Sunday, June 10, 2012

Options and derivatives market in France

Options and derivatives markets in FranceThe French index CAC 40 has started to launch Futures and Options contracts in july 1988 after receiving the authorization from the French ministry of Finance. The Major French banks such as Societe Generale and BNP Paribas in cooperation with Japanese and American banks started trading 50 futures and options contracts.
Nowadays the French options market is part of the NYSE (New York Stock Exchange) Euronext, which is the result of the merger between the NYSE and the Euronext based in Paris, it is the first cross border exchange and includes some other European countries. It has now 2 exchanges: the NYSE Amex Options, and the NYSE Arca options, pro-rata payment for order flow (Amex) or maker/taker price time priority (Arca).
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1)Option types:
As a result of the merger between the American and the French exchange there are both types of options in the French market:
-American Option  : can be exercised at any time up to the expiration date
-European Option: can be exercised only on the expiration date of the option.

 
The minimum trade size is one option contract. Each contract generally represents 100 shares of the underlying stock. Market participants trading on the Paris derivatives market have access to a wide range of stock options, including 47 European style options and 66 American style options on all stocks composing the CAC 40 Index as well as the SBF 120 Index. Prices are provided by 13 market makers providing high levels of liquidity.



2)Option Positions:
The type of positions available for options trading in France are pretty much the same as what is proposed in US.
Here is the complete list of the types of existing positions relative to options existing in the NYSE Amex and NYSE Arca:

2) Underlying Assets
2.1) Index Options on NYSE Arca:
Index options make it possible for investors to "trade" an entire market to find either profit or protection (hedging) from price movements in the stock market

--> 2.2)Equity Options on NYSE Arca and Amex:
The equity options market in france has grwown significantly this year as many investors are using it to improve their existing equity portfolios.
The NYSE Euronext options exchange accounts for more than 25% of the option trading, moreover all options contracts are cleared  by the OCC (Options Clearing Corporation), which is registered with the Securities Exchange Commission. The OCC has been rated AAA from Standard & Poor mostly because of its efficiency to meet its obligations for options trading.
The equity options give the right but NOT the obligation to buy (call) or sell (put) a stock at a price agreed at the time of the contract, equity options are efficient tools to hedge risk but also to speculate on equities.
2.3)Options on ETF (exchange-traded fund):
NYSE Arca Options trades more than 250,000 options series based on approximately 2,400 equity issues. This includes the trade options on approximately 70 exchange-traded funds (ETFs) and Holding company Depositary Receipts (HOLDRs). Exchange-traded funds are index funds or trusts that are traded intraday on an exchange. They allow an investor to buy or sell shares of an entire stock portfolio in a single security. ETF options are standardized put and call options on underlying ETFs. Minimum trade size is one option contract, with each contract representing 100 shares of the underlying ETF.

2.4) Options FLEX
Flexible Exchange (FLEX) options are customized equity or index contracts that allow investors to tailor contract terms and enjoy expanded position limits for exchange-listed equity and index options. Like over-the-counter options, FLEX option strategies can be tailored according to target trading objectives.

2.5) Foreign Exchange Options:
FX Options are not directly traded on the NYSE- Euronext, but are getting widely popular with the possibility of opening Mini-Forex account with many Brokers in France.

4)Specification of Stock Options on the French Market:
4.1)Expiration Date:
The stock options in the NYSE-Euronext are following the January, February or March cycle like Stock options in the United States., and then the two consecutive near term months plus two successive from the January, February or March cycle. The last trading day is the Saturday following the third Friday of the expiration month. Here is the options expiration calendar:


4.2)Strike Prices:






Intervals in Index points
·        
 IIf the expiration date is less or equal to one month:
Interval A: used for the 5 closest strike prices
Interval B : for the 6 other strike prices
·         If the expiration is more than 1month and less or equal to 3months:
Interval B: used for the 3 closest strike prices
Interval C: for the 6 other strikes prices
·         For expiration dates between 3 and 9 months
Interval C: for the 3 closest strike prices
Interval D: for the 6 other strikes prices
·         For expiration dates between 9 and 24 months
Interval D: for the 3 closest strike prices
Interval E: for the 4 other strikes prices
·         For expiration dates over 24 months:
Interval E: for the 3 closest strike prices
Interval F: for the 2 other strike  prices

 
4.3) Dividend and Stock Split:
The French derivatives market is Stock Split adjusted, meaning that if there is a 2 for 1 stock split, 1 call that could buy 1 stock will now be able to buy 2 stocks.

4.4)Positions limits and Exercise limits:
 Position Limits  on NYSE- Euronext vary according to the number of outstanding shares and past six-month trading volume of the underlying stock. Current limits are set at 75,000, 60,000, 31,500, 22,500 and 13,500 contracts on the same side of the market.

 
5) Commissions: Fees and charges:
Commission and fees Options and derivatives markets NYSE Euronext

Fees for the French Derivatives products for both American and European options.


7) Margin requirement
Minimum Customer Margin: 100% of the market value of the option plus 20% of the value of the underlying security less any out-of-the-money amount, subject to a minimum of 100% of the market value of the option plus 10% of the value of the underlying security

8)Clearing:
NYSE Liffe contracts traded on the Amsterdam, Brussels, Lisbon and Paris derivatives markets are cleared by LCH.Clearnet SA. Contracts traded on the London market and those reported to NYSE Liffe via Bclear are cleared by NYSE Liffe Clearing, for which certain risk management services are provided by LCH.Clearnet Ltd.
9)Regulation:
The Regulated Market for derivatives in France holds an exchange license granted by the Finance national authority and operates under its supervision. it is subject to the national laws and regulations in force in its jurisdiction. In addition, the regulatory framework in Europe is substantially influenced and partly governed by EU directives in the financial services area.
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