Manually added flashcards
What is TIMS?
Theoretical Inter-market margaining system used for mixed portfolio based margining. Consists of premium margin (value of position at close of trading) + risk marging (option pricing formula to measure potential change in position value). This replaces SPAN and is used on the CBOE exchange. Margin will be on a gross basis whilst SPAN is on a net basis.
What is a protected payment system?
Used by clearing houses to collect marging owned via Direct Debit
What is inter-commodity credit/inter-commodity spread
Scanning risk adjustment to take into account offsetting positions
When is initial margin paid on long equity positions?
Not paid as premium is paid in full (T+1) where the holder pays the clearing house before the end of the trading day
What is intra-market spread?
Spread between the same underlying but different expiries on the future
What is intermarket spread
Spread between different but connected underlyings of futures
What is a covered short call and what is it used for
F-C = -P : Capture the profits in a stable market and premium generated shields downside risk (market falling)
Option spread must contain what characteristics?
Either be of two puts or two calls and also be the purchase of one option and the sale of the other
Formula for number of contracts needed to hedge a CTD bond?
Nominal value of CTD(no. bonds bought * nominal)/future vale * Price Factor
Which platform provides straight-through processing?
LME Select via LCH
What is sold on ICE?
Energy contracts, financials, & agriculturals
What is traded on Euronext derivs?
Financials and soft agriculturals
What is traded on LSE Derivatives?
Financials
Which exchange are some forwards traded on?
LME Select via LCH
Purpose of MIFID?
Harmonise EEA regulations & cover passporting
Purpose of FCA?
Regulated conduct, competition, & market abuse
Purpose of Dodd Frank?
Regulate transparency in the US and mandatory clearing of OTC trades
What is the commodities futures modernisation act?
legalised single stock futures
Which act created the part 30 restriction?
Commodities Exchange Act
What is the CFTC the regulator of?
US derivatives exchanges (but not the CBOE - SEC), overseeing the NFA, enforcing commodities exchange act and commodity futures modernisation act
What is the purpose of NFA?
Self regulating organisation, oversees derivative firms, runs an arbitration scheme (programme to safeguard integrity)
Which exchange uses TIMS?
CBOE and must have a gross margin instead of UK net margin
What is an “options on close”
Exercise into a futures position due to premium paid on expiry
What happens to a futures contract after a bonus/right issue?
Exchange adjusts the contract to include it
Is Gamma positive or negative for long puts?
Gamma is positive for long options, negative for short options.
Which options greeks are highest ATM?
All option greeks except for delta
What is dynamic hedging?
Where a portfolio is rebalanced based on delta hedging
What is another name for a synthetic long?
Reversal (long the synthetic & short the future)
What is a conversion?
When the price of a synthetic is greater than the future therefore short the synthetic and long the future
Benefits of a protected short call
Income in a stable environment and slight protection from a falling market
Benefits of a covered short put
Income in a stable environment and slight protection from a rising market
Why would an investor benefit from a falling interest rate market if they have a negative Rho?
Rho is correlated to the profitability of the portfolio in a specific change in interest rates. (Negative Rho will profit from falling environments and positive rho will benefit from rising environments)
Which exchanges provide a mutual offset link
Exchanges with a different time zone (e.g. SGX & CME / MCX & CME)
What is the process from execution to delivery?
Trade is matched & registered (or registered then matched for OTC), Trade is registered to the clearing house via TRS / UCP and then margined, monitored and prepared for settlement. DvP, change of ownership, tax, and then settlement.
When does novation occur?
At trade registration system (post execution)
For mutual and inddependent guarantee, which is used by US and which Is used by UK?
Mutual guarantee used by UK clearing house, independent guarantee used by US clearing house
What is the process in the event of a default for a mutual guarantee clearing house?
Default members margin, then default members contributions, then other members contribution and then their own funds
What is the process after a independent guarantee clearing house after a member defaults
Default members margin, then clearing house own funds (including insurance)
Wht is in the default fund?
Contributions made by members based on proportionate volume and value of average daily trades novated
How is the collateral for a default fund placed? Also occurs with initial margin
Haircuts will apply
What does STAN stand for?
Systems for Theoretical Analysis & Numiercal Simulation
What are the different SPAN adjustments?
Intermonth change (intramarket spread - different expiry), Spot month change, Inter-commodity credit (intermarket spread - different but connected assets)
Does variable magin apply for long equity index & single stock options
No both initial margin and variable margin doesn’t apply
What applys to short equity index and single stock option positions with regards to initial margin and variable margin
Applies to initial margin, doesn’t apply to variable margin
Does variable margin apply for bond and STIR options (both long and short)
Yes
What are the initial margin collateral restrictions
No: Swiss govt bonds, equity, undated bonds, and foreign denominated bonds (e.g. US denominated UK gilts)
What is the purpose of EMIR?
