| Market: | All |
| Products: | Derivatives |
| Date: | 12 December 2006 |
Guidelines Clearing Fee Adjustment due to Corporate Actions
Main Principles
Option contracts or option positions can be adjusted due to corporate actions. In the past on the Amsterdam market the applicable transaction fee was adjusted after certain corporate actions. These adjustments were for example done to counter the extra costs that occur when an enlarged derivatives position is closed or to offer the possibility to close contracts with a non-standard contract size against reduced costs.
In the past such transaction fee adjustments were announced per individual corporate action. As from 1 January 2007 on the Amsterdam market the transaction fee is split into a trading fee and clearing fee part. Although the transaction fee split will not change the fee adjustments after corporate actions, LCH.Clearnet S.A wants to use this moment to describe the guidelines that are used to adjust the Clearing fee in case of corporate actions.
Scope
| Market | Euronext.liffe stock derivatives, options and futures, the latter only exist in Portugal (central market transactions and prof transactions). |
| Fee | Clearing, exercise/assignment and future settlement fees (only in Lisbon). |
| COE | Any COE resulting in a change of positions (split of nominal value, free share distribution, rights issues, mergers/take overs, spin-offs etc…), which entails additional costs to the clearing member, compared to what it would have paid whether had the COE not happened. |
| Period | When applicable the fee adjustment should only be applied to the positions actually impacted by the COE (ie existing at the time). However, since LCH.Clearnet SA systems do not differentiate in any way the pre-COE transactions from the post-COE transactions, the fee adaptation has to be applied to all transactions during a certain period duly or not. |
Fee adjustment frame work
Multiplication of the derivatives position (number of option contracts)
This type of adjustments is mainly applied on the Euronext Amsterdam derivatives markets where such COE impact positions whereas on Paris, Lisbon and Brussels derivatives markets the adjustments following such COE impact usually the strike and lot size but not the positions.
Example corporate event: Stock split
Effect on option contract
In case of stock split, if a shareholder owns 100 shares; after a stock split, the position own by the shareholder becomes 300 shares.
Because the new position of the option holder contains only standard size options of 100 shares, instead of one option contract with 300 shares, the position held on the option is multiplied by three with a standard contract size of 100 shares.
Fee adjustment
| Relevant fee | Relevant positions (Client/House/M M-T accounts) | Fee adjustment | Period during which adjustment is applied |
|---|---|---|---|
| Clearing fee | All trades | No adjustment | Not applicable |
| Ex/ass fee (Amsterdam) | Trades registered in accounts | Divided by the split factor for all positions. | Until the next quarterly expiry month in March cycle (2 quaterly expiry months in the March cycle when the corporate event takes place in a month of the March cycle) |
| Future settlement fee (Lisbon) | All trades | Divided by the split factor for all positions | Three months |
Introduction of an “O-class” with smaller, non-standard, contract size
Currently only applicable on Euronext Amsterdam derivatives markets.
Example corporate event: Rights issues, special dividends, mergers/take-overs
Effect on option contract
- Trading unit larger than 100 shares
After the COE the contract size rises to for example 110 shares. The option contract will be split in a class with 100 shares (with the original trading symbol) and a class with 10 shares (the trading symbol is enlarged with the letter “O”: the “O-class”). - Trading unit smaller than 100 shares
After the corporate event the contract size decreases to for example 97 shares. These contracts are converted to an Oclass (with 97 shares).
Fee proposal for the created “O-class” option only (it has a specific mnemonic and corresponding positions can therefore be identified):
| Relevant fee | Relevant positions (Client/House/M M-T accounts) | Fee adjustment | Period during which adjustment is applied |
|---|---|---|---|
Clearing fee
| All trades registered in accounts | Trading unit
| Until the end of the lifetime of the O-class |
| Future settlement fee (Lisbon) | All trades | Trading unit
From 1 to 40: no fee From 41 to 80: fee divided by 2 From 81 to 100: fee unchanged | Until the end of the lifetime of the O-class |
Fair value settlement
Applicable on all derivatives clearing segments
| Example corporate event | Cash take over, take over in non-Euronext listed shares. |
| Effect on option contract | Option class ceases to exist; the series are settled in cash, against fair-value. |
| Fee proposal | No fee adjustment. |
Combo
Applicable on all derivatives clearing segments
| Example corporate event | Spin off |
| Effect on option contract | In order to keep the value of the contract of before the corporate event, a basket of shares is created in the proportion of the split factor. The number of derivative contracts held by the investor remains unchanged. |
| Fee proposal | No fee adjustment since automatic process and number of positions, exercise/assignment does not change. |
For further information, please contact your local Relationship Manager.