Approved participants must apply the following procedures when executing riskless basis crosses:

Transcription

1 PROCEDURES APPLICABLE TO THE EXECUTION OF RISKLESS BASIS CROSS TRANSACTIONS ON FUTURES CONTRACTS ON S&P/TSX INDICES AND FUTURES CONTRACTS ON CANADIAN SHARES FUTURES CONTRACTS ON S&P/TSX INDICES: Burse de Mntréal Inc. (the Burse) authrizes riskless basis crss transactins n listed futures cntracts n S&P/TSX indices. The Burse prvides apprved participants with a facility that permits the purchase/sale f index futures cntracts against cash instruments fr an average cash market price plus a pre-negtiated basis. A riskless basis crss has n impact n the existing cash market as the initiated peratin results in a riskless transactin in the bks f the apprved participant. Apprved participants receiving requests frm clients wh cannt r d nt want t hld cash securities in their accunts but wh wish t acquire market expsure in the mst efficient way pssible (either n the cash r exchange-traded fund ETF markets) are authrized t d a riskless basis crss. The sle intent and purpse f the riskless basis crss is t allw market participants t use the attributes f the underlying cash market t take n the market psitin requested by the client and then t replicate it thrugh the use f futures cntracts thus leaving the apprved participant with n resulting market psitin and the client with a final psitin in the futures cntract. Once the terms f the riskless basis crss have been agreed t with the client, the apprved participant begins the transactin by taking a psitin in the cash instruments in its wn accunt n behalf f the client. The apprved participant then has t execute the riskless basis crss transactin (by cntacting the Market Operatins Department f the Burse) and allcate the futures cntract psitin, functinally equivalent t the cash market expsure, (as initially requested by the client) int the client s accunt. Apprved participants must apply the fllwing prcedures when executing riskless basis crsses: The apprved participant accepts the rder t execute a transactin n behalf f its client (wh wishes t acquire index market expsure with a resulting futures psitin) fr an average cash market price plus a pre-negtiated basis (spread). The terms f the transactin shuld either be a fixed pre-negtiated basis established prir t executin f the transactin r a guaranteed (by the apprved participant t the client) clsing r executed price f the cash cmpnent in which circumstance the basis will be adjusted accrdingly. The apprved participant begins the transactin by acquiring expsure (lng r shrt) in the cash market n its client s behalf, using securities, baskets f securities, index participatin units, r exchange-traded funds cmprised f the underlying securities f the related index futures cntracts that cnstitute the Page 1 de 5

2 riskless basis crss. Fr the purpse f this type f peratin, these instruments are accumulated in the apprved participant s accunt. The cash prtin f the riskless basis crss must be cmprised f at least 80 percent f the cmpnents cnstituting the underlying index (e.g. fr the S&P/TSX 60 Index, at least 48 cnstituents must be part f the transactin) It is generally expected that, fr the purpse f the riskless basis crss, apprved participants will use all f the index cmpnents when taking psitin in the cash market. Hwever, there are circumstances which may prevent an apprved participant frm acquiring certain index cmpnents, and the apprved participant may therefre exclude these index cmpnents frm the cash psitin. Examples f such circumstances include: an index cmpnent is n the apprved participant s r client s internal restricted list (due t a crprate actin invlving the issuer f the given cmpnent), a specific index cmpnent is halted frm trading during the day f the peratin, market cnditins f a specific index cmpnent are inadequate (e.g. if liquidity is insufficient t execute the transactin) r any ther justifiable situatin f a similar nature. The cash prtin f the riskless basis crss must be reasnably crrelated t the underlying index with a crrelatin cefficient (R) f 90% r mre. At the time agreed with its client the apprved participant executes a riskless basis crss transactin fr a predetermined quantity f index futures cntracts. One side f this riskless basis crss transactin ffsets the apprved participant s psitin in the underlying cash market and the ther side f the trade represents the ttal market expsure requested by the client. The resulting unhedged index futures cntracts psitin is then allcated int the client's accunt. A riskless basis crss transactin may nly be executed during the regular trading hurs f the underlying instrument until the end f the extended sessin at the Trnt Stck Exchange (TSX). The transactin has t be executed the same day as and after the cmpletin f the cash prtin f the peratin. In the event that the riskless basis crss peratin has t be executed ver a several day perid, the futures prtin f the peratin has t be prprtinate t the underlying prtin at any given executin day. T execute the riskless basis crss transactin, the apprved participant must prvide the details f the cncluded transactin t the Market Operatins Department f the Burse by filling ut and submitting thrugh the Burse s Web page the prescribed Special Terms Transactin Reprting Frm. Once submitted, the riskless basis crss transactin will be registered by the Market Operatins Department in the trading system. The transactin will then be specially marked and displayed in the systems (trading platfrm and data vendrs) at the pst trade recap level. Once cncluded and registered, the riskless basis crss transactin will appear in the Transactin Reprt maintained n the Burse s Web page Page 2 de 5