Reporting OTC derivatives, margining to reduce operational risk, mandatory use of CCP’s
What is a collar?
Cap and floor combined, usually by selling a floor and using that money to buy a cap.
What is a ratchet / cliquet?
Lock in profits at specific intervals
What are the two types of asian style options?
Strike is fixed and exervised against avg price over life, or strike is unknown & its set on average of asset price
Who is the payer leg of a FRA?
Payer receives the fixed and pays the floating
Who is the received of a FRA?
Receiver pays variable and receives fixed
What is the TRS / UCP?
Registration system between exchange and clearing house (between order book and clearing)
What is a covered short call and what is it used for
Benefit from a stable market and slight protecting from a falling market
What is a reversal trade?
Synethetic long (synthetic < future)
What is a conversion trade?
Synthetic short ( synthetic > future)
When is gamma negative, positive, and at it’s highest?
Positive for long options, negative for short options, at it’s highest ATM & short dated
When is vega positive, negative, and at it’s highest?
Positive for long options, negative for short options, at it’s highest ATM & long dates
When is theta positive, negative, and at it’s highest?
Positive for long options, negative for short options, at it’s highest ATM & long dated
When is rho positive, negative, and at it’s highest?
Positive for calls, negative for puts, highest ATM, ITM, and for long dated options.
What is a property swap?
total return swap on property
What is a total return swap
A type of credit derivatives as income & capital is affected
How do you calculate the price of a put from a call when given underlying cash price
C-P = S-K (options on futures) C-P=S-K/(1+r)^t
What is a binary option also known as and what is it
Known as a digital option and pays a fixed charge or nothing at all
What is a give up trade also called
An allocation
What is a block trade?
Large transaction between an exchange and a wholesale client. Exchange specifies the size before it becomes a block trade and the price is negotiated off the order book then executed and reported back to exchange.
What is the invoice amount formula
(EDSP * scale factor * price factor ) + accred interest
What can a spot month margin also be described as in reference to the actual delivery
Covers the risk of default during the delivery process
What is the difference between CFD’s and spread betting?
CFD’s subject to capital gains tax on realized gains, also subject to commissions
What is meant by volume and open interest in the option market?
Volume - no# contracts open | Open interest - no# contracts open even after some are closed out (indication of liquidity)
What are the different types of arbitrage
Intertemporal - Prices between different maturity dates being ‘out of line’ / Geographic - prices between two identical contracts across multiple exchanges / Value chain - prices between crude oil and refined products
Why would a trader go for a flex option
Customize contract terms whilst retaining the benefit of CCP
Which options terms are set by an exchange and which are customizable in a flex option
Exchange - Quantity & Asset /// Custom - Strike, Expiry, Expiry Style
What does PSNCR stand for
Public Sector Net Cash Requirement
Examples of exotic commodites?
Freight, Weather, Emissions, Cryptocurrenies & Hybrids
What are the common electronic platforms of exchanges?
LME Select // ICE Connect // Euronext Optiq (aquis) // CME Globex
Which commodities are physically delivered?
Non financial futures except brent
What does TIMS margin consist of?
Premium margin (value of position at close) + Risk margin (option pricing formula for potential change in position value)
What is aluminium used for?
Transport
What is lead used for?
Batteries
What is TIN used for?
Solder
What is Zinc used for?
Galvanizing
What commodities are available on CME?
CME: Energy products (gas oil, crude oil, natural gas) // NYME: energy + precious metals (gold, silver) + base metals (aluminium, copper) // CBOE: agriculatural and soft commodities
What is traded on NYMEX?
Ferrous metals (iron ore, hot rolled steel)
What is traded on CBOT?
Agricultural and soft commodoties // Gold, metals, and ethanol
Where are TAPO’s traded?
LME
What are agricultual products
Corn, What, Oats, Soybean oil, Rapseed & Wool
What are soft commodities?
Cocoa, Coffee, Orange juice and sugar (not tea)
What is copper used for?
Electrics, buildings
What is nickel used for?
stainless steel and alloys
What is traded on euronext derivs?
Soft commodities
What is traded on ICE
Crude Oil
What is traded on Dubai Mercantile Exchange?
Crude Oil
What is traded on European climate exchange?
environmental contracts
What is traded on MCX
Soft and agricultural commodities
Requirements for a Part 30 CFTC exemptions?
Client money regs, two way risk disclosure, provide FCA to client records, join NFA arbitration scheme, bound by exchange & FCA rules
