The derivatives universe is broad and over 1700 different derivatives are traded on three major derivatives exchanges: Chicago Mercantile Exchange Group, NYSE Euronext and Eurex. The Romanian derivatives market has a marginal position on Central and Eastern Europe. In addition, the offers of Romanian exchanges are rudimentary comparing with other exchanges from region. In this paper, we have noted some progress in activity of the Monetary-Financial and Commodities from Sibiu and the Bucharest Stock Exchange. The solutions for activity’s improvement exist: collaboration with exchanges from European Union and national consolidation through merger or acquisition.
Trading in futures began in the mid-19th century at the Chicago Board of Trade and the New York Mercantile Exchange. While these exchanges have continued to trade commodities, financial futures and options have become increasingly important since the early 1980s. The innovations process in this market is significant, and the strong competition between American and European exchanges have conducted to launch different contracts like weather derivatives, real estate futures and options, credit derivatives, volatility contracts or derivatives on carbon emission allowances. In present, the derivatives universe is broad and over 1700 different derivatives are traded on three major derivatives exchanges: Chicago Mercantile Exchange Group, Euronext and Eurex. In addition, the derivatives segment is the most important segment of financial market.  The derivatives market is highly dynamic because all most derivatives exchanges across the world have been set up during the last three decades. In last ten years, we remark an explosion of mergers and acquisitions in this field, the result being the establishment of exchanges groups like Australian Securities Exchange, Chicago Mercantile Exchange Group, Eurex, Intercontinental Exchange or NYSE Euronext . In addition, some exchanges have formed subsidiaries in order to enter into new market segments. For example, at the end of 2007, the New York Mercantile Exchange, together with companies in the financial field such as Morgan Stanley, Credit Suisse, JP Morgan, Merrill Lynch launched the Green Exchange where futures contracts and options for carbon emissions, sulfur dioxide and nitrogen oxide are traded. In December 2007, environmental exchange named Bluenext was set up; the initiative belongs to NYSE Euronext Group. The derivatives are usually trade for hedging and speculative purpose. The companies use futures and options contracts in order to protect against movements of prices, exchange rate, interest rate, and weather temperature. The hedging strategies based on derivatives reduce the volatility of companies` cash flows, increase the predictability regarding the expenses and revenues, and improve the financial situation and solvability of companies.  The use of these contracts in order to hedge some risks has some drawbacks. First of all, the exchanges` offer is limited, so companies could use these contracts as insurance against unwanted movements for price, exchange rate or interest only if specific assets are traded on futures and options market. For example, only some raw materials are traded on commodities exchanges and only important currencies are used as underlying assets for futures and options. Second, the hedging strategies imply some costs for operating on derivatives market in form of brokerage fees and margin deposits. The individual and institutional investors use derivatives in order to gain from price movements. In fact, derivatives are an alternative investment to buying and holding a tangible asset. In additions, they allow investment into assets or risk that cannot be traded directly. So, credit derivatives offer compensation payment if a creditor defaults on its bonds or weather derivatives pay compensations if temperature of a specific location exceed or fall below a reference temperature. Because the derivatives have typically notional value between 20 000 – 1 mil euro, the main users are financial investor and companies.  The popularity of these instruments has a negative connotation because of financial scandals determined by the improper use of derivatives. In addition, many economists talk about derivatives contracts like Ã¢â‚¬Å¾financial weapons of mass destruction carrying dangers that, while now latent, are potentially lethal.” These words were used by Warren Buffett in 2002 in a letter to Berkshire shareholders. So, many years ago, he saw a future that others chose to ignore. 
