Clearing House Advisory Notices
To | Clearing Member Firms, Service Bureau Representatives, and Independent Software Vendors
From | Clearing House Department
Subject | Clearing Processing for New European-Style CME Currency Options
Notice Date | 2005-02-04
Notice Number | 05-26
Effective Date |
On the evening of Sunday April 3rd, CME will launch trading in European-Style Options on Euro FX and Japanese Yen futures. The key distinguishing feature of European-style options versus American-style options is that European-style options may be exercised only at expiration, whereas American-style options may be exercised on any day that the option is traded. The press release for this announcement is at http://www.cme.com/about/press/cn/05-14%20EuroFXOptions11692.html. These European style FX options will trade side-by-side on the trading floor and on CME Globex during Regular Trading Hours (RTH) and on CME Globex during Electronic Trading Hours (ETH). The trading of the existing American-style options on the same underlying futures are unchanged. For the American-style options, the final price for the underlying future which determines which options are in-the-money, is the end-of-day settlement price for that future on the expiration day. But for the European-style options, this final price is not the end-of-day settlement price, but rather a special, 9:00 a.m. Central time "fixing" of that underlying futures price on the options' expiration day (“CME currency fixing price”). There are several reasons why we believe these options should be attractive to the market, but one especially worthwhile point is that the options exercises occur when the underlying foreign exchange futures and spot markets are open and liquid. For the European-style options, the holders of short positions will know exactly what will happen at 9 a.m. on the expiration date. Thus, a short option holder who wishes to hedge their exposure to market risk on the resulting underlying futures transaction, may immediately take market action. These exercise procedures have been designed to be compatible with exercise procedures for the over-the-counter (OTC) foreign exchange options market. For the full text of this advisory ...