Trading Index Futures on the JPX Market- An Introduction to TOPIX and the N/T Ratio Trade -

December, 2013 Tokyo Stock Exchange

What is TOPIX?

1. Representative index of Japanese stock market 2. Includes all stocks listed on TSE 1st section

1,722 of the biggest, most liquid stocks

562 stocks

185 stocks

1st section

2nd section

Mothers882 stocks Jasdaq

3. Market capitalization-weighted index expressed in points

0

500

1000

1500

2000

2500

3000

Dec. 18, 1989: 2884.8 pts. Nov. 15, 2013: 1239.04 pts.

Jan. 1, 1968: 100 pts.

How is it different from the Nikkei?

11.9%

11.6%

10.4%

6.8%

5.6%5.0%4.5%

4.4%

4.4%

4.1%

31.3%

Other

16.8%

12.6%

11.0%

7.9%6.5%

6.1%

4.7%

4.6%

3.4%

3.2%

23.2%

Other

TOPIX: Nikkei 225:

1722 Market Value Weighted Stocks 225 Price Weighted Stocks

Tokyo Stock Exchange Nihon Keizai Shimbun

How do the methodology differences affect price movements?

Formula:

Big Movers: High market cap stocks (Toyota, MUFG, etc.) High price stocks (Fast Retailing, Kikkoman, etc.)

TOPIX Nikkei 225

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

0

200

400

600

800

1000

1200

1400

1600

1800

2000

11/21/2003 11/21/2004 11/21/2005 11/21/2006 11/21/2007 11/21/2008 11/21/2009 11/21/2010 11/21/2011 11/21/2012

TOPIX (Left Axis) Nikkei 225 (Right Axis)

Playing the difference between TOPIX and N225 : the N/T Ratio Trade

and/or+ N- T and/or

- N+ T

N/T N/T

Nikkei/TOPIX Ratio

8.00

8.50

9.00

9.50

10.00

10.50

11.00

11.50

12.00

12.50

11/21/2003 11/21/2004 11/21/2005 11/21/2006 11/21/2007 11/21/2008 11/21/2009 11/21/2010 11/21/2011 11/21/2012

Nov. 15, 2013: 12.24

TOPIX Futures (Large)

TOPIX Futures (Mini)

Nikkei 225 Futures (Large)

Nikkei 225 Futures (Mini)

9:00～11:3511:45～15:1516:30～23:30

9:00～11:3511:45～15:1516:30～23:30

9:00～15:1516:30～3:00

9:00～15:1516:30～3:00Trading Times

Index value×\10,000

（around \12.4M）

Index value×\1,000

（around \1.24M）

Index value×\1,000

（around \15.2M）

Index value×\100

（around \1.52M）Contract Size

0.5 points（\5,000）

0.25 points（\250）

10 yen（\10,000）

5 yen（\500）Tick Size

\360,000 \36,000 \480,000 \48,000Required Margin(as of Nov. 1, 2013)

How do I trade it?

A short primer on JPX Futures

Mar. 24, 2014

Trading the indices

I think that N/T’s going UP in November

Sell TOPIX Futures Buy Nikkei 225 Futures

Let’s walk through an example of an N/T trade:

Trading the indices

TOPIX Nikkei 225

Include Mini

\14,190,000Total Contract Size:

\30,000 difference is your total exposure to N225

However:

Large Contract Price (Nov.1) 1180 pts 14190 yen

Multiplier 10000 1000

Contract size (JPY) \11,800,000 \14,190,000

Mini Contract Price (Nov.1) 1180 pts

Multiplier 1000

# Contracts 2

\14,160,000

\2,360,000

\11,800,000

11.85

11.90

11.95

12.00

12.05

12.10

12.15

12.20

12.25

11/1

/201

3

11/2

/201

3

11/3

/201

3

11/4

/201

3

11/5

/201

3

11/6

/201

3

11/7

/201

3

11/8

/201

3

11/9

/201

3

11/1

0/20

13

11/1

1/20

13

11/1

2/20

13

11/1

3/20

13

11/1

4/20

13

11/1

5/20

13

11/1

6/20

13

11/1

7/20

13

11/1

8/20

13

11/1

9/20

13

11/2

0/20

13

N/T Ratio

13400

13600

13800

14000

14200

14400

14600

14800

15000

15200

15400

1140

1160

1180

1200

1220

1240

1260

TOPIX (Left Axis) Nikkei (Right Axis)

Trading the indices

Buy:1 Large N225 Sell:1 Large TPX 2 Mini TPX

Position November 1, 2013 November 20, 2013 Profit

Nikkei 225 Large (Long) \14,190,000 \15,100,000 + \910,000

TOPIX Large (Short) \11,800,000 \12,355,000 - \555,000

TOPIX Mini (Short) \2,360,000 \2,471,000 - \111,000

Total + \244,000

Sell:1 Large N225Buy:1 Large TPX 2 Mini TPX

How does it work out?

*Figures are for week of 10/28 to 11/1.**Margin calculated using SPAN. Actual margin required by broker may vary.

Trading the indices

BEFORE

1 TOPIX Large: \360,0002 TOPIX Mini: \72,000

1 Nikkei 225 Large: \480,000

AFTER

1 TOPIX Large (short): \360,0002 TOPIX Mini (short): \72,0001 Nikkei 225 (long): \480,000Margin discount: (- \705,980)

Margin savings of about \705,980 (77%) thanks to merger

Your potential returns increase by 92%

Total required margin: \912,000 Total required margin: \206,020

What about margins?

Characteristics of N/T ratio trade

Opportunities in all market environments

Advantages:

Risks:

Futures are leveraged products with inherently high risk

Take sector positions through products with deep liquidity, less idiosyncratic risk

Low required capital investment

Index constituents may change suddenly/significantly

How do I get started?

Contact a JPX trading participant:

A list is available on our website:

http://www.tse.or.jp/english/about/participants/index.html

Any other questions?

Contact us!

mkt-biz@jpx.co.jp

http://www.tse.or.jp/english/about/participants/index.html�mailto:mkt-biz@jpx.co.jp�mailto:mkt-biz@jpx.co.jp�mailto:mkt-biz@jpx.co.jp�

Disclaimer : The descriptions in this publication are intended solely for the purpose of providing information on futures andoptions. Losses may be incurred due to fluctuation of prices of futures and/or options, etc. and the entire deposited margin or a portion of such may be lost. Losses may also exceed the deposited margin. Investors must carefully review the documents provided by their financial services provider before trading futures and/or options, and must trade on their own responsibility based on their own judgment only after fully understanding the product qualities, the trading mechanism, relevant fees, the risk involved, etc. While every effort is taken to ensure the accuracy of the information contained in this publication, Japan Exchange Group, Inc. and its subsidiaries shall not guarantee and be liable for any damages caused by any errors or omissions in this publication. Japan Exchange Group, Inc. and its subsidiaries reserve the right to change the contents of this publication without prior notice.Copyright Ⓒ Japan Exchange Group, Inc. 2013 All rights reserved.

Trading Index Futures on the JPX Market�- An Introduction to TOPIX and the N/T Ratio Trade - What is TOPIX?How is it different from the Nikkei? How do the methodology differences affect price movements? Playing the difference between TOPIX and N225 : the N/T Ratio TradeHow do I trade it? Trading the indicesTrading the indicesTrading the indicesTrading the indicesCharacteristics of N/T ratio tradeHow do I get started? Slide Number 13