“Determinants of the successful single stock futures market in Thailand”

Thailand’s Single Stock Futures market has grown recently over the last ten years, evidenced by its 8th place in top 10 exchanges in the world by number of single stock futures traded in 2021. Since the main goal of any futures exchange is to list a successful contact, it is important to demonstrate the determinants of the success of Single Stock Futures. This study uses the sample consisting of 89 companies, on which stocks are underlying for Single Stock Futures in the period between January 2017 and December 2021, and finds that the best fitting method in modelling determinants of the success of Single Stock Futures is the fixed effects model. As expected, the results confirm the existence of a positive relationship between characteristics of underlying stock, including size, volatility, and liquidity, and the successful futures contract. Furthermore, the findings show the negative effects of the first year of contract trading and the tightened daily price limit of Single Stock Futures in response to the COVID-19 pandemic situation on contract success.


INTRODUCTION
Asia-Pacific is currently the world's largest region for derivatives trading, accounting for 47.4% of the global market share in 2021.Although Thailand has faced a strong dented global economy from the impact of COVID-19 pandemic, Thailand Futures Exchange (TFEX) as the only organized derivatives exchange in Thailand saw record high volumes of derivatives trading in both 2020 and 2021.The continuous growth of TFEX's total trading volume was evidenced by its improved world ranking from 26 th in 2019 to 25 th in 2020.TFEX attained the same ranking position as last year on the 2021 list of the top derivatives exchanges worldwide.TFEX was also ranked 8 th in terms of single stock futures trading volume in WFE Derivatives Report 2021 published by the World Federation of Exchanges (2022).To better match investor needs, TFEX continues to introduce new products and adds new underlying stocks for Single Stock Futures.Equity derivatives contract provides short selling possibility, and its success plays a useful role in reducing transaction costs (Zeckhauser & Niederhoffer, 1983).However, there is a chance that new products become unsuccessful after introduction.According to Westerholm and Ahmed (2013), "at the end of 2007 the Australian Securities Exchange decided to cease trading in individual stock futures, due to lack of interest and the availability of alternative products such as low exercise price options, contracts for difference and warrants" (p.4).Other failed futures contracts are also discussed in prior studies (see, e.g., Johnston & McConnell, 1989;

LITERATURE REVIEW AND HYPOTHESES
Trading volume is a best-known proxy for the success of futures contracts.There is a lot of success criteria suggested by researchers.Sandor (1973) studies plywood futures contract and suggests the annual trading volume of 1,000 contracts as a cutoff point to identify the successful contract.On the other hand, Silber (1981) defines a contract as a successful contract when its annual volume exceeds 10,000 contracts.Dew (1981) introduces 10,000 contracts per day as a criterion for contract success.However, the daily trading volume of 1,000 contracts is suggested by Carlton (1984) to distinguish successful contracts from unsuccessful ones.Considering monthly trading volume, Holder et al. (1999) define contract success when its volume exceeds 10,000 contracts per month.Instead of a single threshold defining contract success, Gorham and Kundu (2012) use trading volume in the fifth year and create four categories of success: "highly successful -greater than 1 million contracts, successful -between 100,000 to 1 million contracts, moderately successful -between 0 and 100,000 contracts, and dead -zero contracts" (p.126).However, rather than using an arbitrary cutoff point to identify contract success, this study adapts trading volume as a continuous measure of contract success, following previous studies by Black (1986) Previous literature investigates the success or failure of derivatives contract and provides several factors influencing contract success.To verify whether a futures contract succeeds or fails, many studies (Gray, 1966;Till, 2015) focus on three elements: (1) demand for hedging; (2) use of speculation; and (3) role of government.According to Cuny (1993), "a successful futures market displays two qualities: a contract providing hedgers with a high-quality (low-residual-risk) hedge and a liquid market" (p.58).Brodsky (1994) shows that the main reason for using equity derivatives is hedg-ing market risk, followed by income enhancement and asset allocation respectively.However, While many studies focus on the success or failure of agricultural futures contracts, there is limited academic research on equity derivatives product success.Table 1 summarizes some studies on determinants of equity derivatives product success.
From Table 1, trading volume is usually used as a dependent variable.The independent variables can be classified into two groups: 1. Characteristics of underlying market: Size of underlying market, volatility of underlying market, and liquidity of underlying market are positively related to the successful contracts.

METHOD
The data used in this study come from SETSMART for the period from January 2017 to December 2021.( ) where where K is the number of independent variables.

