Settlement

Daily Settlement

When trading futures and options contracts all open contracts are revalued (marked to market) daily to calculate the daily profit or loss of open contracts. The price at which the revaluation occurs is declared by the SFE and is known as the daily settlement price. If the price for a contract is higher than yesterday's daily settlement price, the buyer will receive and the seller will pay variation margin. If the price is lower than yesterday's daily settlement price, the seller will receive and the buyer will pay a variation margin.

Details on how SFE calculates the Daily Settlement Price for futures and/or options can be found in the SFE Bulletin 15 July 2004.

Final Settlement

Futures and options contracts are either physically deliverable or cash settled.

The NZFOX share options are physically deliverable meaning the buyer (or holder) of a call option has the right to exercise the option and buy the shares at the exercise (strike) price. The seller of the call will be assigned the obligation to deliver the shares to the buyer at the exercise price. The buyer of the put has the right to exercise and sell shares at the exercise price. The seller of the put has the obligation to buy the shares at the exercise price.

The FoX15 futures contract is cash settled, as it is very difficult to deliver all the shares that make up an index. All open contracts on the last day are cash settled against the final settlement price. The determination of the final settlement price is set out in the contract specifications.