Chapter 19

The STP Flow of Futures and Options Transactions

19.1 INTRODUCTION

The examples in this section are based on futures and options listed on the Euronext.LIFFE exchange in London, which will be cleared by LCH.Clearnet Limited. However, the general principles that are described in the examples apply to all listed derivatives traded on any exchange, but when listed derivatives are traded on other exchanges the names of the exchanges, clearing houses and systems involved will vary from those used in the examples.

The following process steps are identical for futures and options:

  • Order placement
  • Order execution
  • Trade agreement
  • Regulatory trade reporting
  • Settlement
  • Mark to market
  • Accrual of interest on collateral placed or received.

However, the trade amounts, as well as the general ledger and stock record posting process steps are different. Therefore the common processes are examined in section 19.2, and the instrument-specific process steps are examined in sections 19.3 for futures and section 19.4 for options.

19.2 FUTURES AND OPTIONS – COMMON PROCESS STEPS

19.2.1 Order placement

As each futures or options contract is unique to the exchange that developed it, the investor needs to submit the order to a sell-side firm that is a member of the exchange concerned. This may be achieved by any one of the following means:

  • By telephone or fax
  • By entering the order details into a secure web page provided by the sell-side firm
  • By sending the sell-side firms a SWIFT message. SWIFT ...

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