Japan exchanges eye call-option ETFs to attract global investors

[TOKYO] Japan’s two major exchanges are looking to expand exchange-traded fund products including ones that offer covered calls to attract new investors.

Tokyo Stock Exchange (TSE) and Osaka Exchange (OSE) are considering offering single-stock call overwriting ETFs, new OSE president Akira Tagaya said in a group interview. The product, which generates income for investors by selling call options while holding an underlying position in the stock, could broaden access to derivatives for a wider range of investors, he said. The two bourses are currently gauging demand for the ETF.

The push underscores the ambition of Japanese stock exchanges to attract more global capital by strengthening areas where they lag international peers, such as single-stock options and actively managed ETFs. Introducing actively managed covered call ETFs on single stocks could support both cash and derivatives markets.

“Investment capital flows globally and our markets have become significantly international,” TSE president Ryusuke Yokoyama said in a separate interview. “It’s very much a competition in how we attract global and local money to Japanese capital markets with our listed products.”

Adding covered calls could boost the liquidity of listed single-stock options, Tagaya said. The strategy tends to do well in bearish or flat markets, where longing stocks may underperform.

Meanwhile, the TSE is considering listing ETFs that track cryptocurrencies, with any decision hinging on how the Financial Services Agency revises regulations, Yokoyama said The exchange is in talks with the regulator about “various topics,” he said. BLOOMBERG