The JSE Lists First 'Can-Do' Currency Options
June 15, 2011
Johannesburg, 14 June 2011:
In a move to offer
currency traders greater choice and flexibility, the Johannesburg Stock Exchange
(JSE) and Absa Capital have listed the first exotic style currency options
The two new options are based on the dollar/rand exchange
rate and are Knock-Out Barrier Options Up-and-Out and Down-and-Out. They offer
asset manager and hedge fund participants an exchange traded product similar to
what has previously only been available over-the-counter (OTC).
products will allow investors to create more diversified trading strategies
using exchange traded products without taking on any credit risk. As market
participants seek to avoid bi-lateral counter-party risk and with more
regulation being imposed, our new products offer a regulated alternative and
compete directly with OTC contracts,” says Warren Geers, General Manager of
Derivatives Trading at the JSE.
Absa Capital, through working closely
with its clients to solution an appropriate delivery vehicle, identified the
need for an exchange traded option contract. To this end they worked closely
with the JSE to ensure these contracts were listed and tradable. OTC instruments
are not traded on a stock exchange and are typically contracts between an
investment bank and a client.
A Knock-Out Barrier Option is a type of
option with a built-in mechanism to expire worthless should a specified price
level be exceeded. The up and out variation has a barrier level above the
current spot price and the spot price has to move up for the option to be
The down and out variation has a barrier level is below the
spot price and the spot price has to move down for the option to become null and
void. If the barrier level is not breached during the life of the option, the
investor has the right to exercise their European call or put option at the
exercise price specified in the contract.
The underlying instrument is
the rate of exchange between the US Dollar and Rand. Dollar-based currency
derivatives contracts remain the most widely traded variety on the exchange.
These options represent the first currency ‘Can-do’ contracts offered by
the JSE. Can-Do Options are a type of product first created by the JSE in June
2006 to offer investors the flexibility of an OTC product with the credibility
and transparency of the listed derivative. They offer infinite variety to the
On-market instruments require no foreign exchange
clearance and are settled in rands.
Product innovation forms part of the
JSE’s continued drive to grow the currency derivatives market by introducing new
flexibility whilst still ensuring that strict regulation is adhered to. “The JSE
realises that in order to be more competitive it needs to offer foreign exchange
products that are viable alternatives to those traded in the OTC space.” says
Both new contracts can be triggered anytime by the event. When it
comes to fees, both products operate on a competitive sliding scale and will be
capped at R39,900 per deal to entice bigger contracts.
INFORMATION PLEASE CONTACT:
Victoria Williams / Renata Da Silva
Corporate Communications Consultants
Tel: +27 11 463 2198
72 452 1772
General Manager Trading
Tel: +27 11 520 7470