Philadelphia Stock Exchange Woos Asians

The Philadelphia Stock Exchange has experienced sharp growth in foreign currency options trading since it pioneered the practice 4 1/2 years ago. Now it is courting new Asian business and predicting the best is yet to come.

“Our optimism on the future growth of the currency options market is difficult to restrain,” said exchange President Nicholas A. Giordano during a five-city Far East tour to publicize new trading hours designed to accommodate Asian businessmen.

The Philadelphia exchange, the first to offer trading in currency options in a listed environment, began modestly in December,1982, with trading only in British pounds.

Today it is handling a daily average of 45,000 contracts in seven currencies plus the European currency unit, with an underlying value of approximately $1.5 billion.

Giordano said open interest has exceeded 1 million contracts, approximating $30 billion. “This open interest statistic may be the most important of all. In 1986 alone, our open interest increased 300%.”

The response is not surprising to Giordano, who sees currency options trading as a natural outgrowth of the volatility of foreign exchange rates in the past few years.

Exchange officials take pains to counter the image of currency option trading as a highly speculative crap shoot, presenting it instead as a sort of insurance for businessmen who have to deal with foreign currencies.

For example, a businessman who knows he will have to purchase $500,000 of yen to complete a deal in six months can buy a “call option”--in effect pay a premium--that guarantees him the right to buy his yen at a given price.

If the yen goes up, he is protected by his option, and if the yen goes down, he can buy on the open market, reaping the benefit. In that case, his only loss is the wasted premium.

Similarly, purchasers can buy “put options” guaranteeing the right to sell a currency at a given price. Investors choosing to sell or “write” options earn a high return on their money through the premiums in exchange for taking the risk of a sudden swing in the exchange rate.

Delivery on all deals is guaranteed by the Options Clearing Corp., which has multibillion-dollar resources. Every currency option has a fixed expiration date after which it can no longer be exercised.

Giordano said the exchange’s biggest job now is to get across the potential benefits of currency options to the “vast number” of institutions exposed to foreign exchange risk.

For bankers, corporate treasurers, importers and exporters, “a Japanese yen rise against the U.S. dollar can bring a lot more than indigestion,” he said. “The dollar’s fluctuation can have a direct and significant negative impact on their income statement and balance sheet.

“It is clear that once the concept is understood and the variety of uses appreciated, the corporate treasurer, banker, investment manager, speculator or the small-business man with international needs will all be drawn forever to the marketplace.”

Giordano said foreign businessmen have been quick to appreciate the potential of currency options, and estimated that roughly half the exchange’s business is now coming from outside the United States.

With that in mind, Giordano and other exchange officers undertook their tour of Sydney, Melbourne, Hong Kong, Singapore and Tokyo to announce plans for a second daily trading session between 7 and 11 p.m. Philadelphia time as a first step toward 24-hour trading.

The hours, 8 a.m. to noon in Hong Kong, are designed to accommodate Asian businessmen who are asleep during normal trading hours. They make the Philadelphia exchange the first in the United States to offer trading during Asian business hours.

“With this move, we believe we will maintain ourselves as the world’s leaders in currency options,” Giordano said.