JSE Limited

2. Yield-X JSE Limited Main Board ALTx Equity Derivatives Agricultural Derivatives Yield-X Bonds -Trading spot bonds - Primary listings - Secondary listings - Carries Interest Rate Derivatives - Bond Futures - Bond Options - Index futures and options - Rods - Swaps - Notes - FRAs Currencies - Futures - Options

3. Yield-X • What are Currency Options • Currency Options are derivative contracts that grant the purchaser the • right but not the obligation to trade a currency futures contract at a • predetermined date in the future at a prearranged price, regardless of • where the underlying market is trading. • Currency Options traded on Yield-X are based on the underlying Currency • Futures contracts on a one-to-one basis. • Currency Options premium fluctuate with the movements in the underlying • future and volatility.

4. Yield-X Two types of Currency Options: • Call Options: • Grants the purchaser the right but not the obligation to buy the • underlying currency future at a predetermined price at a predetermined • date in the future. • Put Options: • Grants the purchaser the right but not the obligation to sell the • underlying currency future at a predetermined price at a predetermined • date in the future.

5. Yield-X Major components of Option Contracts: • Expiry Date • The underlying security • Exercise/Strike price • Volatility • Premium • Initial margin and variation margin

6. Yield-X • Initial Margin • Unlike Currency Futures the initial margin for Options can change as • it gets calculated on a daily basis depending on the risk of the option • When a position is opened (either long or short), the investors are required to pay an initial margin in cash (known as a good faith deposit) with the broker who subsequently deposits it with the clearinghouse • This amount remains on deposit as long as the investor has an open position • The initial margin attracts a market related interest rate which is refunded to the investors once the position is traded out, or if the contract expires (close out) • The initial margin requirement varies between the different currency futures offered

7. Yield-X • Initial Margin

8. Yield-X • Premium Variation Margin • The premium is paid over the life of the Option contract. • Variation Margin fluctuates each day, depending on the change in value of • the option • Note, however that the Initial Margin might counter cash flows in order to • manage the risk. • Because of daily variation margining at each day’s close the position is • fully valued for both parties, this avoids a situation where the risk exists of • a default on several days.

9. Yield-X Currency Options listed on Yield-X • Dollar / Rand • Euro / Rand • Pound / Rand • Australian Dollar / Rand

10. Yield-X Options Pricing Intrinsic value of a call option Value of a put option Any extra value above intrinsic value is referred to as time value This diagram shows a simplified analysis of an option’s value.

11. Yield-X “In, Out and At the Money” • Call Option: • When the underlying asset’s price is higher than the • strike price a call (buy) option is said to be “in-the-money” • When the underlying asset’s price is less than the strike price, • a call (buy) option is said to be “out-the-money” • When the underlying asset’s price is equal to the strike • price a call (buy) option is said to be “at-the-money”

12. Yield-X Currency Options Product Specifications • Underlying Instrument • Rate of exchange between one US Dollar and SA Rand • Standardized contracts • Fixed expiries in March, June, September and December • Rand Denominated • Naked Options (premium): Rand’s per contract • Delta trades: Volatility to 2 decimal places • Cash Settled • No physical delivery of foreign currency • Contract sizes • 1000 foreign underlying currency e.g. $ 1000, £ 1000, € 1000 and ZAAD 1000

13. Yield-X Currency Options Product Specifications Cont… • Expiry Dates & Times • 10H00 New York time, two business days prior to the third Wednesday of the expiry month • Expiration Valuation Method • 30 Iterations, arithmetic average of the underlying spot taken every • 1 minute for a period of 30 minutes. • Exercise Style • European style, Options may be exercised only on the expiration of • the contract.

14. Yield-X Call Option Example: • An Importer is concerned that the Rand will weaken against the Dollar. He needs the Rand to trade at a specific price to ensure his production price is more than his selling price • The Dollar/Rand spot exchange rate is currently trading at R9.00 and the Currency Future at R9.15 • Buy “At the Money” Call Option with a strike price on the future of R9.15 and at a premium of R240 per option contract (With a Volatility of 25%)

15. Yield-X • Scenario 1 – Rand Weakens • On future date the Rand Currency Future is trading at R10.20 • Exercise the option and buy the Currency Futures Contract at R9.15 • At Expiration: • Call Option = (Exchange Rate – strike price) x 1000 units of the underlying • = (10.20 – 9.15) x 1000 • = R1050 • Profit = R1050 – R240 • = R810 Call Option Example Cont….

16. Yield-X Call Option Example Cont… • Scenario 2 – Rand Strengthens • On future date the Rand Currency Future is trading at R8.50 • Why would you exercise your option and buy the future at R9.15 if you can buy it at its current future trading price of R8.50? • Loss = Premium of R240

17. Yield-X Put Option Example: • An Exporter is concerned the Rand is going to Strengthen against the Dollar • The Dollar/Rand spot exchange rate is currently trading at R9.00 and Currency Future at R9.15 • Buy “At the Money” Put Option with a strike price on the future of R9.15 at a premium of R240 per option contract (With a Volatility of 25%)

18. Yield-X Put Option Example Cont… • Scenario 1 – Rand Strengthens • On future date the Rand Currency Future is trading at R8.30 • Exercise your option and sell the rand future at R9.15 • At Expiration: • Put Option = (Strike Price – Exchange rate) x 1000 units of the underlying • = (9.15 – 8.30) x 1000 • = R850 • Profit = R850 – R240 • = R610

19. Yield-X Put Option Example Cont… • Scenario 2 – Rand Weakens • On future date the Rand is trading at R9.50 • Why would you exercise your option and sell the future at R9.15 if you can sell it at its current trading price of R9.50? • Loss = Premium of R240

20. Yield-X Why Trade Currency Options? • Hedge against currency exposure risk • Protect the value of your Currency • Time to make sure – Buying an option enables you to defer your decision • until the option’s date of expiry • Speculate • Trade on a regulated and efficient platform • Allow for transparent pricing • Equalise the playing field for investors • Allow individuals and smaller corporates to access favorable rates usually reserved for larger corporates

21. Yield-X Risks Gearing • Post small amount but valued on full nominal value • Can make money but can also lose money! • Loss can be more than the initial margin posted if unfavourable position is not closed out Trading Hours • Global currency markets open 24 hours a day • Local market only open Mon-Fri 9am-5pm • Market could move against you while local market is closed and you will have to wait until the next day’s opening of the market to trade out – some banks can put stop losses in place though

22. Yield-X Costs • Exchange fees to the members are R0.50 (excl VAT) per currency option contract traded • These are the fees the exchange charges the broking community • however the fees that the brokers charge the clients vary from broker to • broker

23. Yield-X Currency Options Statistics Update (November 2009) • Total number of Contracts: 846,525 • Total Contract Value: R1,1 Billion

24. Yield-X QUESTIONS?