Manage Your Canadian Equity Portfolio Risk

The Montréal Exchange (MX) launched a mini futures contract on the S&P/TSX 60^TM Index (SXM^TM) on May 6, 2011 to meet the needs of Canadian retail investors with an interest in the domestic stock market.

Same as the standard futures contracts on S&P/TSX 60 Index (SXF^TM), the miniature SXM futures contracts are based on the S&P/TSX 60 Index. This index is a benchmark capitalization-weighted equity index of the 60 largest companies in Canada that have the most liquid stocks. The trading unit (or contract multiplier) of a mini SXM futures contract is C$50 (one-quarter the size of the SXF futures contracts). Mini SXM futures contracts are cash settled, just like all other index futures and options traded on MX.

Canadian retail investors who have less capital and lower hedging needs will find the SXM futures contract an appropriate investment tool as well as a hedging instrument for managing their investment and market risk.

Designed for retail investors

Mini SXM futures contracts share the same advantages as their larger sized SXF futures contracts but are designed for individuals with reduced capital. The smaller contract size allows both astute and novice investors to participate in the performance of the S&P/TSX 60 constituent stocks.

Trading hours

Trading on the SXM futures contracts starts at 6:00 a.m., which provides three and half hours of trading activity before Toronto Stock Exchange opens. This early opening allows investors to take a market position for their portfolio of Canadian stocks without having to wait for the opening of the stock market.

Reduced trading costs

Since SXM futures contracts are one-quarter the size of the SXF futures contracts, their margin requirements are much lower: SXM margins are reduced by factor of four as well. In fact, index futures have lower trading costs, with no management fees, compared to buying mutual funds or exchange-traded funds.

Clearing house benefit

SXM futures contracts are cleared by the Canadian Derivatives Clearing Corporation (CDCC), a wholly-owned subsidiary of MX. As a central counterparty, CDCC provides integrity and stability to the Canadian derivatives market by acting as the buyer to every seller and as the seller to every buyer, thereby substantially reducing counterparty risk.

Although futures contracts are not for everyone, many investors should consider them when determining their investment objectives. You should also make sure you understand the concepts underlying the trading of futures, know the risks and advantages of the investment strategy you choose, and understand how you can manage your portfolio based on changes in the market. MX recommends that you consult your financial advisor accordingly.

Consult our trading strategy guide to see how SXM contracts can fit your investment goals.

The SXM futures contract is currently available through Interactive Brokers Canada Inc. and in Canada only.

For more information, visit our website or email us at info@m-x.ca.

Claude Cyr
Senior Vice-President, Financial Markets
Montréal Exchange

If you do not wish to receive any further e-mails from the Montréal Exchange, write us at info@m-x.ca.

Warning and disclaimer

This document is sent to you on a general information basis only. The information provided in this document, including financial and economic data, quotes and any analysis or interpretation thereof, is provided solely on an information basis and shall not be interpreted in any jurisdiction as an advice or a recommendation with respect to the purchase or sale of any derivative instrument, underlying security or any other financial instrument or as a legal, accounting, tax, financial or investment advice. Bourse de Montréal Inc. recommends that you consult your own advisors in accordance with your needs. All references in this document to specifications, rules and obligations concerning a product are subject to the Rules and Policies of Bourse de Montréal Inc. and its clearinghouse, the Canadian Derivatives Clearing Corporation. Although care has been taken in the preparation of this document, Bourse de Montréal Inc. takes no responsibility for errors or omissions and it reserves itself the right to amend or review, at any time and without prior notice, the content of this document.

Bourse de Montréal Inc., its directors, officers, employees and agents will not be liable for damages, losses or costs incurred as a result of the use of any information appearing in this document.

SXM^TM and SXF^TM are trademarks of Bourse de Montréal Inc.

"S&P®" and "Standard & Poor's®" are registered trademarks of The McGraw-Hill Companies, Inc. and "TSX®" is a trademark of TSX Inc. ("TSX"). The products mentioned in this document are not sponsored, endorsed, sold or promoted by S&P or TSX; and S&P and TSX make no representation, warranty or condition regarding the advisability of investing in them.