italian derivatives markets(borsa italiana,2002)
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FEBRUARY 20
Italian Derivatives Markets
Valentina Sidoti
Borsa Italiana SpA
October 2002
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Table of contents
Borsa Italiana in the European landscape
The IDEM market
IDEM strategic development
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Borsa Italiana in the European LandscapeExchange corporate structure
* Acquisition under completion
Central Securities
Depository andSettlement
Clearing (derivatives);
Guarantee (cash);CCP (forthcoming)
ICT project
management services
Facility
management
65% 59%100% 99%*
Shareholders:Italian andInternational
financialinstitutions,quoted
companies
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Borsa Italiana in the European LandscapeProducts and Network
118 Government bonds 412 Bonds 20 Convertible bonds
FIXED INCOMEPRODUCTS
3 Index Futures
1 Index Options 35 Stock Options 5 Stock Futures 4 Interest rate contracts
DERIVATIVE PRODUCTS
EQUITY PRODUCTS
295 Companies 349 Shares 22 Warrants 6 577 Covered warrants (25 issuers)
129 Intermediaries in Italy30 Remote members
DISTRIBUTION NETWORK
* as of 31st August 2002
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Borsa Italiana in the European LandscapeOne Exchange - Many Markets
MOT
-Covered Warrants on:
Shares Government securities Interest rates Currencies Indices
Commodities
-Certificates
Government bonds
Corporate bonds Eurobonds
Asset Backed
Securities (ABS)
Equity derivatives:
MIB30 futures MIDEX futures
miniFIB
MIB30 index options
Stock options
IDEM stock futures
Ristretto
Equity
Instruments
Covered
Warrants
DerivativesFixed
Income
Shares Warrants Pre-emptive rights Shares of Collective
Investment Units(CIUs)
Convertible bonds
Blue-Chips
Ordinary Segment
Electronic share
market
- MTA -
After Hours Market
MTF Segment(ETFs & funds)
MIB30 and MIDEXshares
Nuovo Mercato shares
Covered warrants
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Source: Borsa Italiana Last update: September 2002
euro million as % of GDP
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
1 000 000
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
0%
10%
20%
30%
40%
50%
60%
70%
80%
Borsa Italiana in the European LandscapeGrowth of market capitalisation
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European Exchanges - market capitalisation ofdomestic shares,
December 2001, euro million
Source: FESE
0 500 000 1 000 000 1 500 000 2 000 000 2 500 000
Helsinki Exchange
Iceland
Luxembourg
Vienna
Oslo Bors
Irish Exchange
Copenhagen
Athens
StockholmMadrid
Swiss Exchange
Borsa Italiana
Deutsche Brse
Euronext
London
0 1 000 2 000 3 000 4 000 5 000 6 000 7 000
Iceland
Ljubljana
LuxembourgIrish Exchange
Warsaw
Vienna
Copenhagen
Athens
Oslo Bors
Helsinki ExchangeStockholm
Madrid
Swiss Exchange + Virt X
Borsa Italiana
Deutsche Brse
London
Euronext
Domestic shares turnover on electronicmatching trading systems
Jan-Dec 2001 daily average, euro million
Borsa Italiana in the European LandscapeEquities: a European comparison
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Source: FESE Period: Jan - July 2002
0 1 500 3 000 4 500 6 000 7 500 9 000 10 500 12 000 13 500
Borsa Italiana
Deutsche Brse
SWX
Euronext
Bolsa de Madrid
Helsinki
Electronic Order Book Negotiated DealsTotalturnover ( m)
Borsa Italiana in the European LandscapeCovered Warrants: a European comparison
B I li i h E L d
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MTF is a Regulated Market for:
Index ETF (Exchange-Traded Funds) Index traditional Funds
Index Sicav
Closed-end Funds
Those can be Italian, Foreign, UCITS compliant or non UCITS
compliant.
