To trade in derivatives, retail and institutional investors often go through an exchange. Exchanges offer a large range of services from trading platforms to connectivity and market data; they serve as a crucial intermediary between traders both from the buy and sell side.
Regulated Exchanges offer the advantage of safe trading transactions and clearing while unregulated exchanges negate consumer protection which may pose a risk to users. To understand more about the benefits of trading with either exchange, here are 4 things to know about exchanges.
1. Regulated Exchanges are overseen by Local Jurisdiction Entities
Regulated Exchanges occupy a large segment of the financial markets and are fundamental for the trade of commodities such as iron ore, gold, or soybean. Depending on the country of origin, these exchanges are required to possess relevant licenses and are subjected to audits.
Some of the key functions of an exchange include:
- Establishing market prices for assets by facilitating trades between buyers and sellers
- Providing liquidity to the markets by offering a range of easily traded products.
- Display transparency by displaying market prices and trade volumes in real-time
- Provide regulatory frameworks for trading procedures, clearing, and settlement services.
To ensure that the above key functions are in accordance with local regulations, regulatory bodies often keep a close eye on breaches and are responsible for publishing notices weekly, monthly, or annually. The following are some of these organisations:
- In the United States, exchanges are overseen by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
- In Europe, exchanges are regulated by the European Securities and Markets Authority (ESMA) and national regulators such as the Financial Conduct Authority (FCA) in the UK, the Autorité des marchés financiers (AMF) in France, and the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany.
- In Asia, exchanges are regulated by various regulatory bodies such as the Japan Financial Services Agency (FSA), the Hong Kong Securities and Futures Commission (SFC), and the Monetary Authority of Singapore (MAS).
These regulatory bodies ensure that exchanges operate in a fair and transparent manner, protect investors, and maintain market stability. They enforce regulations such as financial reporting requirements, trading rules, and investor protection measures.
2. Regulated Exchange Incentive Schemes
Regulated Exchanges often offer a range of incentive schemes to cater to both large-volume trades and single transactions. The following are some of the most recent product launches from some of these exchanges and the related incentives:
CME
CME has implemented a fee incentive scheme to support the launch of USD/CNH options on 3 April 2023. The incentives are:
- An exchange wee waiver on Globex Trading till 30th Sep 2023 for all members and non-members,
- Inclusion of USD/CNH Options into the large incentive trading program.
- Market makers meeting quoting obligations will receive credits on all Globex-traded USD/CNH FX Options and Fee waivers on trades in the underlying USD/CNH futures.
3. Memberships and Listed Products
Memberships
With regulated exchanges, brokerage that are part of their memberships will enjoy direct connectivity and low settlement risks. For certain exchanges, there will also be lesser trading fees.
Currently, Orient Futures Singapore is a member of Singapore Exchange (SGX-DT Derivatives Trading and SGC-DC Derivatives Clearing), Asia Pacific Exchange, and Intercontinental Exchange Singapore.
At the same time, the firm also serves as an overseas intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE). Through the unique positioning of Orient Futures Singapore, clients entering the Asian markets will enjoy seamless trading, clearing and settlement. These Chinese markets will also enable cross-border hedging opportunities and price discovery.
Orient Futures Singapore also provided access to the B3 Exchange for traders starting from August 2023.
Furthermore, with these memberships between regulated exchanges and brokerages, clients availing of the firms’ services will also be able to enjoy fast onboarding and trade in volume without delay.
Lastly, through the exchange or firm, clients will also gain first-hand information to both exchange product releases and market information such as real-time quotes and trade data.
4. Unregulated Exchanges are primarily from Digital Currencies
Unregulated exchanges are cryptocurrency exchanges that are not subject to the same regulatory requirements as traditional exchanges. Here are some types of unregulated exchanges:
- Decentralized exchanges (DEX): These are platforms that allow for the exchange of cryptocurrencies without the need for a central authority or middleman. They are typically based on blockchain technology and operate through smart contracts.
- Peer-to-peer (P2P) exchanges: These are platforms that enable users to trade cryptocurrencies directly with each other, without the need for an intermediary. The transactions are usually facilitated through an escrow system to ensure security.
- Offshore exchanges: These are exchanges that operate outside of the jurisdiction of any particular country or regulatory body. They may be located in tax havens or other countries with more relaxed regulatory frameworks.
- Darknet markets: These are online marketplaces that operate on the dark web and allow for the anonymous buying and selling of goods and services, including cryptocurrencies.
It's important to note that unregulated exchanges may pose risks to users, including lack of consumer protection, potential for fraud or hacking, and the possibility of money laundering or other illegal activities.
Start Trading With Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us.
We provide bespoke services to our professional clients, tailored to their corporate and individual needs. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.