Undated Futures Markets* Adam K. Gehr, Jr. his article discusses the mechanics, economics, advantages, and disadvan- zy T tages of undated futures markets with specific reference to the Chinese Gold and Silver Exchange Society of Hong Kong (CGSES). It also suggests a potential application of undated futures markets to the trading of stock index futures. An undated futures market is an alternative to conventional futures markets. In conventional futures markets contracts mature at selected times during the year. Several contracts with different maturity dates trade simultaneously. In an undated futures market only a single contract trades, but that contract can serve the hedging purposes of the multiple contracts traded in a dated market. The CGSES is of interest both as a zyxwv curiosurn and as an example of a potentially valuable form of futures market. The following section of this paper describes the operation of an undated futures market and the specific mechanics of trading on the CGSES. Sections I1 and I11 discuss the economics of price determination and hedging in undated futures markets. Section IV describes the advantages of undated futures mar- kets to futures traders and points out potential problems in certain applications. Section V shows how such markets might be adapted to the US, especially for trading futures on a stock index or on other indices, and Section VI is a conclusion. I. TRADING AT THE CHINESE GOLD AND SILVER EXCHANGE SOCIETY The CGSES trades both gold and silver, but most trading is in gold contracts.’ The gold contract calls for delivery of 100 taels (1 tael equals zyx 1.2 oz.) of gold in the form of twenty 5-tael bars, 99% fine. Both parties to a transaction post margin and the maintainance margin level is 75% of the original margin. The exchange sets limit prices and trading is suspended if prices change by the limit amount. Trading on the exchange is active. Daily trading volume can exceed one million taels. All trading at the CGSES is at spot prices. Traders can take or make delivery at the end of the trading day of the gold they purchase or sell. They may, *The author would like to thank Fredrick Chin Tan for calling this subject to his attention and two anonymous reviewers of this journal for their helpful comments. ’The information about the Chinese Gold and Silver Exchange Society in this paper was gleaned from “A Survey of the Hong Kong Gold Market” by Sun Hing Kai Securities Ltd. March 1981. A briefer, albeit livelier, account of the market can be found in Green (1981). zyxwvu Adam Gehr is Professor of Finance zyxwv at the College of Commerce, DePaul University, Chicago, Illinois. The Journal of Futures Markets, Vol. 8, No. 1, 89-97 (1988) zyxwv @ 1988 by John Wiley & Sons, Inc. CC 0270-7314/88/01OO89-O9$04.O0