Stock exchange futures and option transactions (derivative transactions)
Receipt of data on trading
KELER accepts transactions in line with the provisions of the Trilateral Agreement concluded by the BSE, KELER and KELER KSZF.
The data of transactions transmitted cannot be modified subsequently by the clearing member, KELER accepts a request on the modification of trading data from the stock exchange only.
Following the closing of the market (Day T) KELER receives same day derivative trades from the BSE and confirms transactions accepted. Due to real time position management KELER immediately registers transactions allocated on the BSE (allocation cannot be changed) on the position management account concerned. KELER transfers non-allocated transactions to the own account at the end of the day.
In case of derivative positions KELER keeps and confirms guaranteed stock exchange transactions, in case of non-clearing members also, segregated to the level of client. Settlement is completed for own and consolidated client segregation during the entire settlement process. KELER settles non-clearing member positions together with the consolidated client positions.
KELER keeps derivative positions on position management accounts.
Only one position management account can be opened for the management of positions by client, including the client of the non-clearing member also, on this account KELER keeps all the derivative positions of the client concerned.
The clearing member can open several own position management account, this request is to be advised to KELER upon account opening. Only one own position management account can be opened for non-clearing members. Clearing members involved in market making at the stock exchange are obliged to open a separate position management account for market making transactions.
Margining and settlement of derivative transactions
Fundamentally, stock exchange derivative transactions have two types: futures and options (including futures based options).
In order to ensure the conditions for the settlement of the above deals KELER:
- keeps securities cash accounts for banks and brokers (own/client unlimited sub account available),
- the NBH keeps the cash accounts of banks, at KELER there are accounts for collateral purposes only at own/client level,
- keeps foreign exchange account (banks and brokers) for clearing members, within these accounts segregated (own/client) variation margin and collateral sub accounts are opened.
The deals concluded by clearing members are recorded in position management accounts. Position management accounts are kept at own/individual client level, in a gross/net (option only net) manner, however, several own accounts (except for non-clearing members) can be opened and the clients of non-clearing members can also be registered. Another condition of settlement is the basic and additional financial collateral to be made by the clearing member, the continuous provision of basic collateral and derivative variation margin defined for the product concerned in the Announcement of KSZF and contribution to the Collective Guarantee Fund.
In order to avoid the accumulation of loss, and thereby to reduce the probability of default, KELER settles variation margins daily on the basis of end-of-day settlement prices. For each open position the variation margin is calculated based on the end-of-day price /settlement price of the instrument given. The variation margin of the first day is the difference of the trade price and the closing price of Day T, for settlement days thereafter the difference of the daily closing price and the closing price of the previous settlement day is the variation margin. KELER credits the gain generated as a result of variation margins calculated in the derivative markets to the segregated accounts and collects the arising loss also in line with the principle of segregation (i.e. revalues positions on a daily basis, according to the marked-to-market principle). Thus the clearing house accounts for deals at settlement prices, while positions are actually closed on each day and re-opened at a new price and in the same quantity. Simultaneously with the calculation of the margin, the premium of options is also settled.
After making an option deal the beneficiary of the option pays the premium of the option bought during the financial settlement of daily variation margin. If a new position is created the beneficiary of the option has no further payment obligation thereafter until the closing or expiry/exercise of the option. From the time of opening the position the obligor of the option is obliged to meet the collateral payment obligation defined by KELER for open positions.
At the end of Day T KELER calculates the daily variation margin and initial margin requirements by clearing members (on a net basis), as well as the basic and additional financial collateral requirement and the CGF value (on the first business day of the month) and informs the clearing member thereof in the stock exchange trading confirmation via the KID system. The spread preference that can be granted between expiries and products is automatically calculated in line with the provisions of the prevailing announcement of KELER KSZF.
The financial settlement of daily variation margin is completed between 7:30 hrs and 8:15 hrs on Day T+1. In case of insufficient variation margin KELER acts in line with the provisions of the General Business Rules of KELER KSZF on the order of using guarantee elements. The clearing member is obliged to settle the debt arising until the start of trading on the same day or KELER suspends the trading right of the clearing member, thus the suspended clearing member is authorized for position closing only on the day given.
For default the clearing member will pay the late and default basic fee defined in the prevailing Fee Schedule.
