Risk Management WithFutures
YEE Choon Kit
Executive Director, Head of Futures Clearing Sales
11 October 2023

Mizuho Markets Futures Singapore Pte. Ltd.

Private and confidential

Disclaimer and Confidentiality
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2 | Private and confidentialTopics
 Mizuho Securities: Who we are and what we do Basics of Futures Trading– What is a Future?
– What types of Futures?
– What are the uses of Futures– Trading Strategies
 Futures Ecosystem – Centralised Risk Management Common Terminologies in Futures
 Risk Management & Hedging: Using EUA Futures as example
 Benefits of Using Futures as Risk Management Tool
 Q&A

3 | Private and confidentialMizuho Financial Group
Mizuho is one of the largest financial institutions in the world offering a broad range of financial services withapproximately 75,000 employees worldwide in 120 offices in approximately 40 countries with over 140 years of banking
experience.
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Mizuho’s Futures Division is part of a strong global franchise Strong Balance Sheet
Mizuho Markets Futures S’pore Pte. Ltd.
(MMFS)
Brokerage and clearing services for exchange
listed derivatives.

– Stability of MHFG’s assets of approximately $220 trillion yen (US$ 1.47 trillion).

 Financing Solutions– Ability to work with Mizuho Bank to develop innovative financing solutions that help

maximize client growth.
 24-Hour Voice Execution and Trade Support DeskMizuho Securities USA LLC (MSUSA)
Wholly-owned subsidiary of U.S. bank holdingcompany, Mizuho Americas LLC, which iswholly-owned by Mizuho Bank Tokyo, which isowned by Mizuho Financial Group, Inc.
Total team of 565 staff with offices in New York,Chicago, San Francisco, Los Angeles, Atlanta,
Boston, Houston, and Hoboken.

– Provides clients with an execution desk staffed with experienced traders Customized Solutions– Dedicated client services team to help develop and implement client-specificmiddle and back office solutions.
– Support physical delivery if required by clients Diverse Client Base

– Provide execution and clearing services to a wide range of institutional andcommercial clients with a focus on futures markets.

5 | Private and confidential

Basics of Futures Trading What is a Future?
– Futures are derivative financial contracts that obligate parties to buy or sell an asset at a predetermined future dateand price. [Quote Investopedia]
 What types of Futures?

– Financial Futures, e.g. Index Futures (S&P 500), Interest Rate Futures (U.S 10 years treasury), FX Futures(USD/CNH futures)– Commodity Futures, e.g. Crude Oil (WTI, Brent), Carbon Emissions, Agricultural/Soft (Soybean, Palm Oil), Metals(Gold, Aluminum)– Cleared OTC Swaps, e.g. LNG, Electricity, Freight Futures– Cryptocurrency Futures e.g. BTC, ETH Futures
 What are the uses of Futures?
– Hedging Corporate hedgers
 Hedge Funds, Asset Managers– Speculation
 HFTs Quant Funds
 Retail investors
 Trading Strategies– Delta neutral (Hedge)– Arbitrage– Directional
6 | Private and confidentialFutures Ecosystem – Centralized Risk Management

Source: FuturesFundamentals.org

Market Participants••••Commercial Traders
Prop Trading Groups(PTGs)
Asset Managers/HedgeFunds
Retail7 | Private and confidential••Clearing Members

Exchange/Clearing HouseBank backed brokers
e.g. Mizuho Markets
Futures Singapore(MMFS)
Non-bank brokers••

European Energy
Exchange (EEX)
Intercontinental
Exchange (ICE)Common Terminologies in Futures Trading
TermDefinition

Lots

Number of contracts

VolumeTotal number of lots traded or physical (notional) quantity traded

Open Interest (OI)

Total number of outstanding contracts at an Exchange that is not settled

Initial Margin

Cash (or equivalent) that is required to be set aside when initiating a newposition

Initial Margin Limit (IML)

Maximum overnight margin exposure for trading positions

Margin CallMargin call occurs when Total Equity falls below Initial Margin required inthe trading account. Client will be required to top up cash or reduce trade
positions to fulfill margin call notices

Physical delivery

Underlying asset of the futures contract that must be physically delivered(sell position) or purchased (buy position) during expiry of the futurescontract

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Risk Management & Hedging: Using EUA Futures as example
Assuming Ship Company A needs to purchase 10,000 EUAs (10,000 tonnes of CO2)
 In contracts size, it will be 10 lots (10,000/1,000)

On 2nd October, Shipping Company A enters into EUA futures transaction to buy ICE EUA Dec ‘23
Future @ EUR 80
 Initial margin required: 10 lots * EUR 9,400 = EUR 94,000
 Notional (full value) size of trade: 10 lots * 1,000 EUAs * EUR 80 = EUR 800,000

2 Oct

3 Oct

4 Oct

IM Requirement

94,00094,00094,000Purchase Price808080

Daily Closing Price*80.80

79.65

81.67

Unrealised P/L (EUR)8,000(3,500)

16,700Assuming portfolio remains constant, exclude fees & commissions*Source: EUA Futures | ICE
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Benefits of using Futures as Risk Management Tool
 Centralized risk management– Risk is centralized through the Central Clearing Counterparty (CCP) system– Reduce concern of counterparty risks, due-diligence concerns through bilateral transactions– Centralised clearing has multi layers of default risk management to reduce and prevent systemicfailure Price transparency– Exchanges publish settlement prices on daily basis– Greater price transparency for effective risk management

 Protect profits and reduce losses from wild swings in underlying prices of EUA

 Lower capital outlay & costs vs. paying for full notional value upfront

10 | Private and confidential

Mizuho Futures Team
Mizuho Markets Futures Singapore Pte. Ltd.

YEE Choon Kit
Head, Futures Clearing Sales+65 9021 0071
choonkit.yee@sg.mizuho-sc.com

Ryo Gomikawa
Director, Futures Clearing Sales+65 66035675
ryo.gomikawa@sg.mizuho-sc.com

Chetan Kamath
Executive Director, Head of Operations+65 6603 5664
Chetan.kamath@sg.mizuho-sc.com

11 | Private and confidential

Mizuho Securities’ Futures Global Franchise
Mizuho Markets Futures Singapore Pte. Ltd.
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Asia Square Tower 2Singapore 018961

Mizuho Securities USA LLC
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Suite 700
Chicago, IL 60606
USAQuestions and Answers

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