Futures Research

Overview

The Futures Industry Research Centre commenced activities in January 2006. The Centre executes research in two main areas.

First, the macroeconomic context and relevance of the futures industry.

Second, the performance and efficiency of the Australian futures industry against other nations with the potential to highlight opportunities for improvement.

The research is directed by Professor Alex Frino from the University of Sydney, who is a recognised international expert in the area of derivatives market microstructure.

The Centre is funded through excess money in the Sydney Futures Exchange Limited Fidelity Fund. This funding has been approved by Federal Treasury under Corporations Regulation 7.5.88(2) which allows excess money in fidelity funds to be used by a licensed market operator to create a "program for the development of the financial industry" which is "conducted primarily for the public benefit" provided that the relevant Minister (Parliamentary Secretary to the Treasurer) approves the intended use as an approved purpose.).

Objectives
Current & Future Research Programmes
Impact on Industry
Partnerships
People
Working Paper Series

Search Database for Futures Research

Objectives

Improve the performance of Australia's and the region's futures markets by directing, conducting and presenting research into the microstructure and operation of these markets
Foster a highly skilled and responsive research resource consisting of data, personnel and computing power to lead industry and university research programmes
Provide applied research and consulting to industry participants, designed to improve the level and quality of service delivered to their clients

Current & Future Research Programmes

The impact of pre-negotiated trading on transaction costs: Evidence from
the Sydney Futures Exchange.
A re-examination of the weak-form market efficiency hypothesis in futures
markets: Tests based on technical trading rules.
A comparison of execution costs in portfolio trades and single-line
off-market transactions.
Determinants of the cost of executing transactions in futures markets.
Intraday and intranight patterns in liquidity in futures markets: A
re-examination.

Impact on Industry

Automation
The Futures Research program has pursued research concerning the market efficiency of automated markets and the effect of automation on market efficiency since its inception. Projects completed focussing on international markets include analysis of the liquidity of German Bund futures traded on both the London International Financial Futures Exchange (LIFFE) and the Deutsche Terminborse (DTB). In addition, analysis into institutional differences between automated trading systems utilises data from GLOBEX (the Chicago Mercantile Exchange's overnight market). Projects closer to home include analysis of the Sydney Futures Exchange's (SFE) overnight market, SYCOM, and the effect of US macroeconomic releases on this market. Finally, ongoing projects include analysis of the automation of the LIFFE, HKFE and the forthcoming automation of the SFE.

Local Traders
The Futures Research program has also undertaken analysis of the activities of local traders on the SFE. Projects completed indicate that locals on the SFE do not participate exclusively as passive market participants but in fact are almost as likely to demand liquidity as supply it. In addition, projects examining the profitability of local traders on the SFE have decomposed local income into two central components; liquidity and position-taking profits. This analysis reveals that locals on the trading floor make significantly higher position-taking profits than locals in a screen-traded environment. In addition, this paper characterises locals as active informed traders.

How markets process information
Extensive research completed by the Futures Research program has examined the rates at which information is processed by futures and equities markets. By examining this issue, for the Australian market, as well as markets in Japan and Singapore, key factors have been identified which give exchanges a greater understanding of how to design derivative markets and contracts that process information faster and lead to a more efficient marketplace.

Pricing Efficiency
The Futures Research program is currently undertaking an extensive analysis of pricing efficiency and stock index arbitrage in futures markets around the world including the SFE (Australia), CME (US), CBOT (US), LIFFE (UK), HKFE (Hong Kong), SIMEX (Singapore), TSE (Japan) and OSE (Japan). This research is aimed at understanding the factors that lead to pricing errors in financial markets and how this affects market participants. Furthermore, it facilitates understanding of how factors such as market automation, contract specifications and index construction can influence the efficiency of prices.

Partnerships

The Futures Research program has established a core partnership with the SFE. The program is also working with the ASXD to establish a similar relationship.

People

	Andrew Lepone is a lecturer at the University of Sydney and is the Assisting Director of the Futures Market Research Centre. He holds a PhD in finance from the University of Sydney, and has a number of publications in academic journals. His research is primarily concerned with the microstructure of equity and derivates markets.
	Grant Wearin is a doctoral candidate at the University of Sydney. He holds a first class honours degree in finance from the University of Sydney, and has a number of publications in scholarly and professional journals. His research is primarily concerned with measuring and modelling the liquidity of electronic limit order books. Supervisor: Professor A. Frino, University of Sydney
	James Cummings is a doctoral candidate at the University of Sydney. He holds a Master of Commerce with Merit from the University of Sydney. His research is concerned with the structure of futures markets, the elasticity of transaction services and the effect of information on prices. Supervisor: Professor A. Frino, University of Sydney
	Angelo Aspris is a doctoral candidate at the University of Sydney. He holds a first class honours degree in Finance and Accounting from the University of Sydney. His research is primarily concerned with alternative trading platforms in derivatives markets. Supervisosr: A/Professor M. Briers, University of NSW; Professor A. Frino, University of Sydney
	Brad Wong is a doctoral candidate at the University of Sydney, undertaking research in the area of futures market microstructure. He holds a Bachelor of Commerce with Honours from the University of Sydney and in 2005, was the recipient of the Joye Prize in Finance, awarded to the most proficient student in fourth year honours. Supervisors: Professor G. Wang, George Mason University USA; Professor A. Frino, University of Sydney
	Jennifer Kruk is a doctoral candidate at the University of Sydney. She holds a First Class Honours Degree in Finance from the University of Sydney. Her research focuses on futures market microstructure, and primarily concerns measuring and modelling slippage costs. Supervisors: Professor M. McKenzie, RMIT; Professor A. Frino, University of Sydney

Working Paper Series