CIRCULAR. Circular No Circular Date 8/12/2017. Category Trading Operations Segment ALL. Commencement of Trading in GOLD Options.

Transcription

1 CIRCULAR Circular No Circular Date 8/12/2017 Category Trading Operations Segment ALL Subject Commencement of Trading in GOLD Options Attachments No Attachment

2 Subject: Commencement of Trading in GOLD Options The Exchange is pleased to inform all Trading Members that it shall commence trading in GOLD options with effect from Wednesday, August 30, The summary of GOLD options contract specification is as given below: Underlying Asset India INX Gold Futures Contract Symbol Instrument Type Contract Size GOLD OPTCOM One India INX Gold futures contract Min Tick Size Strike Interval* (USD) Contract Months January, March, May, July, September and November * Minimum 40 strikes above and below the at-the-money strike. Once the price reaches close to the lower end or higher end of the option chain, additional option strikes will be introduced next trading day. The detailed contract specification is given as Annexure. Other trading parameters shall remain the same as specified in the consolidated master circular issued via Exchange circular no dated January 12, For any further clarifications, Members are advised to contact their designated Relationship Manager. For and on behalf of India International Exchange (IFSC) Ltd., Soundarajan Venkatadas Chief Regulatory Officer Arunkumar Ganesan Head Operations Contact details Phone: /2 id: trading.operations@indiainx.com

3 Annexure Detailed Contract Specifications of GOLD Options cash settled contract 1.1 Underlying India INX Gold Futures Symbol: GOLD 1.2 Instrument Type OPTCOM 1.3 Option Type Premium Style European Call and Put Options 1.4 Trading Hours Monday to Friday: Session 1-04:30:00 Hours to 17:00:00 Hours Session 2-17:00:01 Hours to 02.30:00 Hours 1.5 Size of the Contract One, India INX Gold futures contract 1.6 Quotation US$ per Troy Ounce 1.7 Premium Premium quoted in USD 1.8 Minimum Price Movement (Tick Size) USD Strike Price Intervals Minimum 40 strikes at $5 per troy ounce strike increment above and below the at-the-money strike Available Contract January, March, May, July, September & November contracts shall be available for trading

4 1.11 Settlement Mechanism All In The Money (ITM) and At The Money (ATM) contracts will get exercised and devolved in to futures position opened at the strike price of the exercised Options Contract Value The contract value shall be = (Strike Price + Premium)* 32 USD 1.13 Settlement Logic Devolvement into underlying futures contract 1.14 Last Trading Day Fourth last business day of the month 1.15 Settlement Daily Settlement: The Options Premium settlement will be done as follows: Trading Session 1 - Settlement on next working day by Hours Trading Session 2 - Settlement on the same day by 16:30 Hours Final Settlement: On exercise, Options positions shall devolve into underlying Futures position as follows:- Long Call position shall devolve into long position in the underlying Futures contract Long Put position shall devolve into short position in the underlying Futures contract Short Call position shall devolve into short position in the underlying Futures contract Short Put position shall devolve into long position in the underlying Futures contract On Expiry of options contract, all such devolved Futures positions shall be opened at the strike price of the exercised Options Exercise Mechanism at expiry All option contracts belonging to At the money (ATM) & In the Money (ITM) options shall be exercised 1.17 Position limits Eligible market participants are allowed to take positions in Gold Option Contracts as prescribed below: (i) Position limits for stock brokers (Trading Members): Gross open position across all contracts shall not exceed 30% of the total open interest or 5 lakhs contracts whichever is higher.

5 (ii) Position limits for Clients: Gross open position across all contracts shall not exceed 10% of the total open interest or contracts whichever is higher. The above position limits are combined position limit for Gold Futures and options contract Price Bands A contract specific price range based on its delta value computed and updated on daily basis Risk Management The margins shall be collected in USD. Initial Margin Initial Margin would be calculated using SPAN; the margining framework of India ICC shall be compliant with the PFMI including a margin model that provides coverage of at least a 99% singletailed confidence interval of the estimated distribution of future exposure. India ICC shall conduct daily stress testing, back testing and reverse stress testing for credit risk to ascertain the impact of failures of members and adequacy of its financial resources in meeting any shortfall arising out of such failures. Extreme Loss Margin The clearing corporation may impose an extreme loss margin to provide additional risk coverage. The extreme loss margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. Real-Time Computation The computation of worst scenario loss would have two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract values would be applied to the actual portfolio positions to compute the portfolio values and the initial margin. The scenario contract values shall be updated at the start of the business day, then every 1.5 hours and finally at the end of the business day. The latest available scenario contract values would be applied to member/client portfolios on a real time basis. Short Option Minimum Margin Deep-out-of-the-money short options may show zero or minimal Scan Risk given the price and volatility moves in the 16 market scenarios, yet still present risk in the event that these options move closer-to-the-money or in-the-money, thereby generating potentially large losses. Hence a Short Option Minimum Margin is applied to each product to account for this potential exposure. The Short Option Minimum Margin is calculated on the Notional Value of all short options.

6 Net Option Value The Net Option Value is the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. The Net Option Value would be added to the Liquid Net Worth of the clearing member. Thus, mark to market gains and losses would not be settled in cash for options positions. Settlement of Premium Premium would be settled in $US and would be paid in by the buyer in cash and paid out to the seller in cash. Until the buyer pays in the premium, the premium due shall be deducted from the available liquid assets on a real time basis. Contract Launch Calendar for GOLD options contract expiring is as given below: Sr. No. Symbol Instrument Type Contract Month Futures Contract Expiry Date Options Contract Expiry Date 1 GOLD OPTCOM September Sep Sep-17 2 GOLD OPTCOM November Nov Nov-17 3 GOLD OPTCOM January Jan Jan-18 4 GOLD OPTCOM March Mar Mar-18 5 GOLD OPTCOM May May May-18 6 GOLD OPTCOM July Jul Jul-18