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Derived securities

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SSIF Romcapital SA allows you to trade derivatives on both, the domestic market through Sibex market, and foreign markets through the StockHit World trading platform.

In order to trade futures contracts on StockHit World you must have an initial minimum amount of EUR 10,000. By StockHit World there are at your disposal over 450 futures traded on 16 major exchanges around the world; StockHit World offers one of the most diverse range of futures contracts online and offline including:

  • Precious metals: gold, silver and copper
  • Energy Products: crude oil, gasoline and natural gas fuel
  • Securities: bonds, interest rates, currencies and indices
  • Agricultural products: light goods (cocoa, coffee, sugar), meat and cereals

Derived securities are stock exchange products resulting from contracts concluded between the issuer and the beneficiary giving the buyer the right over some assets of the issuer, at a certain date, expiring in the future, in the conditions established by contract.

There are two categories of derived securities:

  • futures
  • options
 

Futures

The futures contract is an agreement between a seller and a buyer to sell/ buy a standard amount of assets with future delivery at a date called "due date" and for a price negotiated in the moment of concluding the transaction, all based on standardized clauses.

An important characteristic of the futures contract is that its transacting represents in fact an agreement between the buyer and the seller by which they undertake to buy, respectively to sell the respective merchandise (support asset).

The most important standardized clauses of the futures contract refer to:

  • The symbol of the contract : it identifies the futures contract
  • The support asset – is the merchandise or product object of the contract and transacted on the spot market
  • Quotation – on the futures market is identical with the quotation of the support asset on the spot market
  • The transacting step – represents the minimum fluctuation of the price on the futures market
  • The size of the object of the contract or multiplier – is standardized for each contract and represents the quantity of support asset transacted within a futures contract
  • The due date – is the day in which the futures contract expires
  • The execution price at maturity – is the price at which one liquidates futures contracts, respectively the obligations assumed by the sellers and buyers

In order to be able to transact a futures contract, both the buyer and the seller must constitute a warranty called margin or risk. The margins necessary for transacting futures contracts are collected by the brokers from the clients and then sent to the Compensation Fund. The level of these margins is established separately for each contract by the Compensation Fund and can be modified periodically according to the volatility of the market or the value of the futures contract.

When a position is opened on the futures market at a certain price, in the margin account of the investor opened at his broker one blocks the corresponding sum as a margin for the transacted contract. From this moment, according to the movements of the price of the respective contract, the investor begins to record profit or loss. If he buys and then the price increases, he will have a profit. If the price drops, he will lose. As long as the position remains opened, the profit or the loss recorded as a result of the price fluctuation are virtual and in continuous movement function of the fluctuations of the futures price. At the moment of closing the position, they become effective.

The process by which one determines the profits/losses afferent to the positions opened on the futures market is called market marking. In order to elaborate a general situation of all the margin accounts in the futures market, in the process of market marking one uses the closing price (the price of the last transaction) for each contract and due date recorded at the end of each transacting session on the futures market.

Function of this price (also called quotation price) one establishes the profit or the loss incurred on each account in the respective day. The quotation price is valid only for the respective day, the following day one having to establish a new quotation price function of the closing price noted at the end of the transacting session.

Following the market marking of the positions opened on the futures market, the account of an investor can indicate a profit or a loss. At the same time, at the moment of opening a position on the market, he must have in the account from the compensation fund the sum necessary for guaranteeing the open positions (margin). For each contract the compensation fund establishes the level of the margin.

When, following the market marking, the sum in the margin account drops below the level of the margin necessary for covering the open positions in the investor’s account, he is found in the situation of margin appeal. The margin appeal is issued at the end of the transacting session, and the sum must be completed by the following day.

