Dalian Commodity Exchange (DCE) recently announced the RBD palm olein options contracts and some related rules. The clearing system remains the same after the RBD palm olein options were officially listed and opened to overseas investors, while the core clearing system of the existing options and the specific products continue to be used, according to a representative of DCE.
The method of closing out an option contract generally include liquidation, exercise, fulfillment, and abandonment. Exercise means the close-out of an option contract by the buyer executing its right to buy or sell the underlying futures contract at the exercise price as prescribed. Fulfillment means that upon the options buyer proposes to exercise, the options seller shall be obligated to buy or sell a certain quantity of the underlying futures contract at the exercise price provided in the contract. The RBD Palm olein options' exercise style is American style. The options buyer can apply to exercise the options in the trading hours of any trading day prior to the expiration date. Options that are in-the-money at the time of expiration will be automatically exercised, to avoid loss caused by the buyer who has forgotten to submit the exercise application. If a client obtains a corresponding futures position after exercise (fulfillment) and holds an opposite futures position at the same time, the exchange system provides an automatic hedging function after exercise (fulfillment). This will automatically hedge liquidation of the bilateral futures positions following the fulfillment according to the settlement price of the underlying futures contract on the day after the market is closed.
In terms of the margin, the DCE only collects trading margin from the options seller. The collection formula is shown as follows: the settlement price of the option contract × the trading unit of the underlying futures contract + Max [the trading margin of the underlying futures contract - (1/2) × the out-of-the-money amount of the options,(1/2) ×the trading margin of the underlying futures contract].
Meanwhile, DCE has offered discounted margin for a variety of options strategies. While ensuring the smooth operation of the market at the initial stage of listing, DCE will launch portfolio margin of the RBD palm olein options step by step at an appropriate time, so as to improve the efficiency of capital use and promote the function operation of the options market.
After the RBD palm olein options opened to overseas investors , the settlement account setting and settlement logic of the exchange members remain unchanged. The exchange conducts clearing with the members only, and the futures company members conducts clearing with their own clients, overseas intermediaries, and overseas special participants (“overseas principals for clearing and delivery”) which engage it to conduct clearing, while the overseas special brokerage participants and the overseas intermediaries conducts clearing with their clients. CNY is still used as the basic clearing currency, while foreign clients are allowed to take US dollars as the currency for margin (exchange rate, and discount rate, etc. are consistent with those under the existing rules).
To facilitate the exchange of foreign currency, the revenues and expenditures of the RBD palm olein options premium and trading fees are included in the calculation range of exchangeable amount according to the current exchange mechanism of specific products. The clearing member can calculate the net profit and loss of its overseas principals for clearing and delivery in the longest period of one month, and generate the exchange quota. Meanwhile, overseas principals for clearing and delivery are allowed to submit their own foreign exchange purchase applications within the scope of the exchangeable quota.
It is generally agreed that the collection mode of the RBD palm olein trading margin follows the traditional options margin collection mode in the international market, which can better prevent market risks and ensure the stable operation of the RBD palm olein options. The calculation of options trading margin is relatively simple, reasonably structured and easy to realize, making it easier for domestic and overseas investors to manage risks and participated in options trading.