RESULTS
This section presents a brief overview of the Single Stock Futures market in Thailand and estimation results for determinants of the successful Single Stock Futures market in Thailand    All methods show the p-value associated with F-statistic equal to 0.0000 meaning that we can reject the null hypothesis that all of the regression coefficients are equal to zero at the 0.01 level.However, the appropriate model can be chosen by conducting Chow test and Hausman test.
Chow test for poolability of the data yields an observed F-value of 119.9472 which is distributed as F (88, 5240).Its P-value is 0.0000 indicating that we can reject the null hypothesis at the 1% level of significance.FE is better than POLS.The resulting Hausman test also confirms that FE is most appropriately used in estimating panel data due to an observed λ statistic of 45.82769 which is significant at the 1% level.RE estimators become biased and inconsistent, but FE estimators are unbiased and consistent.

CONCLUSION
The majority of past studies focus on the success or failure of agricultural futures.This study adds to the existing literature on equity derivatives success by analyzing what determines the success of the Single Stock Futures market in Thailand.Like most previous literature, characteristics of the underlying market, including size, volatility, and liquidity, have a positive impact on contract success.Two dummy variables for characteristics of futures market, one for Single Stock Futures trading in its first year and another for the period in which TFEX applied the tightened daily price limit of Single Stock Futures in response to the COVID-19 pandemic situation, are negatively related to contract success.Therefore, to promote stock futures trading, organized futures exchanges, including TFEX, should consider characteristics of underlying assets such as size, volatility, and liquidity when selecting new underlying stocks.Stock futures should consist of the underlying share with large market size, higher volatility, and thicker liquidity.Organized futures exchanges should also conduct public relations activities and waive the commission levy of the new contracts for the first year upon the commencement of trading to attract more investors.Different futures contracts should have the different adjustment of daily price limit to mitigate market disturbance.The results could help policymakers and organized futures exchanges by increasing their information regarding the negative effect of the tightened daily price limit on trading activity and thus support them to implement the rule effectively.
As a subject for further research work, it would be useful to make a comparison of factors affecting the successful futures contracts with underlying stocks across sectors.Another question that remains unresolved is why SET50 Index Options as the only options contract in TFEX is not successful.This issue needs to be resolved to aim for the development of single stock options market in Thailand, which can provide additional opportunities to manage risk and enhance returns.

Figure 1 .
Figure 1.Average daily trading volume comparison between new contracts and others

Table 1 .
Summary of previous literature on determinants of equity derivative product success TFEX currently provides 128 underlying stocks for Single Stock Futures; however, this study uses the sample consisting of 89 companies on which stocks are underlying for Single Stock Futures over the entire period 2017-2021.Following previous literature, trading volume of Single Stock Futures http://dx.doi.org/10.21511/imfi.19(2).2022.24ν νσ All independent variables are uncorrelated with it ν for all i and t.

Table 2 .
List and measurement of variables Based on the dates when TFEX added new underlying stocks on Single Stock Futures, a contract is assigned a value of one if it is traded in its first year and zero otherwiseCOVID-19 pandemic situation (COVID)A contract is assigned a value of one during the period when there is the tightened daily price limit of Single Stock Futures due to the COVID-19 pandemic situation and zero otherwise 24)p://dx.doi.org/10.21511/imfi.19(2).2022.24 RRSS is restricted residual sums of squares obtained by applying POLS, and URSS is unrestricted residual sums of squares obtained by applying FE.If the null hypothesis is rejected, FE is more appropriate than POLS in estimating panel data.

Table 3 .
Total yearly trading volume and open interest of Single Stock Futures

Table 4 .
Date of issuance and number of new underlying stocks (2)p://dx.doi.org/10.21511/imfi.19(2).2022.24Note:Contract is defined as a new contract in the year it was issued.

Table 6 .
Panel regression model resultsNote: *** denotes statistical significance at the 1% level.Please refer to Appendix A for the fixed parameters estimation in FE.

Table 7 .
Comparison of standard error estimates for FE regression The t-statistics (in parentheses) are based on standard error estimates obtained from the covariance matrix estimators in the column headings.**and***Coefficients are statistically significant at the 5% and 1% level, respectively.istics of the Single Stock Futures market, including the first year of contract trading and the tightened daily price limit in response to COVID-19 pandemic situation, are negatively related to the success of Single Stock Futures.The results in Table7show negative and significant coefficients of both FIRST and COVID, thereby supporting H2. the first year of trading, since Single Stock Futures that has been available on the market longer may receive more investors' attention.Although daily price limit is viewed as a market stabilization mechanism, this finding raises some concern about the negative effect of the tightened daily price limit on trading volume of Single Stock Futures. Note: