Trading and Settlement Process for Interest Rate Futures in TFEX Outline Get to Known by Tanavatt Bhanijkasem Know about TFEX Interest Rate Futures Contract Specification Contract Specification Derivative Back Office Operation Process by Rungrat Sriniratsai Trade & Settlement Flow Process Flow Account Opening Settlement and Report List
Know about TFEX The Thailand Futures Exchange Plc (TFEX), A subsidiary of The Stock Exchange of Thailand (SET), was established on May 7, 2004 as a derivatives exchange. The TFEX is governed by the Derivatives Act B.E. 2546 (2003) and is under the supervision of the Securities and Exchange Commission (SEC). Products in TFEX April 28, 2006 Launch SET50 Index Futures as the first product October 29, 2007 Launch SET50 Index Options as the second product November 24, 2008 Launch Stock Futures February 2, 2009 Launch 50 Baht Gold Futures August 2, 200 Launch 0 Baht Gold Futures October 8, 200 Launch Interest Rate Futures Trading Mechanism Trading in TFEX Buyer Margin Order/Confirm Broker A Clearing A Inform to Split Contract Exchange Automatic Matching Order EOD: Settlement Price Order/Confirm Seller Margin Broker B Clearing B Margin Clearing House Margin Clearing House : Guarantee & Cancel Position
Trading Process Open the account Open position Trading in TFEX Send Long or Short order Deposit Margin (Collateral) Mark to Market Monitor Margin Initial Margin Maintenance Margin Close position Send Short or Long order Hold to Maturities Interest Rate Futures Contract Specification Underlying Index Price Quotation Contract Size Minimum Tick Size Price limit Trading Hours Contract month listed / Series Position Limit Large Position Report Settlement Method Last Trading Day Final Settlement Price Interest Rate THBFIX 6 month Quotations in terms of index 00.000 Yield (3 decimal points) 0,000,000 Baht 0.005 point (Equivalent to 250 Baht per Contract) Ceiling /Floor within +.25% of previous day settlement price (circuit breaker) After trading resumes, Ceiling /Floor will be expanded to + 2.50 % of previous day settlement price Pre open 9:5 a.m. 9:45 a.m. Morning session 9:45 a.m. 2:30 p.m. Pre open 4:00 p.m. 4:30 p.m. Afternoon session 4:30 p.m. 6:00 p.m. ( Others TFEX products Market close at 6.55 p.m.) March (H), June (M), September (U), December (Z) up to 4 quarters Net 20,000 contracts on one side of the market in any contract month or all contract month combined. From 500 contracts net long or short in any contract month or all contract month combined. Cash Settlement The 3rd Wednesday of the contract month. On that day the new series will be generated. Time at which trading ceases on Last trading day is.00 a.m. Calculate from Interest rate 6M THBFIX which announce by Reuters at.00 am of the last trading day. By using 4 decimal digits
5 Y Government Bond Futures Contract Specification Underlying Index Price Quotation Contract Size Settlement Month Minimum Tick Size Price limit Trading Hours Contract month listed / Series Position Limit Large Position Report Settlement Method Last Trading Day Final Settlement Price 5-Year Thai Government Bond with 5% Coupon Price quoted by percent of Par value with 2 decimal points,000,000 Baht 2 nearest quarter months on March (H), June (M), September (U), December (Z) cycle 0.0 point (Equivalent to 00 Baht per Contract) Ceiling /Floor within + 2. 50% of previous day settlement price (circuit breaker) After trading resumes, Ceiling /Floor will be expanded to +5.00% of previous day settlement price Pre open 9:5 a.m. 9:45 a.m. Morning session 9:45 a.m. 2:30 p.m. Pre open 4:00 p.m. 4:30 p.m. Afternoon session 4:30 p.m. 6:00 p.m. ( Others TFEX products Market close at 6.55 p.m.) March (H), June (M), September (U), December (Z) up to 4 quarters Net 20,000 contracts on one side of the market in any contract month or all contract month combined. From 500 contracts net long or short in any contract month or all contract month combined. Cash Settlement The 3rd Wednesday