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. Last Updated: 07/27/2016

No Futures Shock in Hungary

BUDAPEST -- The Budapest Stock Exchange is about to celebrate the first anniversary of the launch of futures trading, which has been built up from scratch to an active market.


But the bourse is aware that there is scope for further growth.


"What I regard as the biggest achievement is that there are many market participants," said Nora Szeles, head of the exchange's market development department. "Many brokerages began to deal with futures deals."


The rising number of brokerages involved in futures meant an increasing clientele, including small investors.


"This could not be said a year ago," Szeles said. "The whole market was surrounded by skepticism.


"This totally disappeared, and I regard this as a breakthrough since a totally new thing was established here."


The Budapest Stock Exchange launched futures contracts March 31, 1995, for the BUX index, three-month discount T-bill, Deutsche mark and U.S. dollar. The European currency unit contract was added in November.


However, the Budapest bourse is still well behind the Budapest Commodity Exchange, which has an older and more active futures market.


In addition to offering agricultural contracts, the commodity exchange offers contracts for six currencies and for three-month deposit interest rates for up to 18 months.


University students are said to be active as small investors on the Budapest Stock Exchange, particularly in the BUX index. Szeles said the activity of small investors is appreciated because the Hungarian securities market is heavily institutionalized.


Despite the rising number of small investors, institutions remain the most active players in discount T-bills, although, Szeles added, their strong presence did not come as a surprise.


Some traders regard the currency futures as the most successful contracts, although they acknowledged this segment could have performed even better.


"The market was handicapped by the lack of activity of banks," said Istvan Revesz, trader at Gog Securities.


The Budapest Stock Exchange's futures market received a boost last November when new market-makers, bringing new clients, were chosen and new conditions were set. This required increased financial commitments from specialist market-makers and provided greater security to investors. Futures turnover totaled 14.90 billion forints ($102 million) in January and 8.53 billion in February, compared to 10.16 billion for all of 1995.


The futures market might receive a new impetus if new major domestic players appear and if, pending legal changes, foreigners are allowed into the market.


"It might help when share funds and pension funds appear, hedging the shares they have bought," Revesz said, adding that some of these groups of market players already exist.


The stock exchange is aware of the tasks ahead, Szeles said, adding that the bourse should pay more attention to educating the public about futures.


"This is inevitable from the point of view of the derivatives market," Szeles said.