Derivatives Exchanges

Question 1

What are the 3 main UK derivative exchanges?

Answer 1

London Metal Exchange
Ice Futures Europe
LSE Derivatives

Question 2

What are the 5 main US derivative exchanges?

Answer 2

1) CBOE
2) CME
3) Chicago Board of Trade (CBOT)
4) NYMEX
5) ICE Futures US

Question 3

What are the 2 main European derivative exchanges?

Answer 3

1) Eurex
2) Euronext

Question 4

What are Euronext Exchanges?

Answer 4

A combination of seven European exchanges and a clearing house.

Electronic trading in futures, options, fx etc.

Question 5

What are the 5 main APAC derivative exchanges?

Answer 5

1) China Financial Futures Exchange
2) Shanghai Stock Exchange
3) National Stock Exchange on India
4) Bombay Stock Exchange
5) Multi Commodity Exchange (India)

Question 6

What are the 2 main Japanese derivative exchanges?

Answer 6

1) Osaka Securities Exchange
2) Tokyo Stock Exchange

Question 7

What are the 2 main EM derivative exchanges?

Answer 7

1) B3
2) South African Futures Exchange

Question 8

What is a wholesale trading facility?

Answer 8

A wholesale trading facility enables participants to enter trades outside of the regular orderbook. Instead, trades are placed directly into the system.

Question 9

What are the benefits of whole sale trading facilities?

Answer 9

combines the flexibility of customised trading the benefits of standardised clearing and settlement.

Question 10

What are two things that WTFs allow to happen?

Answer 10

1) Exchange for Physical (EFP)
2) Exchange for swap (EFS)

Question 11

What does exchange for physical mean?

Answer 11

EFP allows you to exchange your futures contracts for the actual underlying asset itself.

Question 12

What are 3 benefits of EFP?

Answer 12

1) Counterparty credit exposure can be reduced when replacing a physical settlement with a futures position.

2) Reduces margin requirements. By netting OTC positions against offsetting futures positions

3) 24 hour trading – positions can be negotiated around the clock.

Question 13

What is exchange for swap?

Answer 13

involves a dealer taking on the bank’s futures position into its own account and swapping the commodity’s return for an agreed funding rate

Swapping physical exposure and swapping for a swap

Question 14

How do exchanges guarentee transparency?

Answer 14

Disseminate prices through a feed to members.

Also make data available to vendors (Refinitiv & Bloomberg)

Question 15

How are buying and selling prices reported?

Answer 15

The bid and ask price are shown denominated by A and B. While futures have a unique code for each month:

Question 16

What are the unique codes for each month?

Answer 16

Question 17

How does trade reporting differ between OTC and exchange traded derivatives?

Answer 17

Exchanges mandate that firms have to report their trades within time limits.

OTC are only subject to internal timing reports

OTC contracts not mandated by an exchange

Question 18

When must block trades be reported to the exchange?

Answer 18

Block trades must be reported to the exchange within a specified time of verbal agreement being reached.

Question 19

What is open interest?

Answer 19

are the number of contracts outstanding at any one time on an official exchange.

Question 20

Why is reporting / managing open interest important?

Answer 20

It is important that clients manage the open interest on their account properly to avoid unwanted delivery situations

Question 21

What three kinds of accounts can trades be allocated to?

Answer 21

1) House

2) Segregated

3) Non-segregated

Question 22

What is the segregated account?

Answer 22

traded registered on behalf of a segregated client. Most major exchanges / regulators mandate that member firms always put client assets into segregated accounts.

Question 23

What is the house account?

Answer 23

for all prop trades of the clearing member

Question 24

What is the non-segregated account?

Answer 24

client trades not segregated and therefore not protected in the event of the firm’s default