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 contracts.

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).

“The 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 knocked out.

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 professional investor.

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 Geers.

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.

FOR FURTHER INFORMATION PLEASE CONTACT:

Victoria Williams / Renata Da Silva
Corporate Communications Consultants
Tel: +27 11 463 2198
Cell: +27 72 452 1772
Email: victoria@corpcom.co.za  or renata@corpcom.co.za  

ON BEHALF OF
Warren Geers
General Manager Trading
JSE
Tel: +27 11 520 7470
warreng@jse.co.za