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Nicosia, 28 th March 2008 HELLENIC EXCHANGES DERIVATIVES MARKET Trading, Clearing and Settlement of Derivative Products of Derivative Products Presentation.

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Presentation on theme: "Nicosia, 28 th March 2008 HELLENIC EXCHANGES DERIVATIVES MARKET Trading, Clearing and Settlement of Derivative Products of Derivative Products Presentation."— Presentation transcript:

1 Nicosia, 28 th March 2008 HELLENIC EXCHANGES DERIVATIVES MARKET Trading, Clearing and Settlement of Derivative Products of Derivative Products Presentation to Members of the Cyprus Stock Exchange

2 2 ATHEX Derivatives Market Agenda  Derivative Products  Trading  Clearing and Settlement  Securities Lending – Short Selling  Trading System  Statistics  Benefits

3 3 ATHEX Derivatives Market Financial Derivatives: Every financial product, the value of which depends on the value of another product (underlying product). A transaction in a derivative product is a legally binding agreement between two parties, of whom, one promises to buy and the other to sell a certain quantity of a standardized product, at a pre-specified future date and price. The underlying product can refer to stocks, indices, interest rates, currencies, parities, commodities etc.

4 4 ATHEX Derivatives Market Futures  Futures:  A legally binding agreement between two parties, of whom, one promises to buy and the other to sell a certain quantity of a standardized product, at a pre-specified future date (expiry date) and price (futures price) within a regulated market.  Estimations for the future development of the underlying products  Rising AND falling movements  Margin  Leverage  Daily settlement of gains-losses

5 5 ATHEX Derivatives Market Gains & Losses from a Future’s Purchase Gains (in €) Losses (in €) FTSE/ASE-20 points Unlimited Gains Unlimited Losses (1.500 * 5 €) Purchase of a index points Multiplier: 5

6 6 ATHEX Derivatives Market Gains & Losses from a Future’s Selling Gains (in €) Losses (in €) FTSE/ASE-20 points Unlimited Gains (1.500 * 5 €) Unlimited Losses Selling of a index points Multiplier: 5

7 7 ATHEX Derivatives Market Purchase of a Future on FTSE/ATHEX-20  Derivative: Future  Underlying Asset: FTSE/ATHEX-20 (blue chips)  Multiplier = 5 € per index point  Margin = 10% (leverage 1 to 10)  Movement 2% in index = 20% change of capital  Purchase at points  Nominal Value of Position = points * 5 € = €  Margin 10% = €  Selling at points  Nominal Value of Position = points * €5 = €  Gain = 250 € or 50 index points * 5 €  Capital: €  Return: 20.8% (index change 2.08%)  Settlement DAILY (credit/debit of gain/loss)

8 8 ATHEX Derivatives Market Selling of a Future on FTSE/ATHEX-20  Selling at points  Nominal Value of Position = points * 5 € = €  Margin 10% = €  Purchase at points  Nominal Value of Position = points * 5 € = €  Gain = 500 € or 100 index points * 5 €  Capital: €  Return: 41.66% (μεταβολή δείκτη 4.16%)  Settlement DAILY (credit/debit of gain/loss)

9 9 ATHEX Derivatives Market  Options:  An agreement that gives the buyer the right to buy (Call Options) or sell (Put Options) predefined quantity of the underlying asset at a pre- arranged price, at or until a pre-specified date BUYER OF AN OPTION SELLER OF AN OPTION CALL OPTION Has the right to buy the underlying asset at the exercise price. Is obliged to sell the underlying asset at the exercise price. PUT OPTION Has the right to sell the underlying asset at the exercise price. Is obliged to buy the underlying asset at the exercise price. Options  Prediction regarding the development of the value of an underlying asset (index, stock, currency etc) with security  All possible combinations: Rising, falling movements but also stability  Limited, unlimited, certain return  Leverage

10 10 ATHEX Derivatives Market Gains & Losses on expiration from the purchase of a Call Option Gains (in €) Losses (in €) FTSE/ATHEX-20 points Unlimited Gains Limited Losses (premium) , Purchase of a Call Option 100 premium Multiplier: 5

11 11 ATHEX Derivatives Market Gains & Losses on expiration from the selling of a Call Option Gains (in €) Losses (in €) FTSE/ATHEX-20 points Limited Gains (premium) Unlimited Losses Selling of a Call Option 100 premium Multiplier: 5

