| Market: | All |
| Products: | Derivatives |
| Date: | 28 December 2007 |
NYSE Euronext Decimalisation Project on Cash Markets (4 decimal positions for trade prices)
Impacts on the Derivatives Markets: 28 January 2008
Context:
In the framework of the "Decimalisation Project" implemented by NYSE Euronext on the cash markets, LCH.Clearnet SA would like to draw your attention to the impacts it will involve for the Clearing Members active on Paris, Brussels and Amsterdam Derivatives markets.
Summary
As from 28 January 2008, the prices of some securities listed on the Belgian and Portuguese cash markets will be quoted on four decimal positions instead of two. Please find below the principles that will be applied to the prices by NYSE Euronext:
- 2 decimal positions if the price is greater than or equal to €10
- 3 decimal positions if the price is less than €10 and greater than or equal to €0.25
- 4 decimal positions if the price is less than €0.25
As from 7 April 2008, the same rule will be applied on the French cash market.
As from 2 June 2008, the same principle will be applied on the Dutch cash market.
Impacts on the Derivatives Markets
Due to the fact that only part of the securities will move to three or four decimal positions, the impact on the Derivatives markets is limited.
However, Clearing Members active on the Paris, Brussels and Amsterdam derivatives markets (Equity options) will have to be particularly careful about the automatic process of exercise and abandonment at maturity date.
As a reminder, all options in the money are automatically exercised at maturity date. All options at the money or out the money are automatically abandoned at maturity date. Clearing Members have the possibility to enter manually their exercises and abandonments. The manual process has priority on the automatic process at maturity.
The automatic process of exercise and abandonment is based on the underlying price of the option at maturity date.
LCH.Clearnet SA sends the underlying prices in 2 public files:
EPPUBLICXXLCDC01001 including the clearing elements sent by Liffe. In this file, the Exchange will truncate to two decimal positions the underlying price of the options (EUR 9.70 for EUR 9.704). Please note that the price is currently sent to two decimal positions. As a result, no technical changes are expected for this file.
EPPUBLICXXLCCC01001 including only the underlying prices. This file is based on prices sent by NYSE Euronext (cash) and prices will be on four decimal positions (further to the implementation of the "Decimalisation Project"). No technical changes are expected for this file. The format of the file and its fields is kept unchanged. Functionally, the price will be transcripted with two, three or four decimal positions.
Therefore, Clearing Members active on the Derivatives markets will receive the underlying prices on two or four decimal positions depending on the file they are using. The automatic process of exercise and abandonment at maturity date will continue to be based on the prices sent by Liffe, i.e. the truncated prices on two decimal positions.
Impacts on the Brussels Derivative Market
Based on analysis carried out by Liffe there is currently only one Option on the Brussels market that has an underlying price around €10 and thus a tick size with potentially 3 decimal places. This is AGFA Gevaert option (AGE mnemonic).
Impacts on the Lisbon Derivative Market
The Lisbon market will not be impacted as Equity options are not traded on this market.
Impacts on the Paris and Amsterdam Derivative Markets
The impacts on Paris and Amsterdam options (starting respectively in April and June 2008) are still under study. You will receive shortly further communication(s) on these subjects.
For further information, please contact your LCH.Clearnet SA product implementation manager:
Dorothée Fresneau: +33 (0) 1 70 37 66 05 – dorothee.fresneau@lchclearnet.com
or
your local relationship manager.
Customer and Market Management LCH.Clearnet SA