Italian Derivatives Markets(Borsa Italiana,2002)

8/2/2019 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


The IDEM market The growth of the market

IDEM products

IDEM trading platform & microstructure

Role of the Clearing House


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



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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,



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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.



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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



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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



IDEM products

IDEM microstructure



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



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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



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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


Last trading day Expiries day at 9.30 am (Milan time)


Settlement Cash

Settlement day T+1



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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


Last trading day Day before expiries


Premium settlement Cash, T+1

Settlement Delivery of financial instruments

Settlement day T+3



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The IDEM market IDEM Products35Stock Options



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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



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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

Table of contents


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IDEM products

IDEM trading system



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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29The OM Click Trade

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

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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

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The IDEM market - IDEM microstructureO d b k


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32Orders book

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Table of contents


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IDEM products

IDEM microstructure



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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

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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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Table of contents


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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

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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

42Table of contents


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The IDEM market




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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The IDEM market




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

Italian Derivatives Markets(Borsa Italiana,2002)

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