Chapter 3: Market Structure Flashcards
Which Platforms are Used on the London Metals Exchange?
There are 4.
- Select
- Sword
- Ring-Trading
- LME Clear
Which Platforms are Used on the ICE Futures Europe?
How many versions are there of this.
ICE Clear and ICE Connect (6 versions)
Which Platforms are Used on the CME Group?
There are 3 for CME…….
- CME Globex
- CME Direct
- CME Clearing
Which Platforms are Used on the Euronext?
- Optiq
- LCH and EuroCCP
- Euronext Clearing
Which Platforms are Used on the Singapore Exchange?
DC heros on a quest?
- SGX Quest
- SGX-DC
Which Platforms are Used on the China Financial Futures Exchange?
- CFFEX Order Book
- CFFEX CCP
What are the Contract Specifications of a Derivatives?
Q S Q T T D E
- Quality
- Size
- Quotation
- Tick Size
- Tick Value
- Delivery Month
- Exchange Delivery Settlement Price (EDSP)
What are Components of the Delivery Month for a Derivative?
What can this comprise of?
- Notice Days
- Delivery Days
- Last Trading Days
What is the Tick Size?
The minimum price movement of a contract i.e. 1 pence, 1 basis point etc.
What is the Tick Value?
The profit or loss for one tick movement.
What are the Components of a Long Gilt Future?
What does this mean for the tick size and tick value?
- Contract size: GBP 100,000NV 4% Gilt
- Quotation = GBP100NV
- Valuation = GBP10 (Tick Value) per GBP 0.01 (Tick Size) per GBP100NV (Contract)
What are the Components of a Universal Stock Future?
ie. What is the Tick size? Valuation method? etc.
- A single stock future
- Global Product
- Contract specs
(Physically delivered or cash settled)
(Contract size: typically 100 shares or 1000 in UK or Italy) - Valuation: Price per share
- Tick Size: 1 penny
What is Convergence, When Pricing Derivatives?
When the fair value of the future converges with the cash price, as it approaches delivery.
What is Meant by the Cheapest to Deliver Bond?
Where do these come from?
Many long bond contracts are based on a basket of deliverable bonds. At any point in time one will be cheaper than the other, known as the Cheapest to Deliver
What is the Cheapest to Deliver Price Factor?
Where the prices are brought in line as often, the price of the deliverable bond and the contract bond might not be the same.
How does one Hedge with Bond Futures, What Formula is Used?
No. Contracts Required = Nominal Value of CDT Holding / Nominal Value of Contract X CTD Price Factor
Do You Round the Number of Contracts When Hedging?
Absolutley Not!!
Always use the whole number
What are the Factors of a Short-Term Interest Rate Future (STIR)?
What is the Quotation and Value e.g X GBP per basis point etc.
- Contract for Difference
- 500,000GBP at 3 month short term interest rate e.g. SONIA
- Quotation: 100 - Implied Interest Rate
- Valuation: 12.50 GBP per basis point (tick size)
What Would A Speculator Do With STIR Futures if he Thinks Rates Will Rise?
Why?
Short them, as when rates go up, prices go down.
What is the Equation for Hedging with STIRs?
Long or short and why?
Contracts = Value of Exposure / Value of Contracts
Whether long or short depends on ones concern.
What is the CISI Equation for Hedging with STIRs?
What must you consider for this?
No. Contracts = Price Change in the Portfolio given a 1 basis point change in Yields / Price Change in the Contract given a 1 basis point change in yield (Tick Value)
Futures are 3 months and 1 basis point in 0.01%
What is a Dual Capacity Market Participant AKA?
Broker Dealers?