SGX Nikkei 225 Futures: Using The Trade-At-Index-Close Order Type

Equity index futures are one of the most liquid financial instruments in use globally and serve as an alternative to buying the securities in the underlying cash market. With different types of market participants trading index futures, bid-ask spreads are tight and there is liquidity on both sides of the order book.

The users of index futures include asset managers, hedge funds, high frequency traders, index arbitrage traders, delta one/ stock loan desks, volatility traders, ETF authorised participants, as well as retail speculators.

The Trade at Index Close (TAIC) functionality on the SGX Nikkei 225 index futures enables market participants to transact the Nikkei 225 index futures based on end of day prices of the underlying Nikkei 225 index. TAIC reduces the risk of trading index futures at the close while trying to match the closing print of the underlying cash index.

With most companies in Japan going ex-dividend on the same day but only paying out the cash dividend a few months later, the TAIC functionality is a valuable tool for market participants to reinvest the dividends back into the index via the index futures on ex-date and avoid cash drag and tracking error.