A striking feature of the crisis was the speedy transmission of volatility during periods of extreme stress, both across geographical boundaries as well as across different asset markets, notably between currency markets and stockmarkets.

In several derivative markets, the need for greater liquidity depressed futures settlement prices further when prices plummeted in mid-October 1997. Also, many investors who entered into long positions during a brief correction in prices expecting a radical upturn in the cash market were subsequently pressured to close out their open long positions when the recovery in the cash market was not sustained.

The high volatility seen in the underlying markets also made it extremely difficult for investors in emerging markets to protect their investments against an adverse turn in market developments. Hedging through structured over-the-counter (OTC) products became expensive thanks to the higher risk premium involved in issuing such products.

Volatility of derivatives themselves rose: the majority of respondents with markets in those instruments reported that their clearing institutions increased futures margins or made a number of intra-day margin calls at some point during the crisis-usually around the October sell-off. For example, several derivative exchanges around the world adjusted margin levels upward as cash market price movements became increasingly erratic. When the Hang Seng index plunged 13.7% on October 28th, the Hong Kong Futures Exchange collected almost HK$2b in margin calls on that day alone as turnover in Hang Seng and Red Chip index futures hit record highs of 83,445 and 4,148 contracts respectively. Although there appeared to be the odd instance of market-stress, authorities managed to avert any full-blown disruption to activity. On the whole, volatility spill-over from derivative to cash markets was limited.