The MTF market is a segment of the equity tradingplatform (MTA)
Every operator already linked to the MTA platform is allowed
(for free and automatically) to trade on the MTF market.
Borsa Italiana in the European LandscapeThe last born: MTF segment
B It li i th E L d
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Co-operation agreement with Standard & Poors
covering the indices of Borsa Italiana to:
Design indices that are more representative of theItalian market
Enhance the visibility of Borsa Italiana worldwide bycooperating with a global partner
Allow Borsa Italiana to launch new index related
products
Borsa Italiana in the European LandscapeIndices: new developments
T bl f t t
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Table of contents
Borsa Italiana in the European landscape
The IDEM market The growth of the market
IDEM products
IDEM trading platform & microstructure
Role of the Clearing House
IDEM strategic development
Th IDEM k t Th th f th k t
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IDEM is an electronic market
IDEM is a regulated market managed by
The Italian clearing houseCassa di
Compensazione e Garanzia is the centralcounterparty of all deas executed in the market
The IDEM market - The growth of the marketDefinition
The IDEM market The growth of the market
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2002...
April 2002:launch of the
new tradingplatform OMclick
July 2002:launch of theIDEM StockFutures
contracts, futureson individualshares of theItalian market
July 2000:launch of
miniFIB, themini-futurescontract on theMIB30 indextargeted toretail investors(product size
1/5 of the FIB30size)
2000-20011998-1999
March 1998:trading started
on the Midexfuturescontract
1996-1997
February 1996:trading started on
5 stock optionscontracts
Now on the IDEMmarket stockoptions areavailable on 35
underlying shares
1994-1995
November 1994:IDEM market was
founded. Tradingstarted with theintroduction of theMIB30 futurescontract FIB30
November 1995:
launch of the MIB30
option contract(MIBO).
The IDEM market - The growth of the marketHistory of the market
Source: Borsa Italiana,
The IDEM market The growth of the market
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The IDEM market - The growth of the marketProducts
Launch date Underlying Avg daily volume in 2002
November 1994
July 2000
March 1998
July 2002
November 1995
February 1996
MIB30 Index
MIB30 Index
Midex Index
5 Stocks
MIB30 Index
35 Stocks
Source: Borsa Italiana, last update: 17 october 2002
19,358 contracts
8,106 contracts
3 contracts
365 contracts
10,096 contracts
29,459 contracts
The futures contracts on MIB 30 index, the Minifib, the MIB30 index
option contract and the stock options contracts listed on the IDEM
market may be offered and sold in the United States pursuant to no
action relief granted by the U.S. Commodity Futures TradingCommission and by the U.S. Securities and Exchange Commission.
The IDEM market The growth of the market
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Standard Contracts
Daily Average
Stock Options
MIB30 options
FIBminiFIB
05.000
10.00015.00020.00025.00030.00035.00040.00045.00050.00055.000
60.00065.00070.00075.00080.00085.00090.000
1995 1996 1997 1998 1999 2000 2001 2002
Source: Borsa Italiana, last update: september 2002
The IDEM market - The growth of the marketIDEM growth
The IDEM market The growth of the market
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European Index Futures(Turnover)
100% = 7 738 bn
European Index Options(Turnover)
100% = 4 354 bn
Source: FESE, Eurex, Monep, Borsa Italiana Last update: December 2001
MIB30 Index futures:
5th most traded contract in Europe
11% market share
MIB30 Index options:
5th most traded contract in Europe
6% market share
DAX
26%
Eurostoxx50
(eurex)
19%SMI
3%
FTSE100
14%
CAC40
15%
AEX
4%
MIB30
11%
IBEX355%
OMX2%
Other
1%DAX
29%
Eurostoxx50(eurex)
17%
SMI
3%
Other
0%OMX
1%
IBEX35
2%
MIB30
6%AEX6%
CAC40
12%
FTSE100
24%
EurexLiffeIDEMEuronext
Others
The IDEM market - The growth of the marketIDEM competitive position in Europe
The IDEM market - The growth of the market
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82Members in Italy16Remote members
FRANCE
5 members3 market makers
UK
10 members3 market makers
Netherlands
1 member
ITALY82 members
11 market makers
The IDEM market - The growth of the marketAn international market
16 Remote members: AOT, BNPParibas Arbitrage, Crdit Lyonnais,Crdit Suisse First Boston,Deutsche Bank, Exane, FimatInternational Banque, GoldmanSachs International, Hull Trading
UK, Merrill Lynch, Morgan Stanley& co. International, MarquettePartners UK, Oddo Options,Socit Gnrale, Timber Hill UK,Tullet & Tokyo Liberty
4 Remote clearing members:
Merrill Lynch, Fimat InternationalBanque, Fortis Clearing, GoldmanSachs International
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Table of contents
Borsa Italiana in the European landscape
The IDEM market The growth of the market
IDEM products
IDEM microstructure
Role of the Clearing House
IDEM strategic development
The IDEM market - IDEM Products
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Shares
FIB e miniFIB
Mibo
Stock Futures
SharesStockoptions
IDEM market offers a complete range of products and price
discovery process.
