The over-the-counter derivatives market in Japan held strong last week, in spite of an equity selloff which forced the Tokyo Stock Exchange to close early Wednesday. The Japanese market took a dive following an investigation into listed internet stock Livedoor, falling 2.9% Wednesday.
Equity specialists said the impact was limited on the OTC side due to the product types that are popular in the market. Most equity-linked products are designed for investors to express bullish views and knock out on the upside. "In a way, these products actually help limit the market falling as houses are long gamma and need to buy stock for these positions," explained a dealer. The high levels of volatility and cheaper stock valuations could actually be a benefit for the equity-linked market in the medium-term as some investors that remain bullish may be enticed by the more attractive levels, added an equity structurer.