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The Romanian derivatives market is in development process. The two exchanges – the Monetary-Financial and Commodities Exchange from Sibiu (SIBEX) and the Bucharest Stock Exchange (BSE) have made some efforts in order to improve their activity by launching different derivatives products. The pioneering role on Romanian derivatives market belongs to the Monetary-Financial and Commodities Exchange from Sibiu, established in 1994 on private initiative. In period 1994-1997, this exchange traded only spot contracts. The reference year for the set up of derivatives market in Romania is 1997, when the index futures contracts were launched. SIBEX calculated its own index named BMS 1 (after the Romanian name of exchange at that time – Bursa de MÃ„Æ’rfuri de la Sibiu) on the prices of some blue chips traded on the Bucharest Stock Exchange. Because of the extension of its offer, the exchange changed the name in order to adapt the name with its activity. The number of futures contracts concluded in 1997 was very low – 77.877. In September 1997, the Bucharest Stock Exchange launched the first official index – BET (Bucharest Exchange Trading) that is calculated on prices of most traded ten shares listed on this exchange. After that, the two exchanges signed an agreement for the use of BET index as asset for futures contracts traded on SIBEX and BMS 1index was replaced and did not use. In November 1998, SIBEX has launched option on futures contracts, but until the end of the year only 133 options contracts were concluded, in contrast with 193.203 futures contracts. The next years brought others innovations. In fact, the development of SIBEX activity was very slow. The first equity futures are available since 2000, the underling assets being shares issued by Financial Investment Company Banat CriÃ…Å¸ana, Financial Investment Company Transilvania and Petrom, the most important Romanian companies listed on the Bucharest Stock Exchange. The first commodity contract was launched in September 2002, the underlying asset being the grain. This type of contract is not available any more, now the only commodity traded on futures market is gold. The gold futures contracts could be used only for hedging or speculation purpose because the exchange established cash settlement as payment method. Since 2006, new index futures and options are available because SIBEX launched its own indexes – SIBEX 9 and SIBX 18 calculated on prices of important blue chips listed on the Bucharest Stock Exchange. The year 2007 brought new type of stock futures and options for shares listed on Bucharest Stock Exchange. In 2008, the Monetary-Financial and Commodities Exchange launched the first foreign equity futures contract having as underlying assets the share of ErsteBank, the only foreign company listed on the Bucharest Stock Exchange. The development of activity has continued with new initiatives: in 2009, there were launched difference financial contracts and contracts on CO2 emissions and at the beginning of 2010, the futures contracts on Dow Jones Industrial Average are available on SIBEX. Fig. 1 The evolution of derivatives contracts` number traded on the SIBEX from Sibiu Source: www.sibex.ro The evolution of derivatives market of SIBEX was modest in period 1997-2004, and annual fluctuations were negative in 1999, 2001, 2003 and 2004. Since 2005, the interest of individual and institutional investors for exchange traded derivatives contracts has rising. Now, are available 36 types of derivative contracts: rate interest contacts, equity contracts, index contracts, currency contracts, commodities contracts, contracts on CO2 emissions and financial contracts on difference. Taking in account the number of derivatives contracts concluded, the year 2006 was the best year. The year 2008 has good results because the annual rise was 3,66%, so the international financial crises have not a dramatic impact on derivatives market from Sibiu. In the last year, the interest of investors has diminished and the results were a dramatic decrease of the number of derivatives contracts concluded (around 45%). At the Monetary-Financial and Commodities from Sibiu, the futures market is the principal segment of derivatives market (the share of this market is around 99%) and this segment gives the trend of the whole market (table 1). These contracts are used for speculative purpose and for hedging strategies. Many investors with large portfolios of shares traded on spot market from Bucharest Stock Exchange use futures contracts traded on SIBEX in order to hedge the potential loss from the spot market. The shares used as underling assets are traded on spot market from the Bucharest Stock Exchange. Table 1 The key figures for futures market form SIBEX in 2007-2008
Value of futures contracts (RON) Number of futures contracts Value of futures contracts (RON) Number of futures contracts 7,557,181,984 3,578,582 11,688,114,092 3,456,023 Source: Activity Report of SIBEX`s Board 2008, p.9-12, https://www.sibex.ro The most traded contracts are futures contracts on shares issued by Financial Investment Company 2, 3 and 5, Petrom, Transilvania Bank, ErsteBank, and Rompetrol. In the year 2007, the notional value of futures contracts was over euro 3,5 billions and the annual growth rate was 20% even the number of contracts decreased with over 18%. . In 2008, the decrease of price of underlying assets has affected the total value of futures contracts traded and the notional value of futures contract. For the year 2009, the most important segment of derivatives market is still the futures market, but the consequences of international financial crisis have influence the dynamic of this market. We remark an important decrease of the value of futures contracts. Table 2 The key figures for futures market form SIBEX in 2009
