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Treasury note futures basic information for investors. Jarosław Ziębiec Head of Derivatives WSE June 2005. T-note futures:applications Benefits of trading T-note futures at the WSE WSE new members – polish banks T-note futures basic information Conversion factor Position limits

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treasury note futures basic information for investors

Treasury note futures basic information for investors

Jarosław Ziębiec

Head of Derivatives WSE

June 2005

agenda
T-note futures:applications

Benefits of trading T-note futures at the WSE

WSE new members – polish banks

T-note futures basic information

Conversion factor

Position limits

Settlement and delivery

More information

Contact details

Agenda
treasury note futures a pplications
Hedging of treasury bonds basket

for banks, investment funds

And soon for open pension funds

Speculation

Arbitrage opportunities

Spread trading

Asset allocation

Treasury note futures: applications
benefits for trading t note futures at the wse
No ISDA agreement required

Easier to close futures position

No offsetting trades remain on books

No costly unwinds

High-quality counterparty credit exposure (NDS as a cleraing house)

Easy to track P/L

Benefits for trading T note futures at the WSE
wse new members polish banks
Since may 2004 polish banks are allow to become direct WSE members

Banks can do proprietary trading at the WSE:

Trasury note futures, trasury bonds

All futures and options contract

Banks are trading via Treasury Dept.

Currenty (June 2005) 5 banks are trading T-note futures:

BPH, PEKAO, PKO BP, Millennium, ING

Benefits for banks:

Small costs

New opportunity

WSE new members - polish banks
treasury note futures at the wse
Launch date Feb 14 2005

first derivative based on interest rates - bonds

first derivative with delivery

Instrument created with cooperation of polish banks

Hipothetical treasury note with coupon 6% p.a.

Treasury note futures at the WSE
how to trade t note futures
Basic info – „ Trading rules for T-note futures…”

Detailed Exchange Trading Rules

WSE Rules

All documents can be found at the WSE web site

Trading

Via WSE brokerage house

Becoming WSE member

How to trade T note futures ?
trading12
Maximum order volume – 500 contracts

Daily price limits - +/- 1,5 percentage points (150 basis points) from the reference price

Initial margin = 2,8% of the contract value

Manintenance margin = 2%

Daily market-to-market by NDS

Fees – no WSE fees for members until 31.12.2005

Liquidity supported by 5 market makers

Trading
market makers
Banks: BPH, ING, PKO BP, PEKAO SA

Brokerage house : CDM PEKAO SA

Minimum offer size – 100 contracts (bid/offer)

Maximum bid/offer spread – 30 basis point i.e. 100,00 – 100,30

Mm quoting during 5 hours of the session,

Mm are present at opening and closing

Answering RFQ (request for quotes)

Market makers
position limits
Clearing member position limit – for clearing member

maximum of 7,500 open short and long positions for all series of note futures contracts. The position limit includes all open positions within a clearing member, both on their own and on their clients’ accounts.

NIK position limit (investor account)

maximum of 7,500 open short and long positions for all series of note futures contracts. If the investor has accounts with several clearing members, how much of the limit was used is determined on the basis of the sum total of open positions on those accounts.

Position limits
conversion factor
where:

r – interest rate used to determine a conversion factor, equal to 6% p.a.

n – number of years left until maturity of a security after a coupon payment date following the delivery date. If the day of granting the right to interest falls between day T and day T+3 (where T is the last trading day for a contract series) or earlier and the coupon is paid after the delivery settlement date, it is disregarded when “n” is determined.

C – annual coupon per PLN 100 of the par value of notes. If the day of granting the right to interest on notes falls between day T and day T+3, this payment is disregarded.

y – current number of days between two annual interest payment dates, taking the delivery date into account (both 365 and 366 days).

d – current number of days between the delivery settlement date (T+4) and interest (coupon) payment date following the delivery date.

PV – present value of each PLN 100 of the par value of notes, discounted at rate r as at the coupon payment date.

Conversion factor
conversion factor16
Determined by NDS for each T bond which could be delivered for given contract

Determined for 100 PLN of nominal value

known before trading of each T note series -published by NDS and WSE

Conversion factor
settlement
Delivery with bonds

Last trading date – T (Friday)

Delivery date – T+4

In exceptional case NDS may settle part of open position in cash - if market position limit is exceeded

market position limit - a limit is established for the value of all open positions for a series of note futures contracts on the last trading day: 20% of the value of notes in the basket.

Settlement
list of deliverable bonds
Bonds

fixed interest treasury notes issued by the Minister of Finance,

with a minimum issue value of PLN 5 billion

remaining maturity of not less than 2 years and 9 months and not more than 5 years and 6 months as of the futures contract delivery date

NDS and WSE select bonds which could be delivered and publish ”list of deliverable bonds”

Currently (June 2005) list of deliverable bonds for contract FPS5Z05 include: DS0509, PS0310, DS1110.

List of deliverable bonds
final settlement value of notes
Final settlement value of notes
  • The value is counted and published by the NDS
  • The final settlement value of notes is determined for each series of deliverable notes on the basis of the final settlement price of a contract and an applicable conversion factor for a note series. The final settlement value is given accurate to one grosz. The final settlement value of notes for a series is computed in accordance with the following formula:

where

  • OCRi – final settlement value of notes for the ith series (series No. i),
  • CFi – conversion factor for the ith series of notes,
  • OKR – final settlement price of a contract,
  • AIi – product of accrued interest on the ith series of notes and 100. If the day of granting the right to interest falls between T and T+3 (where T is the last trading day for a contract series) or earlier, this interest is disregarded.
summary of trading feb 14 may 30 2005
Very young market

turnover – over 13 thousand contracts

Average daily turover – around 200 contracts

No of open position (May 30. 2005) – 1672 contracts

Both series are active

Banks which conclude trades – 5

Brokers which conclude trades – 6

Summary of trading Feb 14 – May 30 2005
more information
WSE web site:

http://www.gpw.com.pl/gpw_e.asp?cel=e_papiery&k=237&n=23&i=/derivatives/futures_contracts/treasury_fut

„Trading rules for T-note futures”,

Information about CF, list of deliverable bonds,

Trading calendar,

Margin,

On-line quotation,

Other marketing information,

Please contact your local polish broker for details

More information
slide24

If you hany any questions please contact:

Jarosław Ziębiec

Head of Derivatives Section

Market Operations and Development

Warsaw Stock Exchange

phone +48 22 537 73 89

mobile +48 605 470 651

e-mail: jaroslaw.ziebiec@gpw.com.pl

or

futures@gpw.com.pl