The ASX will launch an over-the-counter (OTC) clearing service for equity and index options from 30 April, subject to regulatory approval.
“It’s an anonymous trade in special block size with a standard ASX exchange-traded options (ETO) contract where you select the strike and the date and the expiry of your choice,” said David Stocken, ASX senior manager, institutional sales, at a briefing in Melbourne. “Previously, where we were saying, say, if you’d want to do an ASX June option, the option would expire on the 28th of June. Now if you want an option that expires on the 15th or the 14th or the 12th, you now have that choice.”
ASX touts the ASX Equity OTC Clear clearing service as being anonymous, flexible to specified maturity, option type, exercise price and exercise type, and for not requiring an International Swaps and Derivatives Association (ISDA) agreement. Under the structure of the clearing service, the ASX acts as the central counterparty, and the ASX acts as the calculation agent in case of corporate actions for the OTC option contracts.
Stocken in particular touted operational efficiency and the ability to operate without ISDA documentation during the briefing.
“The operational efficiency, we can definitely bring you the benefit of that strike and date flexibility,” Stocken said. “The second benefit is that there are no requirements whatsoever for ISDA documentation. If you’re a fund that wants the strike and date flexibility, but if you have mandates or other issues with dealing with an ISDA agreement, you don’t have to worry about that with this.”
In the first phase of the clearing service’s existence, ASX Equity OTC Clear will offer the top 19 ETO classes plus the S&P/ASX200 with a one-year expiry cap. From the first quarter of 2013, the service will offer all ETO classes with a four-year expiry cap. The initial ETO classes include ANZ Bank, Alumina Limited, BHP Billiton, Bluescope Steel, Commonwealth Bank, Fortescue Metals Group, NAB, Mobius NCM-04 Trust, Oz Minerals Limited, Rio Tinto, Telstra, Westpac, Woolworths, Woodside Petroleum and XJO
As an example of the minimum block size that can be cleared through the service, Stocken pointed to BHP Billiton, saying that BHP’s block size was AU$500,000 worth of premium or AU$2.5 million of notional value.
Reporting by: Rachel Alembakis , Global Custodian, an Asset International publication