Equity Derivatives. Name Quoted Tenor Total Return Swap Basis Points (+35 / +39) SPTR (3M/3ML)

Transcription

1 Equity Derivatives Prducts Ttal Return Swaps & Price Return Swaps Variance Swaps Prduct Specificatins Ttal Return Swaps & Price Return Swaps The Ttal Return and Price Return Swap cntract is an agreement where cash flws are exchanged between parties where the first party makes payments based n returns n an brad based equity index and the cunterparty makes payments f a fixed amunt and/r flating amunt r payments based n the returns f the brad based equity index. Name Quted Tenr Ttal Return Swap Basis Pints (+35 / +39) SPTR (3M/3ML) Currencies USD GBP EUR JPY AUD SEK CHF DKK CAD NOK PLN CZK TRY HKD KRW Instrument Specificatins Trading Cnventins Buyer - The buyer f a cntract will pay the rate f interest n the underlying leg plus the swap premium, and in return receive the appreciatin in value f the underlying equity. Seller - The seller f a cntract will receive the rate f interest plus the swap premium and in return pay the value f the appreciatin f the underlying equity. TRS Leg Cnventins Equity Leg Underlying Equity Index Brad-based index, as defined by the CFTC and SEC.

2 Multiplier This will be equal at all times t the exchange multiplier f the underlying equity index Initial Price Immediate This is when the initial price is agreed at the time f trade Future This is when the initial price is set at an agreed time in the future Fixed Fee A fixed fee may be agreed that will be added r subtracted t price f the Equity Leg. Interest Rate Leg Leg Type Fixed Rate This will be an agreed rate. Flating Rate Type This will be an agreed market interest rate Rate Validatin Surce The agreed surce frm which the Interest Rate Leg Fixings prices shall be taken. Tenr ICAP SEF will supprt Tenrs f any duratin greater than 0 years and less than 50 years Trade Date The trade date f the cntract refers t the date n which the swap cntract was agreed Initial Equity Valuatin Date The initial settlement date f the cntract will be an agreed calendar date Equity Effective Date The initial settlement date f the cntract will be an agreed calendar date Equity Reset Frequency This is an agreed perid f time in any valid time integer Final Equity Valuatin Date The final valuatin date f the cntract will be an agreed calendar date Interest Rate Reset Frequency This is an agreed perid f time in any valid time integer Terminatin Date The maturity date f the cntract will be an agreed calendar date. On this date bligatins under the cntract n lnger accrue Trade Types Ttal Return Swap (TRS) The calculatin f the value f which the equity leg is based will be the appreciatin/depreciatin f the underlying equity leg plus any returns due frm the underlying index. Price Return Swap (PRS) The calculatin f the value f which the equity index leg is based will be the appreciatin/depreciatin f the underlying equity index leg.

3 Business Day Cnventin The business day cnventin will be agreed t be ne f the fllwing standard cnventin: Actual Fllwing Mdified Fllwing Previus Mdified Previus Cntract Size The minimum size available t trade n the SEF is 1 unit, and sizes are incremental in amunts f 1 unit. Quting Cnventin Cntracts are quted in basis pints. Minimum and Incremental Price There is n minimum price fr a cntract. There is n minimum incremental price fr a cntract Reprting All trades are reprted in accrdance with SDR requirements Clearing Equity Derivative Swap Cntracts traded n ICAP SEF are nt cleared Dividend If a return payment is due as part f the Cntract, a frmula used t calculate that return shall be agreed.

4 Variance Swaps The variance swap is a prduct that is used t take a direct view n the vlatility f a brad-based security index. Name Quted Tenr Variance Swaps BPS - Vega SPX dec13 Var Currencies USD GBP EUR CHF Instrument Specificatins Trading Cnventins Buyer The buyer f a variance swap pays a fixed rate (the Variance Strike) in exchange fr a payut based n the daily realized variance. Seller - The seller f a variance swap receives a fixed rate (the Variance Strike) in exchange fr a payut based n the daily realized variance. Variance Leg Cnventins Flating Leg Rate This is the realized variance rate that is calculated n the expiratin date. Underlying Index - This must be a brad-based security index, as defined by the CFTC Regulatin 41.1(c). Fixed Leg Rate This is the agreed fixed rate f Variance (Traded Price).

5 Trade Types Capped This is when the maximum payut f the cntract is capped at an agreed price. Uncapped This is where there is n maximum payut n the cntract. Trade Start Types Immediate The bservatin perid f the swap begins immediately. Frward The bservatin perid f the swap begins n an agreed date in the future. Expiratin Date This is the date n which the swap expires, and the date upn which the final rate f vlatility shall be calculated n using the detailed frmula. Tenr ICAP SEF will supprt tenrs f any duratin greater than 0 years and less than 50 years. Observatin Start Date This is an agreed trading day f the underlying either n r an agreed number f days after the date n which the cntract is agreed. Number f Observatins (N) The number f bservatins will be the number f trading days f the underlying index between the bservatin start date and the expiratin date. Business Day Cnventin The Target Fllwing business day cnventin will apply (If any date is a nnbusiness day, the date is mved frward t the next business day).

6 Cntract Size Variance Swap cntracts are quted in Vega amunts. The minimum cntract size is 1,000 f the currency f which the underlying index settles in. Quting Cnventin Variance Swap cntracts are quted in vlatility percentage pints. Minimum and Incremental Price There is n minimum price fr a Variance Swap cntract. There is n minimum incremental price fr a variance swap cntract. Variance Calculatin Frmula The final realized rate f variance shall be calculated using the fllwing frmula: i = 0 n the trade date, i = number f bservatins f the expiratin date E(i) = clsing level f the index n date (i), expect fr E0 which is the level f the index n the date f the first bservatin and E(N) which is the final settlement level Settlement Variance swaps are cash settled. If the difference between the realized Variance and the Variance Strike is psitive the seller pays the difference t the buyer. If the difference between the realized Variance and the Variance Strike is negative the buyer pays the difference t the seller. Settlement f a Variance Swap ccurs after the expiratin date and in line with the settlement cnventin f the underlying equity index. Market Disruptin

7 As per the 2002 Equity Definitins, a Market Disruptin event is triggered if member shares f the index which accunt fr 20% f mre f the capitalizatin f the index are nt trading at any time in the last 30 minutes f the nrmal scheduled trading day. If market disruptin ccurs n a business day, then the clse f this day will be mitted. Cnsequently, the Number f Observatins will be reduced. Reprting All Variance Swap trades are reprted in accrdance with NFA and SDR requirements. Clearing Variance swaps traded n ICAP SEF are nt cleared.