From this moment, the investor has three versions at his disposal:

  • feeds the account the next day with the requested sum and continues to maintain the positions opened on the respective market
  • closes a number of opened positions so that the sum released as a result of this operation covers the margin necessary for the rest of positions remaining open
  • does not do anything and in this case the broker will liquidate automatically a number of opened positions, so that the sum released following this operation covers the necessary margin for the rest of positions remaining open

The futures contracts are transacted at present both on the Sibex market (Monetary – Financial and Commodities Stock Exchange of Sibiu) and on the Bucharest Stock Exchange. On SIBEX we have as support assets shares, exchange rates, commodities (gold), the interest rate (BUBOR), and indexes. The most transacted contracts are the ones having as support the shares SIF2 and SIF5. At the Bucharest Stock Exchange as support assets we encounter stock exchange indexes, shares and currency exchange rates.

For BVB, the sector of derived instruments since creation until the present (14.04.2009) is as follows:


Year No. of transacting sessions No. of transactions No. of contracts Value (RON)
2007 250 41 64 540.535,10
2008 250 922 18.018 19.308.627,90
2009 250 507 15.613 67.049.100,00
2010 61 600 5.695 23.867.431,00
 

The option

The option is a sale and purchase contract between two parties which gives the buyer the right, but not the obligation, to buy or sell a certain amount of commodities, currencies, mobile values or financial instruments for a pre-established price, on or before a certain date called due date.

In order to have this right, the buyer pays the seller of a contract a price called premium.

From the point of view of the rights they confer, the options are of two types:

  • CALL options which give the buyer the right, but not the obligation, to buy the support asset at the exercise price, on a certain date or for a certain period until said date. The seller of the call option has the obligation to sell the support active if the buyer of the option decides to exercise it
  • PUT options which give the buyer the right to sell the support asset until the due date, at the exercise price in exchange for the put premium paid to the seller on concluding the transaction. The seller of the put option has the obligation to buy the support asset if the buyer of the option decides to exercise it.

According to the moment in which the exercising can take place, the options are classified in two categories:

  • European options which can be exercised only at the maturity of the option
  • American options which can be exercised anytime until the maturity of the option.

On the SIBEX market one can transact American type options.

Options are standardized contracts, having the following characteristics:

  • Support asset
  • Size of the contract
  • Maturity
  • Exercising prices.

The fifth component of the option is the premium which represents the only negotiable element of this product. The premium is fixed on the market, being determined strictly by the supply – demand ratio existing at a certain point.

Taking into account the fact that the option sellers assumed by contract an obligation which they must fulfill, guaranteeing the execution of the obligations imposes that the option seller hold in the margin account a minimum sum necessary to cover the risk assumed by the latter. The margin necessary for transactions with options on futures is obligatory for the participants in the following moments:

  • For the sellers, at the moment of concluding the sale transaction of the option, notwithstanding its type – CALL or PUT
  • For the buyers, at the moment of exercising the option, notwithstanding its type – CALL or PUT.

The transactions with options on futures are recorded in the margin account of the participant in a similar way with the transactions with futures contracts. The buyers’ rights and the option seller’s obligations, which are valid at a certain point, are called opened position.

At present options are transacted only at BMFMS (for the Romanian capital market). The Sibiu Stock Exchange makes available to the investors options having as support asset futures contracts on 19 shares transacted at BVB as well as on currencies, on the interest rate, on the gold exchange rate and on stock exchange indexes.

For the Monetary – Financial and Commodities Stock Exchange of Sibiu, the market of derived instruments (both futures and options) from the creation until the present is as follows:


Year Contracts Total Contracts Futures Contracts Options  
2010 250.093 245.372 4.721  
2009 2.483.287 2.430.849 52.438  
2008 3,618,766 3,578,582 40,184  
2007 3,490,923 3,456,023 34,900  
2006 4,268,710 4,232,059 36,651  
2005 707,738 696,109 11,629  
2004 75,174 72,901 2,273  
2003 187,914 168,545 19,369  
2002 292,369 225,069 67,300  
2001 188,973 135,242 53,731  
2000 205,288 158,536 46,752  
1999 175,142 159,927 15,215  
1998 193,336 193,203 133  
1997 77,877 77,877 0  
TOTAL 13,994,787 13,657,296 337,491  

Source: www.bmfms.ro, www.bvb.ro

 

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