Executive summary
Most newly listed equity index futures contracts fail, and they fail for structural reasons that are visible before launch: an underlying that cannot be hedged cheaply, a contract size mismatched to the local investor base, or no economic incentive for anyone to make a market. This group study asks under what conditions a futures contract on the MASI 20 would achieve durable liquidity on the Casablanca exchange, by testing the Moroccan market against the conditions that separated successful launches from failed ones in comparable emerging markets.
Methodology
- Underlying liquidity diagnostics. Measurement of turnover, free float, bid–ask spreads and concentration across the MASI 20 constituents, to establish whether the basket can be replicated and hedged at an acceptable cost — the precondition for arbitrage to keep the basis in line.
- Benchmarking against comparable launches. Review of index futures introductions in comparable emerging and frontier markets, separating contracts that reached self-sustaining volume from those that did not, and identifying the recurring differentiators.
- Contract design. Analysis of the specification levers — contract multiplier, tick size, expiry cycle, cash versus physical settlement, final settlement price mechanism — and their effect on accessibility and on manipulation risk at expiry.
- Hedging demand estimation. Segmentation of potential users (collective investment schemes, insurers, banks, foreign investors) and sizing of their latent hedging and exposure needs under conservative, base and optimistic adoption scenarios.
- Cost-of-carry and basis modelling. Construction of the theoretical fair value from the repo rate and expected dividends, with sensitivity of the no-arbitrage band to funding costs and to short-selling frictions.
- Infrastructure and regulatory review. Assessment of the clearing and margining framework, market-making obligations and incentives, and the securities lending capacity required for the cash-and-carry arbitrage to function.
Estimated hedging demand by investor segment
The interactive chart could not be loaded (the Plotly CDN is unreachable). The full analysis is available in the PDF write-up.
Illustrative data — placeholder pending publication of the final demand estimates.
Key findings
Liquidity in a futures contract is not a consequence of listing it; it is a consequence of arbitrage being possible. Without accessible securities lending, the cash-and-carry trade is one-directional and the basis has nothing anchoring it.
- The binding constraint is the short leg: restricted securities lending prevents the reverse cash-and-carry arbitrage, which widens the no-arbitrage band and deters market makers.
- Contract size is a first-order design decision. A multiplier calibrated to institutional notional excludes the domestic retail and small-institution flow that typically provides the other side of the trade in the early years.
- Concentration in the underlying index raises expiry manipulation risk, which argues for a settlement price based on a volume weighted average rather than a closing print.
- Sequencing matters: a viable launch depends on the lending and clearing infrastructure being in place first, not on the contract being listed and the ecosystem catching up afterwards.