Frequently Asked Questions for ISE FX Options
TM
What are ISE FX Options?
ISE FX OptionsTM are options on the exchange rates of the US dollar versus certain
foreign currencies. ISE FX OptionsTM allow traders and investors to express their views
on the strength and weakness of the US dollar without the need to hold the actual
foreign currency. These products will have characteristics that are similar to index
options. They will be cash-settled and have European style exercise.
When will the products start trading?
Pending SEC approval, the ISE expects to list ISE FX Options on March 30th.
Who can trade ISE FX OptionsTM?
All EAMs (Electronic Access Members) can enter FX Options orders with existing
connectivity and membership. FX Options orders will be accepted by ISE via FIX, API,
and PrecISE terminals.
CMMs (Competitive Market Makers) and PMMs (Primary Market Makers) can quote in
ISE FX Options upon obtaining trading licenses to become FXPMMs or FXCMMs.
What order types are available?
All order types will be accepted, with the exception of tied-to-stock orders.
Which exchange rates will be listed?
ISE will initially list FX options on the exchange rates of the following four currencies:
euro, British pound, Japanese yen, and the Canadian dollar. The rates will be US dollar
based, and expressed as follows: USD/EUR, USD/GBP, USD/JPY, USD/CAD.
How are the underlying values expressed?
For exchange rates that include the USD, ISE FX Options will have underlying values
expressed in foreign currency units per 1USD that are modified to create an index-like
underlying. For example, if the current exchange rate for USD/EUR is 0.7829, the
underlying value for the USD/EUR ISE FX Option would be 78.29 (0.7829 x 100).
Another example, if the USD/GBP exchange rate is 0.5264, the underlying value for the
USD/GBP ISE FX Options would be 52.64 (0.5264 x 100). This format will allow
investors to easily adopt the trading strategies they currently use for equity and index
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options. The modifiers used to scale the exchange rates are provided in the product
specifications at the end of this document and will also be available on ISE’s website.
Where does ISE get its underlying values from?
ISE and Reuters have entered into an agreement whereby Reuters supplies ISE with
the currency data needed to calculate the underlying values for each currency pair.
Will ISE publish the underlying values?
Yes. ISE is already disseminating underlying values on the regular OPRA feed for
equities and indexes. Those values are also available through most major market data
vendors. The table below summarizes the symbols for the four currency pairs ISE
intends to launch first.
USD/EUR
USD/GBP
USD/JPY
USD/CAD
OPRA code:
EUI
BPX
YUK
CDD
Yahoo! Finance:
^EUI
^BPX
^YUK
^CDD
EUI <CRNCY>
BPXX <CRNCY>
YUK <CRNCY>
CDD <CRNCY>
ILX:
EUI
BPX
YUK
CDD
Reuters:
.EUI
.BPX
.YUK
.CDD
Bloomberg:
What are the margin requirements?
The margin requirements for FX Options will be different from those for equity and index
options. For FX Options, Members will be bound to comply with ISE’s new margin rule,
which is substantially similar to the Philadelphia Stock Exchange’s margin rule for its
World Currency Options.
To learn more about the products please contact Kris Monaco at (212) 897-8151 or
kmonaco@ise.com.
For other questions, please contact Jeanine Hightower (212) 897-0357 or
jhightower@ise.com.
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Proposed Product Specifications for ISE FX Options (pending SEC approval)
Spot prices/
Underlying
values:
Spot prices will be based on rates reported by Reuters Composite Rate. The
underlying price for each currency pair will generally use a standardized quoting
convention of rates with USD as a base currency (i.e., “USD/counter-currency”).
As detailed below, rates will be modified by either 1, 10 or 100, such that the
underlying price of the options contract reflects a price level similar to that of a stock
or an index. Modified exchange rates will be disseminated on OPRA at 15-second
intervals using traditional OPRA codes.
The table below includes the initial rates on which the Exchange will list options.
Currency
Convention
USD/EUR
USD/GBP
euro
Great Britain pound
Japanese yen
Canadian dollar
USD/JPY
USD/CAD
ISO 4217 (Codes for the Representation of Currencies and Funds) will be used as the
standard for three-letter currency abbreviations. However, ticker symbols (OPRA
codes) for the product may be different.
Rates will be modified to create an underlying spot price level that is similar to stocks
and indexes by using the following equation:
Modified exchange rate = rate x rate modifier
The following table summarizes the rate modifier for each pair.
Convention
Rate Modifier
USD/EUR
USD/GBP
USD/JPY
USD/CAD
100
100
1
100
The following table provides examples of how rates are modified.
Representation
Rate
USD/EUR
=
78.26 (0.78256 x 100)
USD/GBP
=
52.64 (0.52641 x 100)
USD/JPY
=
116.60 (116.60 x 1)
USD/CAD
=
111.81 (1.11810 x 100)
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Note: The Exchange also plans to list cross-rates which will be any combination of
the above listed rates.
Strike prices:
Strike price increments are 0.10 points minimum, but may start with 0.50
points.
Premium
multiplier:
$100. The multiplier means that the options premiums are multiplied by
USD100 to obtain the actual premium amount.
Minimum trading
increment:
The minimum trading increment for an options contract trading at less than
$3.00 is $0.05. The minimum trading increment for an options contract
trading at $3.00 or higher is $0.10.
Expiration day:
The Saturday following the third Friday of the expiration month.
Last trading day:
Trading will ordinarily cease at 12:00 PM eastern time on the business day
(usually a Friday) preceding the expiration day.
Trading Hours:
9:30AM – 4:15PM ET
•
•
Expirations:
•
Consecutive months (up to four near-term months)
Cycle months (up to four months from the March quarterly cycle (March,
June, September and December).
Note: Consecutive month and Cycle month expirations of a given series
will never overlap.
Long-term (up to ten months, none further out than thirty-six months)
Exercise style:
European style. Options may be exercised only on the last business day
prior to expiration (normally a Friday). Writers are subject to assignment only
at expiration.
Settlement type:
cash-settled
Settlement
value:
Determined on the last trading day (usually a Friday) based on “Noon Buying
Rates” as published by the Federal Reserve Bank of New York
(http://www.ny.frb.org/markets/fxrates/noon.cfm). In the event the Noon
Buying Rate is not available for an underlying currency, settlement value will
be determined based on the WM/Reuters Closing Spot rate.
Position limits:
Currency
euro
Great Britain pound
Japanese yen
Canadian dollar
Holiday
schedule:
Position Limit (contracts)
1,200,000
600,000
600,000
600,000
Holiday schedule will be the same as the US equity markets.
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