Margins

SFE Clearing reduces its risk through the payment and receipt of daily variation margins, which act like a default protection deposit.

Calculating margins

In calculating settlement prices for futures contracts, SFE uses the midpoint between the closing bid and offer prices rounded upwards. For example, if March FoX15 futures were to close at 4805 bid (buying price), 4807 offer (selling price), the final settlement price would be 4806.

In determining closing prices for options, SFE uses an option-pricing model which is based on the internationally respected Black and Scholes pricing formula. In making its calculations, SFE uses implied volatilities provided by market representatives of SFE Participants at the close of each trading day. These volatilities are then input into the pricing model and final settlement prices are generated. If required, the system can create a volatility skew by allowing different volatilities to be entered for different strike prices.

Once all trades have been confirmed by clearing participants, SFE Clearing calculates participant margin requirements. Settlement advice is issued to clearing participants by 7.00am on the morning following the day of trade and payment of all margin monies must be effected by 10.30am.

Exposure of a futures contract

The fundamental exposure once a futures contract is opened is the price movement away from the originally contracted price. A system where the seller and buyer progressively pay/receive this debit/credit amount effectively maintains the participants at current market values. However, the futures market closes at 5:15pm, therefore a market exposure can be further divided into two areas; calculated exposure and potential exposure.