Next Generation ETD Contracts: Handling of sub-monthly expiring contracts

1.   Introduction

The introduction of Next Generation ETD Contracts will take place in different activation waves. The first one is planned for 27 March 2023 and the last one will be executed on 8 May 2023. For more details, please refer to Eurex Circular 011/23. 

The present circular provides a summary of the implications of integrating weekly expiring options contracts and of activating daily expiring futures contracts in the trading area. It also includes information on how sub-monthly expiring contracts are handled by the T7 trading platform.

More information about the Next Generation ETD Contracts initiative is provided in the T7 Release 10.0 Notes and in the T7 Release 10.1 Notes on the Eurex website www.eurex.com under the following links:

Support > Initiatives & Releases > T7 Release 10.0 and T7 Release10.1
Support > Initiatives & Releases > Readiness for projects > Next Generation ETD Contracts

Additional information is provided in:

• Eurex Circular 011/23 – “Next Generation ETD Contracts: Details on integration of weekly options and launch dates for daily expiring futures”

• Eurex Circular 014/23 – “NextGen ETD Contract: Introduction of New Product Initiatives”

• Eurex Clearing Circular 008/23 – "Next Generation ETD Contracts: Amendments to the Clearing Conditions and the Price List of Eurex Clearing AG”

2.   Required action

Trading Participants are requested to get familiar with products containing sub-monthly expiring contracts. This includes existing options products which will contain weekly expiring contracts which are created and expiring by a weekly contract lifecycle and existing single stock futures and MSCI futures products which will be equipped with daily expiring futures contracts.

Considering the individual usage of the Eurex trading functionality, Eurex recommends to carefully read Section 3 below and identify the respective actions.

3.   Details of handling sub-monthly expiring Contracts on the T7 trading platform

The integration of weekly expiring options contracts (e.g. ODX1/2/4/5) into the corresponding main options product (here: ODAX) might affect Participants’ configurations of certain trading functions. 

Quote Activation and De-activation: 

The corresponding requests result in activation or de-activation of all quotes submitted via the same session and in the same product regardless of whether these quotes are referring to monthly or sub-monthly expiring contracts. 

Recommendation: Participants currently using quote activation or de-activation requests in products supporting integrated weekly options contracts should be aware that the activation or de-activation requests do not distinguish between quotes referring to monthly and sub-monthly expiring contracts.

Market Maker Protection:

The functionality is applied to all quotes of options contracts belonging to the same options products and submitted via the same session. After its integration, there will be no specific distinction between weekly and monthly expiring options contracts. As an example, the volume limits applied to a main options product will also cover volume contributions from integrated weekly contracts. The volume (and all other) limits applied to weekly options products will become obsolete after the contracts of the corresponding weekly options product were moved to the corresponding main options product.

Recommendation: Participants applying different Market Maker Protection limits for weekly expiring options products and the respective main options product should be aware that the limits for the main product will cover both, monthly and weekly expiring contracts after the NextGen integration was performed and without any intervention from Participants. 

Transaction Size Limits (TSL):

TSL apply on product level and can be used to distinguish between weekly or monthly expiring options contracts via the corresponding TSL product groups (e.g. ODAX in TSL product group IOL2, ODX/1/2/4/5 in TSL product group IOL3 via Standard TSL or per product via Exception TSL). Consequently, after the integration of weekly expiring contracts, there are no specific TSL explicitly referring to weekly or monthly expiring options contracts.

Recommendation: Participants currently applying different TSL for weekly expiring options products and the respective main options product (via Standard or Exception TSL) should be aware that the limits for the main options product will cover both, monthly and weekly expiring contracts after the NextGen integration was performed.

Pre-Trade Risk Limits (PTRL):

The PTRL calculate in real-time how much of a given limit has already been consumed by incoming transactions and executions throughout the trading day for order book trading and Trade Entry Service (TES) separately. Currently, PTRL for options is only activated for TES trading. Since the limits for PTRL apply on a product level, the integration of weekly expiring options products into the respective main options product may have an impact given the respective Participant setup. 

Recommendation: Participants applying separate PTRL for the weekly expiring option products and for the respective main options product should be aware that the limits for the main options product will cover both, monthly and weekly expiring contracts after the NextGen integration was completed.

Impact on Excessive System Usage (ESU) Fee and Order to Trade Ratio (OTR): 

The ESU limits are split into three different limit types: the “all transactions” limit, the “standard orders” limit and the “no market data impact” limit. The “no market data impact” limit has been increased as of 1 February 2023 (see Eurex Circular 123/22) to cover potential impacts resulting from the integration of weekly expiring options contracts in the corresponding main options products. 

The “all transactions” and “standard orders” ESU limits as well as the Order-To-Trade (OTR) limits remain in place as of today.

Recommendation: Participants who are sensitive to the “no market data impact” limit of the main options product and are also active in the weekly options products should monitor their limit consumption after the integration for some time to ensure the trading activity stays within the new limits.

Mistrade Range Implications:

A distinction between weekly and monthly expirations will be done for products defined in section 3.D. of Eurex Circular 014/23. For avoidance of any doubt, for all other products the weekly or monthly expiration will not be a differentiator of mistrade ranges.

Adaptations of the Liquidity Provisioning Framework:

Eurex will offer separate Liquidity Provider schemes between monthly and sub-monthly expiring options. For more details on the parametrization of the schemes, the structure of the daily market making parameter files and the step-by-step timeline of the integration phase when it comes to rebating and measuring Liquidity Provider performance are found in Eurex Circular 014/23, sections 3.E and 3.F.

The following aspect refers to daily expiring futures contracts:

Fee Impacts:

Eurex will offer two fee waivers to further stimulate the usage of new functionality in sub-monthly expiring contracts.

o    fee waiver regarding the physical delivery resulting from single stock futures contracts
o    fee waiver regarding the transaction fees of MSCI futures for the usage of calendar spread instruments between daily and quarterly expiring futures contracts (MSCI basis trades).

For a detailed overview of all transaction-based fees, please refer to the Price List of Eurex Clearing AG, as published in Eurex Clearing Circular 008/23. 

The following aspect refers to sub-monthly expiring contracts in general:

New Reference Data Values:

The activation of sub-monthly expiring contracts will result to new valid values of already existing contract reference data fields provided via the RDI interface/RDF files. As an example, the contract reference data field “contract frequency” (FIX tag 30867) currently knows the valid values “Month” and “Flex”. After the activation of sub-monthly expiring contracts, the contract frequency field can assume additionally the valid values “Day”, “Week” or “End-of-Month” for the corresponding sub-monthly expiring contracts. For more information, please refer to Eurex Circular 029/22.

Recommendation: Participants who are using contract reference data via the Eurex RDI/RDF interface are requested to be familiar with the timeline of the NextGen contract activations outlined in Eurex Circular 011/23.

Early Availability of Next Generation ETD Contracts Reference Data in Eurex Production Environment

As outlined in Eurex Circular 014/23, the first activation wave will take place on 27 March 2023, creating integrated 4th Friday options contracts expiring on 28 April 2023. To support Participants in verifying these integrated weekly options contracts in the Eurex reference data sets at an early point in time, the RDI interface and the RDF file will be made available ahead of schedule on Saturday, 25 March 2023, around 11:00 CET and will continue to be available on Sunday. This early availability of reference data sets will only apply for the first activation wave. 
 

Further information