12 12 ATHEX Derivatives Market Gains & Losses on expiration from the purchase of a Put Option Gains (in €) Losses (in €) FTSE/ATHEX-20 points Limited Losses Unlimited Gains (( ) * 5 €) Purchase of a Put Option 80 premium Multiplier: 5

13 13 ATHEX Derivatives Market Gains & Losses on expiration from the selling of a Put Option Gains (in €) Losses (in €) FTSE/ATHEX-20 points Limited Gains Premium Unlimited Losses (( ) * 5 €) Selling of a Put Option 80 premium Multiplier: 5

14 14 ATHEX Derivatives Market Purchase of a Call Option Purchase of a CALL DEC premium points Capital: 20 * 5 € = 100 € Selling of a CALL DEC premium points Gain: 45 points ( ) = 45 * 5 € = 225 € (return: 225 %)

15 15 ATHEX Derivatives Market Purchase of a Put Option PURCHASE of a PUT DEC premium points Capital: 20 * 5 € = 100 € Selling of a PUT DEC premium points Gain: 40 points (60-20) = 40 * 5 € = 200 € (return: 200 %)

16 16 ATHEX Derivatives Market Entities  Capital Market Commission  Athens Exchange  HELEX (securities and derivatives clearing/settlement)  ATHEX Members  Clearing Members  Cash Settlement Bank  Margin Banks  Vendors

17 17 ATHEX Derivatives Market Life Cycle  Margin Requirement  Purchase/Selling of a Future  Selling of a Call or Put  Clearing (daily)  After the end of the trading session  Settlement on expiration  Final Settlement Prices  Expiration:  Expiration on a month basis:  Futures on the FTSE/ATHEX - 40  Put Option on the FTSE/ATHEX – 20 & FTSE/ATHEX - 40  Expiration on a trimester basis: (March, June, September, December)  Futures and Put Option on Stocks  Futures on FTSE/ATHEX - 20 The Final Settlement Prices results from the prices of the Intraday Auction of the Big Cap Category (it is realized every 3 rd Friday of each month).

18 18 ATHEX Derivatives Market Market Model Basic Principles  Operation and regulations through the ATHEX Rulebook  Order Driven market (Continuous trading) with the participation of the Market Makers  Anonymity of transactions  Priority «Price – Time»  Clearing and Margin on a basis of Final Investor  Cash Settlement on a Member basis  Totally Electronic Trading & Clearing  Real Time market and Market Makers’ obligations surveillance

19 19 ATHEX Derivatives Market Derivative Products Put Options on: FTSE/ATHEX-20 index FTSE/ATHEX Mid 40 index 6 Stocks (Big Cap) Securities Lending on (Stock Repo, Stock Reverse Repo and STRAs) : 60 stocks of the indices FTSE/ATHEX-20 and FTSE/ATHEX Mid 40 Futures on: FTSE/ATHEX-20 index FTSE/ATHEX Mid 40 index 25 Stocks (Big Cap)

20 20 ATHEX Derivatives Market Procedures Hours  Trading Hours  Trading 10: :00  Market Makers 10: :30  Phases  Transactions  Continuous Trading  On-Line operations available  Calculation of Settlement Prices  Calculation of Margin  Clearing Transactions Clearing

21 21 ATHEX Derivatives Market User Types Market Place Assistant (MAW) Market Makers Supervision (MPA) Clearing (CLCO) Database Administrator (PD) DTW (Front Office) – Order Volume Limit DCW (Back Office) API Users (for connection 3 rd party applications - Front, Middle or Back Office,Quote Machines) Internal Users Member Users

22 22 ATHEX Derivatives Market Order Types  Simple orders  Fill or Kill  Fill and Kill  Rest of Day  Until Expiration  Specific Date  Standard combination orders  Fill or Kill  Fill and Kill  Non standard combination orders  Fill or Kill

23 23 ATHEX Derivatives Market Information Dissemination  ΟΑΣΗΣ System  Real Time Market Data  Websites  and and  Statistical Bulletins  Daily Statistical Bulletin  Monthly Bulletin  Annual Bulletin  Statistical Products

24 24 ATHEX Derivatives Market Vendors  Greece 1.FORTHNET SA 2.ZEYS 3.K-TEL KALOFOLIAS 4.INFOREX 5.PROFILE SA 6.TENFORE SYSTEMS LIMITED  Cyprus 1.AG - FINANCIAL ΝΕΤWORK LTD  Foreign 1.BLOOMBERG LP 2.GL TRADE SA 3.REUTERS LIMITED

25 25 ATHEX Derivatives Market Market Makers  Basic Obligation: To provide on a continuous basis bid and offer prices for predefined quantities of contracts.  The spread between bid and offer prices cannot exceed the highest limit allowed that ATHEX sets for each product.  If the Market Maker does not enter quotes he pays a fine.  Necessity of the Market Maker: Ensuring of liquidity in the market and spread reduction.  Most of the derivatives markets operate with the presence of Market Makers.  Their role is very important for new products.  The purpose of the Market Maker: To maximize the volume by buying at bid and selling at offer or by hedging their position in derivatives with an opposite position in the spot market.  It is not his purpose to take a position in the market, to influence the market or to hold the market.