The IDEM market - IDEM ProductsComplete range of products
The IDEM market - IDEM Products
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The IDEM market IDEM ProductsFIB and miniFIB
Underlying MIB30 Index
Quotations In index points
Value of index point 5 for the FIB contract, 1 for the miniFIB contract
Tick Size
5 index points (25 for the FIB contracts, 5 for the miniFIB
contract)
Expirations Quarterly expiries (March, June, September, December)
Expiration date Third Friday of Expiration month
Last trading day Expiries day at 9.30 am (Milan time)
Trading hours 9.15am-5.40pm
Settlement Cash
Settlement day T+1
The IDEM market - IDEM Products
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The IDEM market IDEM ProductsMIB30 options
Underlying MIB30 Index
Quotations In index points
Value of index point 2.5
Option Style European
Expirations
Quarterly expiries (March, June, September, December) and monthly
expiries
Expiration date Third Friday of Expiration month
Last trading day Expiries day at 9.30 am (Milan time)
Trading hours 9.15am-5.40pm
Settlement Cash
Settlement day T+1
The IDEM market - IDEM Products
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The IDEM market IDEM ProductsStock Options
Underlying 35 shares of the MTA and Nuovo Mercato
Quotations In euros
Minimum lots Depending on the underlying
Option Style American
Expirations
Quarterly expiries (March, June, September, December) and
monthly expiries
Expiration date Third Friday of Expiration month
Last trading day Day before expiries
Trading hours 9.15am-5.40pm
Premium settlement Cash, T+1
Settlement Delivery of financial instruments
Settlement day T+3
The IDEM market - IDEM Products
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The IDEM market IDEM Products35Stock Options
The IDEM market - IDEM Products
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e a et oductsIDEM Stock Futures
Subject Description
Underlyings Enel, Eni, Telecom Italia, TIM, UnicreditoTick size Set in accordance with the price of the order
Minimum lot The same as for the stock options
Adjustments The same as for the stock options
Expiration date Third friday of each expiration month
Last trading day Expiration day until 9:30 (Milan time)
Maturities Always four expirations: two quarterly expirationsplus the two nearest monthly expirations
Currency In euro, with 4 decimal digits
Daily settlement price Calculated by the Clearing House (Cassa di Com-
pensazione e Garanzia)
Settlement Physical shares delivery
Trading hours 9:15 AM 5:40 AMTypes of orders As set by the Rules for other IDEM contracts
Give-up Available
The IDEM market - IDEM Products
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Provide the Market with an attractive product for trading and
hedging with interest from market makers, traders and funds
Directional Trading
Hedging
Equities
Options
Covered Warrants
Arbitrage
against Equities
between expiries
options
IDEM Stock Futures
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Borsa Italiana in the European landscape
The IDEM market The growth of the market
IDEM products
IDEM trading system
Role of the Clearing House
IDEM strategic development
The IDEM market - IDEM microstructure
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The IDEM service is based on the OM electronic trading system version16.6
Borsa Italiana provides complete connectivity to the IDEM market from the
primary site of the member as an integral part of the service itself.
