearing,
or even arbitrage their positions. Consequently, this increased the financial derivatives
trading volume. On the other hand, volatility in the price of underlying assets nega-
tively affected trading volume. As investors still see price stability as highly important,
the high volatility in price might harm investors especially in case of using derivatives’
gearing to speculate.

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Table 12 Empirical results of

Variables Success sample Non-success sample
factors determining success of
derivatives Constant − 1.7942 − 6.1534**
(− 0.4179) (− 1.8116)
Log (spot market size) 0.9230*** 0.5711***
(4.7550) (4.7099)
Spot price volatility − 2.1450*** 2.2342
(− 2.2307) (1.1216)
Spot market liquidity 1.1890*** 2.2066***
(4.0982) (2.3596)
Contract size 0.0253*** − 0.0092
(6.4619) (− 1.0527)
Tick size − 0.6314*** 0.1480***
(− 6.4932) (2.2261)
Age 0.0042 0.1617***
(0.1864) (2.5930)
Dummy(futures) − 3.4709*** 1.7790***
(− 14.6860) (2.6441)
Dummy(first) − 0.1201 0.6271
(− 0.4669) (0.6567)
Adjusted R-squared 0.9386 0.7699
** and *** denote significance Akaike info criterion 1.6892 –
levels at 0.05 and 0.01
respectively Schwarz criterion 1.9854 –

Characteristics of financial derivatives contracts that were statistically significant

were as follows. The contract size positively affected while the tick size had a reverse
relationship with trading volume. For dummy variables used to test qualitative charac-
teristics that affect the trading volume of financial derivatives, there was only futures
dummy that was statistically significant with a negative coefficient. This is due to the
higher amount of initial collateral investment in futures contract than the investment
in options which needs only premium causing lower trading volume in futures than in
options with the same underlying asset.
From the data separated by trading volume, derivatives in Q1 to Q3 had lower
trading volume than those in Q4 showing failure to attract investors to use derivatives
for various objectives. An interesting point is whether the factors that affect trading
volume are the same or different from the successful derivatives. Results from value
estimation by panel regression are shown in Table 12 showing that the random effect
model was the most proper.
Price volatility of underlying assets and contract size did not affect the increase
in trading volumes of derivatives in this group, unlike the results from the successful
derivatives. Also, it is found that age of derivatives affected the trading volume, a result
unseen in the successful case. Tick size also showed a positive relationship with trading
volume, opposite to those in successful case. Moreover, derivatives which were futures
had positive coefficients due to the complication of the options financial derivatives,
causing more popularity in futures than in options with the same underlying assets.

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Success Factors of Financial Derivatives Markets in Asia 85

This is contrasting with the successful case where lower cost of options supported
them to be successful.

5 Conclusion and Discussion

The establishment of the AEC will bring the same market and supply base to member
countries both in products and services and in capital market. This will make countries
in Asia become more involved in global economy. Currently, many sectors have ini-
tiated collaborations to combine capital markets to draw investments; however, with
differences in level of development in each market, different levels of efficiency to
attract investors to invest were seen. Therefore, the development of capital market
efficiency is an important issue where a development in financial derivatives market
is a channel to move the entire capital market forward.
This research studies factors that lead to success in financial derivatives in six
Asian countries namely Thailand, Malaysia, Singapore, South Korea, Japan, and Hong
Kong. A model was developed to analyze important factors contributing to success
in financial derivatives traded in the market. The meaning of success in financial
derivatives in this study is defined by categorizing derivatives into four quartiles with
the lowest trading volume during the past 3 years categorized in Q1. Derivatives with
higher volume were categorized in Q2 and Q3 while Q4 were those with highest
trading volume and considered as successful financial derivatives. Factors to analyze
the success in financial derivatives covered both qualitative and quantitative factors
outlined in previous studies. Then, the contribution of this study is to apply both logit
and panel regression in the estimation to explore the relationships between variables.
To investigate variables that affect the trading volume of financial derivatives, sev-
eral characteristics of both successful and unsuccessful financial derivatives were used.
It is found that for the successful group, the market size, price volatility, and liquidity
of the underlying asset market caused an increase in trading volume. On the other
hand, price volatility and contract size did not affect an increase in trading volume
of those unsuccessful financial derivatives while the age of derivatives was found to
affect the trading volume, unlike those in successful derivatives. Apart from that, the
small tick size and the fact of being options derivatives increased the trading volume
in the successful group unlike those unsuccessful derivatives where futures derivatives
supported the trading volume.
From the empirical analysis, it is found that financial derivatives products in sam-
ple countries that were popular and brought about the success were those futures
derivatives with their indices as the underlying assets. This is due to its simplicity
to understand and investors were familiar with those underlying assets. However, in
some countries such as South Korea, investors preferred to trade options. In Thailand,
Single Stock Futures were the most popular. However, in terms of hedging, it is better
to use derivatives with stock index as its underlying asset as a tool than derivatives
with a single stock as its underlying asset.
So, there are various policy implications from this study. The development of stock
indices derivatives can enhance trading volumes which lead to success of financial
derivatives markets. Also, more understanding in options is needed as this would
promote higher trading volume while appropriate derivatives’ contract size should be

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more concerned. Further, the result implies that price volatility of an underlying asset
has positive impact on success of derivatives. This is because of derivatives features
as risk management tools. Then, when launching the regulation to control the price
volatility of financial assets, the regulators should consider the stability of capital
markets along with the success of derivatives markets.

Acknowledgement Funding was provided by National Research Council of Thailand.

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