Enhancements to Eurex Wholesale/OTC Portfolio

Eurex Release 10.0 will enhance users' ability to trade tailor-made options - and also introduces the same customization for futures contracts.

Introduction of OTC Flexible Futures & Enhancements of OTC Flexible Options

The OTC Flexible Options facility was originally introduced in November 2005 for all equity and equity index options and with Eurex Release 9.0 extended to options on Euro fixed income futures.

Now, Eurex gives users even more flexibility: Release 10.0 will enhance users' ability to trade tailor-made options - and also introduces the same customization for futures contracts.

In this way, Eurex members benefit from the flexibility of customized OTC contracts, combined with the efficiency and security of standardized clearing and settlement processes for all equity and equity index options and futures as well as for fixed income options.

Key parameters for options to be determined according to the member's individual requirements are:

• Exercise Price
  The exercise price for OTC Flexible Options can be defined as a percentage based range above the highest exercise price of all maturities or a fixed lower limit below the exercise price of standard series for the particular product. NEW: No more restrictions of the range for choice by the highest and lowest exercise price of the standard contracts.
  
  
• Expiration Date
  The expiry date can be any business day (with some special Eurex defined exceptions) starting from the next business day until the longest currently active standard expiration date of the affected standard product.
  
  
• Exercise Style
  American or European exercise can be specified.
  
  
• Settlement Type
  NEW: The settlement type of OTC Flexible Options contracts trades is now flexible. Members can choose to settle their OTC Flexible Options contract trades either with cash or with the physical settlement type available for the product. Based on market feedback, Eurex will also implement a series of functional enhancements on OTC Flexible Options that facilitate back-office processing like
  • Trade Separations - Participants will have the ability to split the total trade into up to twenty individual groupings to allow many sub-accounts to share in the same trade.
  • Partial Closeouts* - These partial closeouts are only possible if a member owns both the buy and sell side of a transaction. However, they are not possible for sub-trades of two different trades.
  • Partial Exercise* - This feature will now allow participants to exercise only a portion of an option position if desired.
    
  ^{* Partial Closeouts and/or Partial Exercises can only be performed after a user has executed a Trade Separation.}
  

Key parameters for futures to be determined according to the member's individual requirements are:

• Flexible Expiration - The participants of an OTC Flexible Futures trade can create their own expiration date for the transaction. Tailored expiration dates can be as early as the next business day or as far out as the expiration date for the most distant standard future listed on Eurex.
• Settlement Choice - Similar to OTC Flexible Options on individual equities, OTC Flexible Futures give participants, in most cases, the ability to negotiate the terms of settlement for Single Stock Futures (cash settlement or physical delivery).
• Popular System Features - All systems features that counterparties use for OTC Flexible Options will also be available for OTC Flexible Futures.
  
  
  

Products for OTC Flexible Futures & Options Functionality

The following products will be available

• Options on more than 200 individual equities
• NEW: Futures on more than 400 individual equities
• Options on more than 50 equity indexes and Exchange Traded Funds
• NEW: Futures on more than 50 equity indexes and Exchange Traded Funds
• Options on fixed income futures

A complete list of the individual products and their specifications can be found on our website.

Product Code Logic For Options

The last digit of the synthetic product ID will determine the exercise and the settlement type. The numbers 7 and 8 will determine the exercise type, 6 and 9 the alternative settlement style.

The product codes for equity index options remain unchanged:

• Code 7: Exercise Type European, Cash Settlement (e.g. OD7X)
• Code 8: Exercise Type American, Cash Settlement (e.g. OD8X)

The product code for equity options with a flexible settlement type will change as follows:

• Code 6: Exercise Type European, Cash Settlement (e.g. ALV6)
• Code 7: Exercise Type European, Physical Settlement (e.g. ALV7)
• Code 8: Exercise Type American, Physical Settlement (e.g. ALV8)
• Code 9: Exercise Type American, Cash Settlement (e.g. ALV9)
  
  
  

Product Code Logic For Futures

OTC Flexible Futures will also have a product code similar to OTC Flexible Options.

The product code for Single Stock Futures will be derived from the regular product ID by replacing it's third character by a number depending on the settlement type:

• "4" will be used if the Flexible Future is cash settled (e.g.AL4F)
• "5" will be used if the Flexible Future is physical settled (e.g.AL5F)
  
  
  

Front-end Changes

To accommodate these new changes, Eurex will introduce changes to the front-end. Namely, the entry window formerly called "Wholesale OTC Flexible Options Entry" will now be called "Wholesale OTC Flexible Contracts Entry". Several reports will also be renamed, the table below lists the new report names:

Report ID	Old Name	New Name
CB063	FLEXIBLE OPTIONS TRANSACTIONS OVERVIEW	FLEXIBLE CONTRACTS TRANSACTIONS OVERVIEW
CB064	FLEXIBLE OPTIONS DAILY TRANSACTIONS	FLEXIBLE CONTRACTS DAILY TRANSACTIONS
CB195	FLEX OPT FEE STATEMENT	FLEXIBLE CONTRACTS FEE STATEMENT

Minimum Trading Sizes

The minimum trading size for OTC Flexible Options and for OTC Flexible Futures is identical to the Wholesale OTC block trade size of regular Eurex options and futures. You can find a list of the minimum sizes in the Eurex product brochure, or on the web under the products link in the left hand navigation bar: e.g. for options on Allianz Holding.

Margining for OTC Flexible Contracts

OTC Flexible Options transactions are considered as being within the margin class of the respective underlying for cross margining purposes. Traditional-style OTC Flexible Options transactions impose a premium margin requirement, while fixed income OTC Flexible Options impose a variation margin requirement. Both traditional-style and fixed income OTC Flexible Options require additional margin to cover a worst case scenario during the next trading day. OTC Flexible Futures transactions are included within the margin classes of the standard futures product. The mark-to-market calculation for OTC Flexible Futures transactions are calculated similar to standard futures and added to its variation margin balance.