KELER settles standardized futures and option transactions concluded on the Budapest Stock Exchange (BSE). Since the launch of the derivative markets KELER participates as central counterparty (Central Counter Party) in the settlement of stock exchange transactions, from 1 January 2009 KELER CCP Ltd. acts as central counterparty. In the framework of the central counterparty system the central counterparty guarantees the fulfillment of transactions, in case of an eventual default the central counterparty acts as seller towards the buyer and acts as buyer towards the seller (this process is called novation) to guarantee the transactions accepted. As a result of the CCP system if either party defaults KELER KSZF is obliged to honor obligations resulting from the transactions even up to the amount of its share capital.
Futures and option transactions are stock exchange transactions guaranteed by KELER KSZF. The guarantee undertaken by KELER KSZF becomes valid upon KELER confirming the transactions.
Position closing and performance (termination of futures position)
It is not necessary to keep a position until expiry, in order to terminate risks with price changes the position can be closed with the opening of a position of opposite direction.
Positions can be closed in three ways: by concluding a deal of opposite direction before the expiry of the deadline (so-called liquidation), with position transfer, or by performance upon expiry (cash settlement/physical delivery).
The simplest case of position closing is the conclusion of a deal of opposite direction, when the positions are automatically netted out (the position shall practically cease, although it is not deleted from the open interest), the obligation to provide collateral shall also cease. An additional case of position closing is closing instruction given with the conclusion of a deal of opposite direction, when positions are deleted from open interest.
In case of net position management liquidation is automatic.
Options are closed with the exercise of the option position, when the position is deleted and performance takes place between the beneficiary and the obligor of the option. In case of the exercise of futures based options the futures positions representing the underlying product of the option are opened on the position management accounts of the beneficiary and the obligor of the option. In the case of futures based options the option premium is also paid at this same time.
Prior to expiry clearing members can order the transfer of positions. By completing the Cash sale and purchase form contract of the BSE the open positions will be transferred, the physical delivery will be included in the Pending delivery items and the physical delivery shall take place between the seller/buyer concluding the contract.
Positions involving physical delivery that are unclosed by expiry (e.g. equities, notional, wheat) may only be performed by physical delivery. In the case of performance involving delivery the seller must physically deliver the underlying of the deal (foreign currency, securities or commodity). The physical delivery of foreign currency or securities may be settled by account transfer, while the delivery of commodities may be effected via the transfer of warehouse receipts or with actual physical delivery also. The buyer must take over the delivered product and pay its counter-value to the seller.
In the case of deals involving the physical delivery of securities, on the settlement day following expiry (equities T+3, debt securities T+2) the party with selling position must make sure by 10:00 hrs that the traded securities are available in its securities account in line with position segregation, while the party with buying position must deposit the counter-value of the traded volume of securities in the purchase price deposit account also in line with position segregation. (In the case of transaction concluded by banks the cash account kept by the NBH is debited via VIBER.)
Cash transactions also can be made at the BSE, the trade shall be included in the Pending delivery items and not listed as open position; neither initial, nor variation margin is calculated, and no guarantee applies to such deals.
The performance of wheat instruments may take place by physical delivery (delivery/single round drawing), or with warehouse receipt (issued by an accepted warehouse) / 2 delivery round drawing. In the case of products where BSE does not require performance by warehouse receipt, KELER KSZF does not guarantee physical performance. In this case deals are settled up to the settlement price prevailing on the date of expiry, thereafter deals shall be considered prompt deals.
Essentially, delivery can be completed in two ways. In the first case the clearing house creates the sales relationship concerning direct physical delivery between the clearing members in respect of the futures positions unclosed by the last trading day preceding the month of delivery and spot-based options drawn and allocated on the given day, by matching in a predefined way with so-called drawing the seller and buyer members obliged to deliver or take receipt respectively of the underlying of the position. Performance takes place between the sellers and buyers matched in this way. In the second case the clearing house does not match sellers and buyers directly, but each party performs its commitment towards the clearing house (this is performance with warehouse receipts), thereafter the clearing house shall act as an actual counterparty and shall perform its delivery or payment obligation towards the clearing members.
The performance of delivery items is T+45 days, the settlement cycle can be extended based on the joint statement of the buyer/seller. Until the delivery is completed initial margin remains with KELER.