• No contrary instructions for American-style FX options

      • To
      • Clearing Member Firms
      • From
      • CME Clearing
      • #
      • 08-34
      • Notice Date
      • 29 February 2008
      • Effective Date
      • 07 March 2008
    • No contrary instructions for American-style FX options, beginning March 7, 2008

      To make the expiration process for American-style foreign exchange (FX) options on futures more transparent and remove uncertainty for market participants, CME Group is introducing an improved automatic exercise process. There are two parts to these improvements:

      1. No contrary instructions allowed on expiration day: On expiration day, no "contrary instructions" will be allowed. The clearing system will not accept out-of-the-money exercises or in-the-money abandonments. All option positions which end up one tick or more in-the-money, will automatically be exercised or assigned.

      2. New volume-weighted-average-price method for determining end-of-day and final settlement prices: This will make daily settlement prices more robust and market-determined.

      With these two changes, all market participants will know immediately upon the close on the expiration day, whether their expiring option positions are in-the-money and whether they will be exercised or assigned.

      These changes take effect on Friday, March 7, 2008, for the March 2008 option contracts, and will apply to all American-style FX option contracts going forward.

      There are no changes to processing for these American-style FX options, prior to expiration day. Clearing firms may still elect to exercise these options on any business day prior to the expiration day, regardless of whether they are in or out-of-the-money at that time, by submitting an exercise notice via Clearing 21's online user interface, or by transmitting a FIXML option exercise notice message, prior to the 7pm Chicago time deadline.

      Processing for European-style FX options is also unaffected. Contrary instructions for these options are also not allowed at expiration.

      For more information, please see Special Executive Report S-4683 at:
      Or contact CME Clearing at 312-207-2525.