3 There is n minimum time required t display (by the apprved participant) the riskless basis crss transactin prir t executin. As sn as it is reprted t the Market Operatins Department at the Burse, the transactin will be registered and displayed withut delay. There is n minimum size restrictin fr a riskless basis crss transactin. There is n requirement fr a riskless basis crss transactin t be executed within either the bid and ask r the daily high and lw prices. The riskless basis crss transactin is excluded frm the daily settlement price prcedures, but is included in the daily vlume figures. Apprved participants invlved in a basis crss transactin may be required t demnstrate t the Burse: that the transactin is cmprised f at least 80% f the cmpnents cnstituting the underlying index; and that the futures prtin f the transactin replicates the underlying index and that cmpnents f the underlying index that are nt included in the riskless basis crss were justifiably excluded (as described abve) frm the transactin; and that the cash prtin f the riskless basis crss has a minimum crrelatin f 90% t the underlying index; and whether the transactin s pre-negtiated basis was fixed and established prir t the executin f the transactin r resulted frm a guaranteed clsing r executed price f the cash cmpnent; and that the cash psitin and the futures cntracts psitin (resulting frm the riskless basis crss transactin) are prperly recrded in bth the apprved participant s and client s accunts. While the apprved participant must acquire the cash market psitin befre executing the futures cntract leg, the Burse des nt impse any time limit fr the retentin r liquidatin by the apprved participant f the cash market psitin. Once the riskless basis crss has been cmpleted, the apprved participant may manage the psitins n its bks as it sees fit. FUTURES CONTRACTS ON CANADIAN SHARES: Burse de Mntréal Inc. (the Burse) authrizes riskless basis crss transactins n listed Share Futures cntracts. The Burse prvides apprved participants with a facility that permits the purchase/sale f Share Futures cntracts against the underlying cash instrument fr an average cash market price plus a pre-negtiated basis. A riskless Page 3 de 5

4 basis crss has n impact n the existing cash market as the initiated peratin results in a riskless transactin in the bks f the apprved participant. Apprved participants receiving requests frm clients wh cannt r d nt want t hld cash securities in their accunts but wh wish t acquire market expsure in the mst efficient way pssible n the cash market are authrized t d a riskless basis crss. The sle intent and purpse f the riskless basis crss is t allw market participants t use the attributes f the underlying cash market t take n the market psitin requested by the client and then t replicate it thrugh the use f futures cntracts thus leaving the apprved participant with n resulting market psitin and the client with a final psitin in the futures cntract. Once the terms f the riskless basis crss have been agreed t with the client, the apprved participant begins the transactin by taking a psitin in the cash instruments in its wn accunt n behalf f the client. The apprved participant then has t execute the riskless basis crss transactin (by cntacting the Market Operatins Department f the Burse) and allcate the futures cntract psitin, functinally equivalent t the cash market expsure, (as initially requested by the client) int the client s accunt. Apprved participants must apply the fllwing prcedures when executing riskless basis crsses: The apprved participant accepts the rder t execute a transactin n behalf f its client (wh wishes t acquire a cash market expsure with a resulting futures psitin) fr an average cash market price plus a pre-negtiated basis (spread). The terms f the transactin shuld either be a fixed pre-negtiated basis established prir t executin f the transactin r a guaranteed (by the apprved participant t the client) clsing r executed price f the cash cmpnent in which circumstance the basis will be adjusted accrdingly. The apprved participant begins the transactin by acquiring expsure (lng r shrt) in the cash market n its client s behalf, using the underlying security f the related Share Futures cntract that cnstitute the riskless basis crss. Fr the purpse f this type f peratin, these instruments are accumulated in the apprved participant s accunt. The cash prtin f the riskless basis crss must be cmprised f the underlying stck f the Share Futures cntract. At the time agreed with its client the apprved participant executes a riskless basis crss transactin fr a predetermined quantity f Share Futures cntracts. One side f this riskless basis crss transactin ffsets the apprved participant s psitin in the underlying cash market and the ther side f the trade represents the ttal market expsure requested by the client. The resulting unhedged Share Futures cntracts psitin is then allcated int the client's accunt. A riskless basis crss transactin may nly be executed during the regular trading hurs f the underlying instrument until the end f the extended sessin at the Trnt Stck Exchange (TSX). The transactin has t be executed the same day as and after the cmpletin f the cash prtin f the peratin. In the Page 4 de 5

5 event that the riskless basis crss peratin has t be executed ver a several day perid, the futures prtin f the peratin has t be prprtinate t the underlying prtin at any given executin day. T execute the riskless basis crss transactin, the apprved participant must prvide the details f the cncluded transactin t the Market Operatins Department f the Burse by filling ut and submitting thrugh the Burse s Web page the prescribed Special Terms Transactin Reprting Frm. Once submitted, the riskless basis crss transactin will be registered by the Market Operatins Department in the trading system. The transactin will then be specially marked and displayed in the systems (trading platfrm and data vendrs) at the pst trade recap level. Once cncluded and registered, the riskless basis crss transactin will appear in the Transactin Reprt maintained n the Burse s Web page There is n minimum time required t display (by the apprved participant) the riskless basis crss transactin prir t executin. As sn as it is reprted t the Market Operatins Department at the Burse, the transactin will be registered and displayed withut delay. There is n minimum size restrictin fr a riskless basis crss transactin. There is n requirement fr a riskless basis crss transactin t be executed within either the bid and ask r the daily high and lw prices. The riskless basis crss transactin is excluded frm the daily settlement price prcedures, but is included in the daily vlume figures. Apprved participants invlved in a basis crss transactin may be required t demnstrate t the Burse: whether the transactin s pre-negtiated basis was fixed and established prir t the executin f the transactin r resulted frm a guaranteed clsing r executed price f the cash cmpnent; and that the cash psitin and the futures cntracts psitin (resulting frm the riskless basis crss transactin) are prperly recrded in bth the apprved participant s and client s accunts. While the apprved participant must acquire the cash market psitin befre executing the futures cntract leg, the Burse des nt impse any time limit fr the retentin r liquidatin by the apprved participant f the cash market psitin. Once the riskless basis crss has been cmpleted, the apprved participant may manage the psitins n its bks as it sees fit Page 5 de 5