of the contract month. On that day the new series will be generated. Time at which trading ceases on Last trading day is 6.00 a.m. Based on basket of eligible bond A designated of Government Bonds with a minimum issuance size of B5,000 Billion and 4-6 year term to maturity on the first calendar day of the contract month. Calculate from average yield quoted by primary dealers. By using 4 decimal digits Trading Symbol TBF6Z0 : 6 M THBFIX Futures which expires on December 200 TGB5H : 5 Year Government Bond Futures which expires on March 20 The first 4 characters represents Underlying TBF6 : 6M THBFIX Futures TGB : 5Y Government Bond Futures The 5th character represent the contract month F G H J K M N Q U V X Z Code Month January February March April May June July August September October November December Last 2 characters, 6 th and 7 th represents year 0 : Year 200 : Year 20
Contract Specification Symbol UUUU M YY TBF6Z0 : 6 M THBFIX Futures which expires on December 200 TGB5H : 5 Year Government Bond Futures which expires on March 20 TBF6 Price Quote in 00 yield (3 decimal), spread 0.005(Bt250 on 0MN Notional) Bid 97.500 (2.500%) Offer 97.505 (2.495%) Cash flow? Margin when open position & P/L at expiration TGB5 Price Quote in percent of Face (2 decimal), spread 0.0(Bt00 on MN Notional) Bid 97.50 (5.5799%) Offer 97.5 (5.5775%) Cash flow? Margin when open position & P/L at expiration Derivatives Back Office Operation Process
Outline Get to Known by Tanavatt Bhanijkasem Know about TFEX Trading in TFEX Contract Specification Derivative Back Office Operation Process by Rungrat Sriniratsai Trade & Settlement Flow Process Flow Account Opening Settlement and Report List Account Opening Investment Before Trading Trading EOD 0 T+ 2 3 Submit Application & Supporting Doc. FAX / E-mail Pay-in Slip Place Order Deposit Initial Margin 9 8 Pre-Trade Confirmation Mark to Market Margin Call Daily Confirmation (e-mail) 4 2 KYC / CDD Credit Review Account Opening 5 Submit Order +/- Credit Line 7 Confirm Deal 6 +/- Collateral based on settlement amount Segregate Bank A/C Order Matching Segregate Bank A/C 2 Settlement Monthly * Interest payment and WHT Slip shall be processed at 6th, 2th month 4 Monthly Statement 3 2 Generate month-ended statement Interest Payment* Segregate Bank A/C
Account Opening Application Form and Agreement signed by authorized person Risk Disclosure KYC / CDD process Supporting Document Latest financial statements List of authorized directors to act on behalf of the company Latest of Business Registration Certificate Copy of key passport / personal ID card of authorized directors and/or authorized signatory and key work permit pages Position Limit Position Limit (Contracts) Futures Option F&O SET50 <= 20,000 <= 20,000 <= 20,000 Single Stock <= 20,000 - - Gold No limit - - Mini Gold No limit - - Interest Rate <= 20,000 - -
2 Type of margins Margin Required Initial Margin The minimum amount of money that must be in and investment account on the day of a transaction. On futures accounts, the initial margin must be met on any day in which the opening balance starts off below the maintenance margin requirement. Maintenance Margin The minimum amount of money that much be kept in a margin account on any day other than the day of a transaction. Collateral Rate Collateral Rate (Baht/Contract) Outright margin Spread Margin (each pair) Option Min. Charge SET 50 24,000 6,000 500 Gold 30,000 7,500 - Mini Gold 6,000,500 - Interest Rate - 6 Mth 20,000 TBD - Govt Bond - 5 Yrs 4,200 TBD - Note : for single stock futures please see at www.thaiclearing.com Margin Multiplier Initial Margin Maintenance Margin.35.00
