Derivatives Chapter 3 Flashcards
Derivatives Exchanges UK
LME London Metal Exchange
ICE Futures Europe
LSE London Stock Exchange
Derivatives Exchanges USA
Chicago Board of Trade (CBOT)
chicago Board Options Exchange (CBOE)
Chicago Mercantile Exchange (CME)
New York Mercantile Exchange (NYMEX)
OneChicago
NASDAQ (PHLIX)
Derivatives Exchanges Europe
Eurex
Euronext Exchanges (amsterdam, brussels, lisbon, paris)
MEFF - Spanish Exchange for Financial Futures and Options
Derivatives Exchanges Asia
SGX Singapore Exchange
Osaka Securities Exchange
TSE Tokyo Stock Exchange
KRX Korea Exchange Futures Market Division
Derivatives Exchanges Emerging Markets
B3 (formerly the Brazilian Mercantile & Futures Excahnge (BM&F))
DME Dubai Mercantile Exchange
NCDEX National Commodities & Derivatives Exchange
Safex & JSE South African Futures Exchange, part of the Johannesburg Stock Exchange
SHFE Shanghai Futures Exchange
CFFEX China Financial Futures Exchange
BSE Bombay Stock Exchange
MCX Multi Commodity Exchange of India ltd
Access to most exchange market is via membership.
The membership categories available?
Types of Clearing Members?
Brokers: can only trade for 3rd parties
Dealers: can trade for own account
Broaker-Dealers: can do both
Clearing Members:
GCMs general clearing members: for themselves/clients/NCMs
ICMs individual clearing members: for themselves/clientes (Not NCMs)
NCMs non-clearing members: give up trades(?)
Trading Platforms
Name the 3
Open Outcry Trading
Electronic Trading
Wholesale Trades
Open Outcry Trading
(called ring trading on LME)
- Quote Driven
- 4 ring sessions per day (each metal trades for 5 minutes within a ring)
- 24h inter-office trading
Electronic Trading
ICE Trading Platform:
- Order Driven
- orders are matched on the basis or price and then time priority (price, then time)
Wholesale Trades
(executed off the order book)
Block Trades:
- large transaction negotiated away from order book
- gives certainty of price and execution
- publication: denoted by letter ‘K’ (blocK)
Basis Trades: (arbitrage trade??)
- simultanious purchace/sale in the cash market and offestting sale/re[urchase in the futures market
- futures element is executed away from order book
Exchange for Physical (EFP):
- off-marke transaction swapping (OTC) or cash position wiht a futures position
Exchange for Swaps (EFS):
- off market transaction swapping OTC swap with a series of futures contract
What do clearing houses do?
responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.
What is ‘Novation’?
Novation:
is the process by which a clearing house becomes counterparty to all trades
(the obligations are still with the original holder, but the contract is passed allong to the clearing house)
Initial Margin
&
Variation Margin
Initial Margin: deposit the is given to the cleaing house (?) upfront
Variation Margin: daily profits/losses paid out by clearing house
Delivery
2 types
- CFDs (contract for difference) (No physical process to go through)
- Physically deliverd contracts:
- LME authorised warehouses
- Warrants (warehouse receipts)
- sword SYSTEM
Parts of the Clearing Mechanism
clearing houses
novation
margin (initial and variation)
delivery (CFDs and physically delivered)
Mutuial Offset
What is Mutual Offset?
When some contract is traded on multiple exchanges
e.g.: CME Group & SGX (Singapore Exchange)
An investor sells 5 FTSE 100 futures at 5,378 and holds them to delivery.
The EDSP is 5,005.
The contract size for the FTSE 100 future £10/index point.
Tick size is 0.50 index points (so tick value is £5/tick).
Calculate the profit or loss at delivery.
selling, so going short. Draw the futures profit loss graph downwards slope
EDSP means Exchange Delivery Settlement Price (what future settles for at delivery)
So, the price goes from 5,378 to 5,003.
the index points are 5,378-5,003 = 373 (look at graph)
Adjust for 5 futures and for contract size of £10 per index point: 373*5*10 = £18,650
Investor buys 3 FTSE 100 call options with a strike of 5,200 for a premium of 12.
At expiry the cash index stands at 5,210.
The contract size for the FTSE 100 option is £10/index point.
Calculate profit or loss at expiry
buy a call, draw option graph upwards (see images)
profit is 5210 - 5200 - 12 = -2
end position - strike - premium
adjust for 3 options and contract size of £10 per index point:
-2*3*10 = -£60
Loss of £60
