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FCA Derivatives > Derivatives Chapter 3 > Flashcards

Derivatives Chapter 3 Flashcards

1
Q

Derivatives Exchanges UK

LME London Metal Exchange

ICE Futures Europe

LSE London Stock Exchange

A
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2
Q

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)

A
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3
Q

Derivatives Exchanges Europe

Eurex

Euronext Exchanges (amsterdam, brussels, lisbon, paris)

MEFF - Spanish Exchange for Financial Futures and Options

A
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4
Q

Derivatives Exchanges Asia

SGX Singapore Exchange

Osaka Securities Exchange

TSE Tokyo Stock Exchange

KRX Korea Exchange Futures Market Division

A
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5
Q

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

A
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6
Q

Access to most exchange market is via membership.

The membership categories available?

Types of Clearing Members?

A

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(?)

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7
Q

Trading Platforms

Name the 3

A

Open Outcry Trading

Electronic Trading

Wholesale Trades

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8
Q

Open Outcry Trading

A

(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
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9
Q

Electronic Trading

A

ICE Trading Platform:

  • Order Driven
  • orders are matched on the basis or price and then time priority (price, then time)
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10
Q

Wholesale Trades

A

(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
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11
Q

What do clearing houses do?

A

responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.

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12
Q

What is ‘Novation’?

A

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)

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13
Q

Initial Margin

&

Variation Margin

A

Initial Margin: deposit the is given to the cleaing house (?) upfront

Variation Margin: daily profits/losses paid out by clearing house

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14
Q

Delivery

2 types

A
  • CFDs (contract for difference) (No physical process to go through)
  • Physically deliverd contracts:
  • LME authorised warehouses
  • Warrants (warehouse receipts)
  • sword SYSTEM
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15
Q

Parts of the Clearing Mechanism

A

clearing houses

novation

margin (initial and variation)

delivery (CFDs and physically delivered)

Mutuial Offset

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16
Q

What is Mutual Offset?

A

When some contract is traded on multiple exchanges

e.g.: CME Group & SGX (Singapore Exchange)

17
Q

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.

A

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

18
Q

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

A

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

FCA Derivatives (8 decks)

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