Listed Derivatives Overview

Overview Welcome to the world of listed derivatives. Here you will find information on listed derivatives trade processing. Introduction Derivatives are financial instruments whose value changes in response to the changes in underlying variables. The main types of derivatives are futures, forwards, options, and swaps. The main use of derivatives is to reduce risk for one party. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indexes. Listed Derivatives, also known as exhcnage traded derivatives are those derivatives products that are traded via specialized derivatives exchanges or other exchanges. Volumes (Source FIA) See Listed Derivatives Trading Volumes by category, region, exchanges and months. Process Flow See Listed Derivatives Process Flow for details of how listed derivatives trades are processed post-trade. Challenges in Listed Derivatives Processing Listed derivatives volumes have risen significantly in past years and are expected to triple in next 3 years. The biggest impact of this on broker dealers is on their ability to process the trades with minimal errors, time and manual effort. Broker dealers will continue to focus on reducing errors in trade processing, reporting and book keeping, reducing loss of revenue due to inaccurate fees, regulatory fines due to incorrect reporting, minimizing redundancy across various teams, automating manual processes to reduce cost and operational risk, handling increasing trade volumes, newer complex products and backlogs, leveraging common processes and existing systems across asset classes and geographies and syncing with new developments in exchange/clearing house technology and processes. Following are the challenges in listed derivatives processing: Reconciliations Real Time Risk Management Reference Data Management Margin Management Fees and Commissions Management Corporate Actions Processing Options Symbology Useful Links for Learning Good introduction to listed derivatives: http://www.cme.com/files/Exchange_Traded_Derivat.pdf Statistics on listed derivatives: http://www.bis.org/statistics/extderiv.htm CBOT introduction to trading in futures: http://www.cbot.com/cbot/docs/57670.pdf Good comparison of US and European listed derivatives exchanges: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=748968 Regulatory Bodies Futures Industry Association http://www.futuresindustry.org/ Options Clearing Corporations: http://www.optionsclearing.com/ Commodity Futures Trading Commission: http://www.cftc.gov/ National Futures Association: http://www.nfa.futures.org/ Good Books Clearning & Settlement of Derivatives by David Loader Options, Futures & Other Derivatives by J.C. Hull

An Introduction to Derivatives and Risk Management by Don Chance