Settlement Value 6 Mth Interest Rate Settlement Value = Initial Margin + Commission + VAT WHT Example Symbol : TBF6Z0 (6 M THBFIX Futures which expires on December 200) Open Position : contract Initial Margin : 27,000 Baht / contract (20,000 *.35) Commission : 200 Baht / Contract Before Trading Deposit Initial Margin FAX / E-mail 2 Pay-in Slip Segregate Bank A/C Settlement Value Settlement Value = Initial Margin + Commission + VAT WHT 27,208 27,000 + 200 + 4-6 Mark to Market 6 Mth Interest Rate Margin Method : Net or Gross (by using PC-SPAN) If Equity Balance < Maintenance Margin, Client pay Margin Call up to Initial Margin required. Closing Method : FIFO or Manual Example Mr. A open has position contract on TBF6Z0 Day Transaction Closing Price Gain / Loss Deposit / Withdraw Collateral Buy TBF6Z0 @ 98.000 27,000 99.000 +50,000 77,000 2 97.500-75,000 2,000 3 Margin Call + 25,000 27,000 99.500 + 00,000 27,000 4 Sell TBF6Z0 @ 99.000-25,000 02,000 In summary, Mr. A gain = (99.000 98.000) * 50,000 = 50,000.00 Baht
Settlement Value 5 Years Government Bond Settlement Value = Initial Margin + Commission + VAT WHT Example Symbol : TGB5H (5 Year Government Bond Futures which expires on March 20) Open Position : contract Initial Margin : 5,670 Baht / contract (4,200 *.35) Commission : 200 Baht / Contract Before Trading Deposit Initial Margin FAX / E-mail 2 Pay-in Slip Segregate Bank A/C Settlement Value Settlement Value = Initial Margin + Commission + VAT WHT 5,878 5,670 + 200 + 4-6 Mark to Market 5 Years Government Bond Margin Method : Net or Gross (by using PC-SPAN) If Equity Balance < Maintenance Margin, Client pay Margin Call up to Initial Margin required. Closing Method : FIFO or Manual Example Mr. A open has position contract on TGB5H Day Transaction Closing Price Gain / Loss Deposit / Withdraw Collateral Buy TGB5H @ 98.000 5,670 99.000 +0,000 5,670 2 97.500-5,000 670 3 Margin Call + 5,000 5,670 99.500 + 20,000 25,670 4 Sell TGB5H @ 99.000-5,000 20,670 In summary, Mr. A gain = (99.000 98.000) * 0,000 = 0,000.00 Baht
Cash Settlement On Last Trading Day Interest Rate THBFIX 6 month Calculate from Interest rate 6M THBFIX which announce by Reuters at.00 am of the last trading day. By using 4 decimal digits Final Settlement Price = 00 6M THBFIX rate 99.9500 = 00 0.0500 5-Year Thai Government Bond with 5% Coupon Based on basket of eligible bond A designated of Government Bonds with a minimum issuance size of B5,000 Billion and 4-6 year term to maturity on the first calendar day of the contract month. Calculate from average yield quoted by primary dealers. By using 4 decimal digits On Last Trading Day 6 Mth Interest Rate The 3rd Wednesday of the contract month. Time at which trading ceases on Last trading day is.00 a.m. Closing position by using TFEX Settlement Price Example Mr. A open has position contract on TBF6Z0 Day Transaction Closing Price Gain / Loss Deposit / Withdraw Collateral Buy TBFZ0 @ 98.000 27,000 99.000 +50,000 77,000 2 97.500-75,000 2,000 3 Margin Call + 25,000 27,000 99.500 + 00,000 27,000 Last Trading Day Auto Close position TBFZ0 @ TFEX settlement price 99.500 In summary, Mr. A gain = (99.500 98.000) * 50,000 = 75,000 Baht
On Last Trading Day 5 Years Government Bond The 3rd Wednesday of the contract month. Time at which trading ceases on Last trading day is 6.00 a.m. Closing position by using TFEX Settlement Price Example Mr. A open has position contract on TGB5H Day Transaction Closing Price Gain / Loss Deposit / Withdraw Collateral Buy TGB5H @ 98.000 5,670 99.000 +0,000 5,670 2 97.500-5,000 670 3 Margin Call + 5,000 5,670 99.500 + 20,000 25,670 Last Trading Day Auto Close position TGB5H @ TFEX settlement price 99.500 In summary, Mr. A gain = (99.500 98.000) * 0,000 = 5,000 Baht Payment Method Payment Method Cheque BahtNet Good Fund Transfer ATS For margin call, Money shall be good fund before noon. For excess margin withdrawal, Request in written document signed by authorized persons Money shall be good fund at T+
Report Scheduling Report Scheduling Client Acting Pre Confirmation Daily Confirmation Margin Call Monthly Statement WHT Slip (every 6 month) Excess Margin withdrawal request T T+ T+ <= M+7 <= M+7 Pay margin call before noon T 0.00 a.m. 2 October 200 25 Q & A tanavatt@phatrasecurities.com rungrat@phatrasecurities.com