Race to the center: competition for the Nikkei 225 futures trade

This paper examines the impact of changes in margin requirements on returns, transaction volume, and price volatility of the Nikkei 225 futures traded on the Osaka Securities Exchange (OSE) and the Singapore International Monetary Exchange (SIMEX). An increase in margin requirement on one exchange reduces its trading volume and shifts trade to the competing exchange. Both conditional price volatility and returns are not systematically affected by changes in margin requirements. The loss of OSE's market share of the Nikkei futures trade from 1990 to 1993 is partly due to the increased transactions costs (relative to SIMEX), including the margin requirement.