2,466,816,575.58 32.64 2,430,849 67.93 Source: Activity Report of SIBEX`s Board 2009, p.6-7, https://www.sibex.ro Regarding the market` structure, we remark a very high concentration of the futures market. The shares are the most important underlying assets for futures contracts. The financial sectors represents by financial investment companies and banks account over 95% of the futures market. Two financial investment companies – SIF 2and SIF 5 are the leaders on futures market in 2007 and 2008 (table 3). In the year 2008, the most important increase in liquidity was observed for RON/EURO futures contracts. The rise of the number of this type of contract was over 500% and the situation is due to the high interest of banks, multinational companies, investment funds and foreign trade companies for hedging strategies based on currency futures con5racts. In the year 2008, the most dramatic cut of contracts` number was registered for shares issued by Transilvania Bank (the decrease was around 88%) due to the decrease of interest’s investors and the suspension of this company for technical operations from the Romanian exchange. Table 3 Liquidity top at the SIBEX from Sibiu
DESIF 2 1,627,621 45.48 % 1,635,568 47.33 % DESIF 5 1,803,687 50.40 % 1,504,232 43.52 % DETLV 13,444 0.38 % 113,715 3.29 % DESIF 3 10,376 0.29 % 62,971 1.82 % DERRC 1,218 0.03 % 54,004 1.56 % DEBRK 9,189 0.26 % 35,267 1.02 % DESNP 23,364 0.65 % 3, 438 0.91 % RON/EURO 81,259 2.27 % 13,927 0.40 % Others 8,424 0.24 % 4,901 0.14 % Total 3,578,582 100 % 3, 456,023 100 % Source: Activity Report of SIBEX`s Board 2007, p. 11, Activity Report of SIBEX`s Board 2008, p.14 https://www.sibex.ro In the year 2009, we observed an increase of the concentration of the futures market that are dominated by the two financial investment companies – SIF 2and SIF 5; their share market increased to over 95%. Table 4 Top five of the most liquid futures contracts at SIBEX in 2009
DESIF 5 2,106,791 86.96 DESIF 2 200,838 8.29 EUR/RON 95,837 3.96 DETLV 8,861 0.37 DESNP 6,608 0.27 Source: Activity Report of SIBEX`s Board 2009, p. 12, https://www.sibex.ro The options market form Sibiu has small dimensions an in spite of international financial crisis, we observed an increase of investors ` interest for these contracts because the buyers of options have an important advantage: the maximal lost is equal with the premium paid at the conclusion of contract. In the year 2009, a number of 52,438 options contracts were traded at Sibiu,the annual increased being around 30%. Given the economic and political context, the emergence and development of the Bucharest Stock Exchange was due to the initiation and conduct of the Mass Privatization Process. Thus, the Law no. 58/1991 regarding the privatization of state owned companies imposed the emergence of capital market and related legislation in order to allow trade, in an organized manner, of the vouchers shared to the population in the Process of Mass Privatization. Although the deadline imposed by this law, for adopting the law of securities and stock exchanges was 6 months; the Parliament approved this law after 2 Â½ years, in 1994. So, the Bucharest Stock Exchange was established in 1995, later compared with other countries from Central and Eastern Europe. The development of the Bucharest Stock Exchange is influenced both by improving legislation in this area, which was aligned to the European Union standards and the diversification of securities launched (futures contracts, preference rights), that are in dramatic extension. In this respect, we mention the legislative changes and the Bucharest Stock Exchange’s concern for stability of capital market, resulting in reducing the number of listed companies, being withdrawn the companies that have not complied the exchange regulations. At the beginning, the Bucharest Stock Exchange was a spot market, where initially, only shares were traded. The capital market in Romania is a market of shares, bonds market being in a process of development, a phenomenon specific to the countries of Central and Eastern Europe. Although the legal provisions regarding bonds have been issued since 1990 (Law no. 31/1990 on companies), the first bonds issue was occurred quite late (1997) and the interest on the bond has intensified since 2001. The bond market is sustained by public authorities (local and central) that have decided to use this financing technique and have listed municipal bonds and treasury securities on the Bucharest Stock Exchange. The first futures contracts were launched in 2007 and the underlying assets are indexes of Bucharest Stock Exchange: BET and BET-FI. The futures transactions were modest; only 64 contracts were concluded in 2007. The value of these contracts was USD 225,162.53 (Euro 159,966.60). In 2008, the offer for futures contacts was improved and now, 14 types of futures contracts are available: 10 equity futures, two index futures and two currency futures (USD/RON, EUR/RON). For equity futures, the BSE chosen the blue chips traded on spot market: shares issued by five financial investment companies, Petrol, Transelectrica, Transgaz, ErsteBank and Transilvania Bank. Until December 2008, the number of futures transactions was over 900 and more than 17,000 of contracts were concluded. The notional value of these contracts is over USD 7,5 millions (Euro 5 millions).  The evolution of the futures market from Bucharest is presented in the next table. Table 5 The dimensions of futures market from Bucharest
2007 71 41 64 540,535,10 2008 250 922 18,018 19,308,627.90 2009 250 507 15,613 67,049,100.00 Source: www.bvb.ro So, the Romanian derivatives market has two components: the Monetary-Financial and Commodities Exchanges and the Bucharest Stock Exchange. The offer of SIBEX is richer than the offer of the BSE and the interest of investors in much higher for the derivatives contracts launched by the SIBEX. There are two similarities between the two exchanges: the main underlying assets used for futures contracts: shares issued by important companies listed on the BSE`s spot market and currencies: USD and Euro. very high concentration of the futures market; the leaders are futures contracts for shares issued by financial investments companies (the same situation can be observed on spot market: financial investments companies are the stars of spot market).