Trading system
Number of Instruments
Daily Number of Orders/Quotations(with block orders/mass quotation)Daily Number of Orders/Quotations(without block orders/mass quotation)Average Daily Number of Contracts/Sec
Numbers of Orders/Quotations in the Peak 30 Min.(with block orders/mass quotation)
Numbers of Orders/Quotations in the Peak 30 Min.(without block orders/mass quotation)
Numbers of Orders/Quotations/Sec in the Peak 30 Min.(with block orders/mass quotation)
15,000
30,000,000
4,200,000
5.69
4,500,000
540,000
2,500
The IDEM market - IDEM microstructure
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The IDEM market - IDEM microstructureM k Mi
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Distinction between Primary Market Makers (continuous quotes)and Market Makers (answers to RFQ)
Expiries
New obligations for market makers
At
Out
InI II III IV V VI
Market Makers spacePMM
MM
Underlyings
Size for Mibo
Size for Stock Options Refresh rate
Permanency of quotation
Hours
20
15
20
2 min
-
9:45-17:20
2
10
10
2 min
30 sec
9:45-17:20
PMM MM
Furthermore:
Schedules of Bid/Ask spreads more consistent with the market
Simplified management of the list of market makers
Mass Quotation functionality for market makers, changes in the use ofStop Orders
MarketMicrostructure
31
The IDEM market - IDEM microstructureT di h
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IDEM
After HoursClosing auctionContinuous tradingOpening auction
Blue Chips
Nuovo Mercato
8:00 9:30 17:25 17:40 18:00 20:309:15 9:45 17:20
Market Maker obligation
Trading hours
32
The IDEM market - IDEM microstructureO d b k
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32Orders book
33
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Borsa Italiana in the European landscape
The IDEM market The growth of the market
IDEM products
IDEM microstructure
Role of the Clearing House
IDEM strategic development
34
The IDEM market - Clearing houseActivities of the Clearing House
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Financial Derivatives
Centralized netting and clearing facility for financial derivatives traded onthe Italian regulated markets
Financial backing by taking on the role of a fully liable central counterparty
Cash Equity Markets
Management of the Guarantee Funds that ensures the execution ofcontracts concluded on the electronic cash equity market (MTA) and onNuovo Mercato (NM) for high-growth stocks
Resources provided to the Funds exclusively by participants according to
their volume of business without any liability falling upon CC&G
Activities of the Clearing House
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The IDEM market - Clearing houseMargining system
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In order to preserve the market's integrity, CC&G performs a "riskmanagement function" by means of a risk based guarantee system calledTIMS (Theoretical Intermarket Margins System developed by The OptionsClearing Corporation - OCC - Chicago)
TIMS uses advanced portfolio theory to margin all positions relating to thesame underlying product and combines the risk of closely related productsinto integrated portfolios
Initial margins are applied on the net positions for each account (House
account and Client omnibus account)
Margining system
36
The IDEM market - Clearing houseClearing on the IDEM market
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Operatore YBank Y
Aderente
Generale Z
General Clearing
MemberAderente
Individuale YClearing member
Aderente
Indiretto X
Clearing Direct
Member
Operatore XBank X
Cliente AClient A Cliente BClient B
Trading
Clearing
Clearing on the IDEM market
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Borsa Italiana in the European landscape
The IDEM market
IDEM strategic development The market strategy
Client base diversification: retail case study
Client base diversification: hedge fund case study
38The IDEM Strategic DevelopmentStrategy
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Products BusinessDevelopment
Marketing
Strategy
39
The IDEM Strategic DevelopmentStrategy
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DIRECT MEMBER
FINAL CLIENT
CLIENT BASE
DIVERSIFICATION
- retail- hedge fund- mutual fund
- pension fund- corporate
NEW PRODUCTS ANDSERVICES
Strategy
OBJECTIVES: volumes and liquidity