26 26 ATHEX Derivatives Market HELEX (Clearing & Settlement of Derivatives)  Clearing House  Central Counterparty of the Final Investors  Clearing Accounts on a basis of a Final Investor  Cash Settlement on a Member basis  Physical Delivery of Assets on a basis of a Final Investor  Clearing Members – Guarantee of Clearing

27 27 ATHEX Derivatives Market Risk Management  Daily calculation and Margin collection  Collaterals  Lines of defense in case of commitment violation:  Margin of Investor  Margin of Clearing Member  Direct Clearing Member: 0.5 Μ €  General Clearing Member: 3 Μ €  HELEX equity capital Acceptable Pledges % of the daily valuation Cash in Euro100% Cash in USA dollars95.75% Letters of Credit100% 3-year Bond88% Variable Coupon Bonds88% years BondsΟμόλογα διάρκειας έτη83% Bonds of duration >9 years75% Stocks of FTSE/ATHEX - 20 and FTSE/ATHEX %

28 28 ATHEX Derivatives Market Securities Lending 1. Stock Repo (SL) / Stock Reverse Repo (SB) Lending to and from a pool of stocks managed by HELEX Lender Borrower HELEX Interest Payment Interest Receipt Stock Repo Stock Reverse Repo 1.Lending to and from a pool of stocks managed by HELEX. 2.The interest of Lending and the available quantity is determined according to the offer and demand. 3.Management of Corporate Actions. 4.Stocks of the Big Cap Category which are underlying assets of a derivative product or constituents of an index which serves as underlying of a derivative product. 5.They are used for Short Selling and covering of physical delivery obligations of derivative products.

29 29 ATHEX Derivatives Market Securities Lending (cont.) Lender Pays interest Receives interest STRA 2. Special Type Repurchase Agreement (STRA) Stock lending between two parties 1.Stock lending between two parties. 2.The interest of Lending and the quantity are agreed by the two parties. 3.Management of Corporate Actions 4.Stocks of the Big Cap Category which are underlying assets of a derivative product or constituents of an index which serves as underlying of a derivative product. 5.Possibility to choose the valeur of transaction and Possibility of clearing at the same day of the transaction 6.They are used for Short Selling, covering of physical delivery obligations of derivative products and for Failed Trades. Borrower

30 30 ATHEX Derivatives Market Short Selling – Framework Underlying Assets Flat-tick Time Short-covering Stocks of the Big Cap Category which are underlying assets of a derivative product or constituents of an index which serves as underlying of a derivative product. No price limitation (flat/up tick). Stocks lending can be realized until Τ+3 (settlement day) In case of stock purchase that results in a closing of position of a short selling, the buyer is not obliged to return them to HELEX (Stock Reverse Repo) Users All investors

31 31 ATHEX Derivatives Market Derivatives Trading System OASIS  ΟΜ (basic Software)  Stability  Security  High return  Orders  Average:  Max:  Transactions:  Average:  Max:  Availability: 99.94% trading, 99.80% clearing  International Standard  System  market model  OMNet API)

32 32 ATHEX Derivatives Market Derivatives Trading System OASIS

33 33 ATHEX Derivatives Market Statistics – Number of Contracts

34 34 ATHEX Derivatives Market Statistics - Various

35 35 ATHEX Derivatives Market Underlying Market Investors Benefits More investment choices  Gain in rising or falling cycle  Possibility of hedging of stocks portfolio  Investment in a whole sector with low cost  Depiction of sophisticated expectations for the market  Possibility to increase leverage Market completion  Increase of market efficiency  Vitalization of liquidity  Market maturity  Increase of international interest (Visibility)

36 36 ATHEX Derivatives Market

37 37 ATHEX Derivatives Market Information Athens Exchange S.A. (www.athex.gr, Pantelis Lamprou, Director of Business Development – Products Division 110, Athinon Ave, Athens Tel: Ε-mail:


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