Even if the derivatives transactions are used from many centuries in developed countries, in Romania, exchanged-traded futures and options are available since 1997. The two segments of Romanian derivatives market – the Monetary-Financial and Commodities Exchange from Sibiu and the Bucharest Stock Exchange had different evolution. The exchange from Sibiu was set up based on private initiative and its development activity is more intense than the activity of the BSE: derivatives contracts have been launched since 1997 and now, over 30 types of futures and options contracts are available on currencies, equities, interest rate and gold. The Bucharest Stock Exchange was established in 1995 as institution of public interest and received assistance from Canadian authorities. The purpose of setting up of this exchange was the support for Privatization Program. For this reason, for many years, this exchange has a single segment: spot market for shares and bonds. After the new law of capital market (297/200) came into force, this exchange was transform in private corporation. In addition, the futures contracts were introduced in 2007, but value of transactions is modest and the offer of derivatives contracts is limited. Even the evolution of these exchanges is different, we can observe a concentration of derivative transactions on futures segment and on the same underling assets: shares issued by financial corporations like financial investment companies created on the base of Privatization Program and Romanian or foreign banks (in fact, only a foreign bank are listed on the BSE – ErsteBank and derivatives contracts are available for the ErsteBank shares on two exchanges). Romania has a marginal position on European derivatives market and the offer of Romanian exchanges is rudimentary. In fact, even in Central and Eastern Europe, the Romanian exchanges are surpassed by exchanges like Budapest Stock Exchange, Wiener Borse or Warsaw Stock Exchange. A solution for this problem could be the merger of two Romanian exchanges, a project that failed few years ago or the establishment of a regional exchange formed by exchanges from Central and Eastern Europe. These projects could be done taking in account the experience of other European integrated exchanges like Euronext and Eurex or the merger between Budapest Stock Exchange and Budapest Commodities Exchange from 2005. In addition, we must notice the harmonization of capital market legislation in European Union and collaboration between exchanges. For example, the Bucharest Stock Exchange signed some collaboration agreements with exchanges from Salonic, ChiÃ…Å¸inÃ„Æ’u, Roma, Athena and London. At the end of 2006, the Bucharest Stock Exchange and the Wiener Borse has signed an agreement and in this way, the data regarding the transactions from Romanian market are available for Austrian investors. On agreement basis, Wiener Borse has offered Romanian authorities know how to launch futures contacts at the Bucharest Stock Exchange. In addition, in august 2007, the Bucharest Stock Exchange and Cypriot Exchange have signed a cooperation agreement through which the most important shares from the two countries can be listed on the two exchanges. Beside this collaboration’s activity, some interdependence between exchanges is created by purchase of shared issued by exchanges. For example, Wiener Borse is the main shareholder from the Budapest Stock Exchange and the Warsaw Stock Exchange has a small stock at the Monetary-Financial and Commodities Exchange from Sibiu. Analyzing the activity of exchanges form Central and Eastern Europe, a specialization of each exchanges is observed: the main sector for Warsaw Stock Exchange and Wiener Borse is stock index futures sector, currency futures are the most important derivatives contracts on Budapest Stock Exchange and in Romania, the stock derivatives are the main sector of exchange. So, foreign investors have opportunity to diversify their portfolio using different types of derivatives contracts available on exchanges from Central and Eastern Europe. The international financial crises has not affect strongly the activity of exchanges from all over the word if we take in account the increase of number of derivatives contracts concluded in 2008 compared with 2007. The most important actors that have an important contribution are the exchange groups like CBOE Holdings, Climate Exchange, Eurex, Intercontinental Exchange, NASDAQ OMS Group or NYSE Euronext and some Asian exchanges. The main explanations are the intense innovation activity of exchanges groups and the interest of investor for Asian markets in order to diversification of their portfolios. The exchanges from Central and Eastern Europe have been affected negatively by the international financial crises, but some segments registered a good evolution; for example, the Warsaw Stock Exchange and SIBEX from Sibiu.
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