International Development International Development of Futures and Optionsof Futures and Options

International Development International Development of Futures and Optionsof Futures and Options

Karyn YamamuraKaryn Yamamura

BA 543BA 543

May 26, 2005May 26, 2005

OverviewOverviewOverviewOverview FLEX and Exotic OptionsFLEX and Exotic Options Developed and Developing MarketsDeveloped and Developing Markets

EuropeEurope ChinaChina

Trading Floor MovementTrading Floor Movement Electronic vs Open OutcryElectronic vs Open Outcry

FLEX and Exotic OptionsFLEX and Exotic OptionsFLEX and Exotic OptionsFLEX and Exotic Options Flexible Exchange Options (FLEX)Flexible Exchange Options (FLEX)

1993 CBOT1993 CBOT CustomizationCustomization

Exotic OptionsExotic Options Average Rate (a.k.a. Asian Rate) OptionAverage Rate (a.k.a. Asian Rate) Option Barrier OptionBarrier Option

Knock-outKnock-out Knock-inKnock-in

Basket OptionBasket Option

International Options and Futures Markets

Buenos Aires Cereal Exchange

Mercado Abierto Electronico SA

Rosario Board of Trade

Buenos Aires Futures Market

Merfox

Rosario Futures Exchange

Australian Derivatives Exchange

Asian Capacity Exchange

Sydney Futures Exchange

Securities Exchange of Barbados

Bahia, Sergipe, Alagoas Stock Exchange

Brazilian Futures Exchange

Pernambuco and Paraiba Stock Exchange

Minas, Espirito Santo, Brasilia Stock Exchange

The Commodities & Futures Exchange

Sofia Commodity Exchange

Montreal Exchange

Canadian Venture Exchange

Winnipeg Commodity Exchange

Bolsa Electronica de Chile

China Zhengzhou Commodity Exchange

Guandong United Futures Exchange

Shanghai Cereals and Oils Exchange

Beijing Commodity Exchange

Wuhan Securities Exchange Centre

Hong Kong Futures Exchange

Shenzhen Mercantile Exchange

China-Commodity Futures Exchange, Inc of Hainan

Finnish Options Exchange

Helsinki Exchanges

MONEP

MATIF

Deutsche Terminborse

Athens Derivatives Exchange

Chinese Gold and Silver Exchange Society

Budapest Commodity Exchange

Madhya Pradesh Stock Exchange

The OTC Exchange of India

Capital Market Supervisory Agency

Indonesian Commodity Exchange Board

Italian Derivatives Market

Italian Financial Futures Market

Tokyo Commodity Exchange

Maebashi Dried Cocoa Exchange

Osaka Textile Exchange

Kobe Raw Silk Exchange

Kobe Rubber Exchange

Nagoya Textile Exchange

Osaka Securities Exchange

Tokyo Grain Exchange

Tokyo International Financial Futures Exchange

Niigata Securities Exchange

Japan Securities Dealing Association

Kammon Commodity Exchange

Kansai Agricultural Commodities Exchange

Cubu Commodity Exchange

Sapporo Securities Exchange

Yokohama Raw Silk Exchange

Amman Financial Market

The Kuala Lumpur Options & Financial Futures Exchange

Malaysia Derivatives Exchange

Commodity and Monetary Exchange of Malaysia

Mexican Derivatives Exchange

AEX-Agricultural Futures Exchange

AEX-Options Exchange

Financiele Termijnmarkt Amsterdam NV

New Zealand Futures & Options Exchange Ltd

Muscat Securities Market

Manila International Futures Exchange

Warsaw Commodity Exchange

Oporto Derivatives Exchange

Romanian Commodities Exchange

Sibiu Monetary-Financial and Commodities Exchange

Moscow Interbank Currency Exchange

Russian Exchange

St Petersburg Futures Exchange

Moscow Commodity Exchange

Saudi Arabian Monetary Authority

Singapore Commodity Exchange Ltd

Singapore International Monetary Exchange Ltd

Commodity Exchange of Ljubljana

South African Futures Exchange

Spanish Options Exchange

Citrus Fruit and Commodity Market of Valencia

Spanish Financial Futures Market

The Swedish Futures and Options Market

Swiss Options & Financial Futures Exchange AG

Swiss Exchange

London International Futures & Options Exchange

The Baltic Exchange

London Metal Exchange

The London Securities and Derivatives Exchange

International Petroleum Exchange of London Ltd

Tradepoint Investment Exchange

Developed MarketsDeveloped MarketsDeveloped MarketsDeveloped Markets Europe - LondonEurope - London

Has some of the most developed and widely Has some of the most developed and widely used Futures and Options Marketsused Futures and Options Markets

EurexEurex Euronext.liffeEuronext.liffe OMX OMX

ConsolidationConsolidation Electronic trading systemElectronic trading system

Developed Markets (cont.)Developed Markets (cont.)Developed Markets (cont.)Developed Markets (cont.) Euronext.liffeEuronext.liffe

Euronext established in 2000Euronext established in 2000 LIFFELIFFE ( (London International Financial Futures ExchangeLondon International Financial Futures Exchange))

LIFFE ConnectLIFFE Connect Euronext.liffe is creating a single market Euronext.liffe is creating a single market

for derivatives, by bringing all its for derivatives, by bringing all its derivatives products together on a single derivatives products together on a single electronic trading platform electronic trading platform

Future Future ConsolidateConsolidate

Acquire London Stock ExchangeAcquire London Stock Exchange

Developing MarketDeveloping MarketDeveloping MarketDeveloping Market ChinaChina

1500 to 1978 country faced war, poverty, corruption1500 to 1978 country faced war, poverty, corruption Prohibited foreign investment Prohibited foreign investment 1978 opened economy to outsiders1978 opened economy to outsiders

1990 Futures Market established1990 Futures Market established CorruptCorrupt

Plagued with insider trading, scandals, fraud, etcPlagued with insider trading, scandals, fraud, etc Many Markets closedMany Markets closed

1992 CSRC (China’s Securities Regulatory Commission)1992 CSRC (China’s Securities Regulatory Commission) Similar to the SEC (Securities and Exchange Commission)Similar to the SEC (Securities and Exchange Commission)

Enforce regulationsEnforce regulations Future OpportunitiesFuture Opportunities

One of the world’s leading countries in natural resources, One of the world’s leading countries in natural resources, population, and landpopulation, and land

Futures market limited to domestic financial institutionsFutures market limited to domestic financial institutions Options marketsOptions markets

Trading Floor MovementTrading Floor MovementTrading Floor MovementTrading Floor Movement Traditional Open OutcryTraditional Open Outcry

Sentimental valueSentimental value 150 year history in USA150 year history in USA

ExcitementExcitement Shouts, hang signals, etc.Shouts, hang signals, etc.

Source of RevenueSource of Revenue Tourist AttractionTourist Attraction

EmploymentEmployment Floor brokers, clerks, Floor brokers, clerks,

assistants, etc.assistants, etc.

Electronic PlatformElectronic Platform SpeedSpeed

millisecondsmilliseconds CostCost

20-30% less20-30% less Robustness/StabilityRobustness/Stability

Fewer mistakesFewer mistakes Resilient to Resilient to

catastrophescatastrophes

ConclusionConclusionConclusionConclusion

FLEX and Exotic OptionsFLEX and Exotic Options Developed and Developing MarketsDeveloped and Developing Markets Electronic vs Traditional Open Outcry Electronic vs Traditional Open Outcry

Trading FloorTrading Floor

Questions?Questions?Questions?Questions?