40The IDEM Strategic DevelopmentDrivers for volume increase
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Increase of hedging activities from investors
High volatility
Sensibility towards counterpart risk Credit line contraction in the OTC business
Developed OTC market in Italy
Drivers for volume increase
41The IDEM Strategic DevelopmentAdvantages of listed derivatives contracts
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Reliability:
Transactions are executed on the IDEM market whereCassa di Compensazione e Garanzia is the central
counterparty and acts as the sole guarantor for allcontracts executed
Standard contracts and transparency:Clear rules set by Borsa Italiana
Liquidity:The big number of intermediaries and market makerspresent in the market guarantees competitive prices
Advantages of listed derivatives contracts
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Borsa Italiana in the European landscape
The IDEM market
IDEM strategic development The market strategy
Client base diversification: retail case study
Client base diversification: hedge fund case study
43The IDEM Strategic Development - retailThe IDEM market towards retail investors
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Main distribution channel : online
First minifutures contract in Europe
Product targeted to retail investor
3 July 2000
The IDEM market towards retail investors
Why online?
Autonomy of decision
Time to market
Reduction of execution errors
44The IDEM Strategic Development -retailThe example of the e-mini contracts in US
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0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
Dailyaveragevolum
es
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
E-mini S&P 500 passed from 11.000 to 340.000 dailycontracts in 4 years
E-mini S&P 500 volumes +125% in 2002 S&P 500 volumes +9% in 2002
The example of the e mini contracts in US
45The IDEM Strategic Development -retailDevelopment of online trading in the IDEM
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0
5
10
15
jun-00 dec-00 jun-01 dec-01 jun-02 sep-02
IDEM products offered
online by the onlinebrokers
Product N. of brokers
Online brokers offeringminiFIB contract
FIB 12
miniFIB 12
Mib30 options 10
Stock Options 7
IMIWeb Bank
EptatradingBanca Mediolanum
Sivori & Partners SimBanca dellAlta Padovana
Gestrade
IDEM stock futures 5
Directa SimMillennium Sim
p g
Banca della reteBanca Sella
Nuovi Investimenti Sim
Twice Sim
46The IDEM Strategic Development -retailDevelopment of online trading in the IDEM
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FIB volumesJan-Sept 2002
81%
19%
miniFIB volumesJan-Sept 2002
59%
41%
Other
Online
Mibo volumesJan-Sept 2002
91%
9%
Source: Borsa Italiana estimation
p g
47The IDEM Strategic Development -retailInitiatives towards the individual investors
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Development of initiatives and services incollaboration with the online brokers
IDEMagazine: new educational newsletter
Event for individual investors
Data vending ad hoc
Web site section for individual investors
48Table of contents
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Borsa Italiana in the European landscape
The IDEM market
IDEM strategic development The market strategy
Client base diversification: retail case study
Client base diversification: hedge fund case study
49The IDEM Strategic Development -hedge fundObjectives
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Diversify the customer base
Increase liquidity
Capture new ideas for product development Offer new services for the hedge fund community
Enhance the internationalisation
Create new opportunities for the development of the Italian financial
market and institutions
ATTRACT MORE BUSINESS FROM HEDGE FUNDS
TO THE ITALIAN MARKET
50The IDEM Strategic Development -hedge fundStart Up up the Italian Hedge Funds industry
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Asset Manager:21 Speculative SGR authorized,belonging to italian banks,foreignbanks and entrepreneurs
Funds available:41 funds of funds5 single manager hedge funds(long/short and fixed income)
August 2002
Around 2 bln euroAsset undermanagement
First fund of fund authorized
April 2001First single manager fund authorized
July 2002
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