Date Issued: 19 August 2005
Date Closed: 02 September 2005
Status: Completed
Proposed Consultation on Rules for European Style Nikkei Options Pursuant To Section 23(2) of the Securities and Futures Act and Regulation 19 (2) of the Securities and Futures (Markets) Regulations 2005 SGX hereby consults its members on the introduction of the enclosed draft rules, Chapter 54 to its Derivatives Rulebook (Appendix 1). In particular, the Exchange seeks your views on the following draft rules to be included in the proposed Chapter 54.
a. Rule 5401.A (Price Limits/Circuit Breaker)
Options contracts shall be listed for such Contract Months and scheduled for trading during such hours as may be determined by the Exchange. There shall be no trading in any options contract when the Nikkei Stock Average futures contract is bid or offered: 1) at its initial daily price limit or 2) at its expanded daily price limit, except that the above provisions shall not apply on option’s last day of trading.
Trading in the European style NKO would be halted when the underlying Nikkei futures’ price limit hits either the initial daily price limit of 7.5% or the expanded daily price limit of 12.5%. Again this is identical to the circuit breaker mechanism existing for the American style NKO.
b. Rule 5401.B (Final Settlement)
The trading unit shall be an option to buy, in the case of the call option, or to sell, in the case of the put option, one Nikkei Stock Average futures contract as specified in Chapter 15.
The final settlement of European style NKO is in the form of delivery of the underlying Nikkei futures. The underlying Nikkei futures would expire at the same time as the European style NKO. This methodology is identical to that existing for the final settlement for the American style NKO.
c. 5401.F (Position Limits/Accumulation of Positions)
A person shall not own or control a combination of options and underlying futures contracts that exceeds 10,000 Nikkei Stock Average futures-equivalent contracts net on the same side of the market in all Contract Months combined. For the purpose of this Rule, the futures-equivalent of an options contract is 1 times the previous business day’s Exchange risk factor for the option series. Also for purposes of this Rule, a long call option, a short put option, and a long underlying futures contract are on the same side of the market; similarly, a short call option, a long put option, and a short underlying futures contract are on the same side of the market. For purposes of this Rule, the positions of all accounts owned or controlled by a person or persons acting in concert or in which such person or persons have a proprietary or beneficial interest shall be cumulated. The Exchange may from time to time and at its discretion provide exemptions to the foregoing position limits whether generally or in respect of any persons and whether absolutely or subject to conditions.
The above position limit is identical to that currently provided for under the American style NKO.
Members are required to revert with written comments, if any, on the draft rules contained in Chapter 54 (Appendix 1) to Ms Arul Ramiah, Head of Regulatory Policy, at rules@sgx.com by 2 September 2005. All submissions should be clearly and concisely written, and should provide a reasoned explanation for any proposed revision to the proposed rules. Where feasible, members should identify the specific rule on which they are commenting. In any case in which a member chooses to suggest revisions to the text of the rules, the members should state clearly the specific changes to the text that they are proposing. The Exchange reserves the right to make public all or parts of any written submission and to disclose the identity of the source. Members may request confidential treatment for any part of the submission that the participant believes to be proprietary, confidential or commercially sensitive.
| SGX Consultation Paper - 19 August 2005 |
| Title | (In PDF) |
| Proposed Consultation on Rules for European Style Nikkei Options | |
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