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Eurex
1. Introduction
Since March 2019, a procedure has been used in the event of market disruptions in MSCI derivatives, which provides that final settlement prices can also be corrected retrospectively if individual markets are not tradable on the last trading day. This subsequent correction was initially limited to 5 weekdays.
In accordance with an adjustment by index provider MSCI and in coordination with the derivatives exchanges offering regional MSCI index derivatives, this period has been extended from 5 to 15 weekdays (whereby only Mondays till Fridays are considered).
This circular is intended to describe the background to this adjustment and the procedures that can be applied at Eurex in this regard.
2. Required action
Trading Participants are recommended to fully analyze the potential effects on their internal systems and procedures.
3. Details of the initiative
Since March 2019, a procedure has been used in the event of market disruptions in MSCI derivatives, which provides that final settlement prices can also be corrected retrospectively if individual markets are not tradable on the last trading day. This subsequent correction was initially limited to 5 weekdays.
In accordance with an adjustment by index provider MSCI and in coordination with the derivatives exchanges offering regional MSCI index derivatives, this period has been extended from 5 to 15 weekdays.
MSCI Unexpected Market Closure Indexes Methodology
With this extension to 15 weekdays, Eurex wants to establish a new procedure, which can be used in addition to the existing one. This new procedure will first be tested in simulation and can then also be used productively. However, Eurex will decide based on the circumstances of the market disruption if the new procedure will be used. The new procedure will not be used in the event of a market disruption, that can clearly be determined to last no longer than two weekdays. In this case, the current procedure with cash adjustments will still be used. In addition, the new procedure is only considered for standardized monthly expirations of MSCI futures and options, but not for daily futures or additional contract variants (Flex contracts).
This new procedure is based on the possibility of reflecting a "postponement of expiry" – as referred to in the rulebooks of Eurex in several steps:
1) New expiries will be generated on the last trading day for all MSCI index derivatives (Futures and/or Options) with open interest in the first standard expiration (15 weekdays later)
2) On the original final settlement date, all positions affected by this market disruption will be rebooked (booking in/out) to the new expiries (with last trading day and final settlement day each 15 weekdays later)
3) If the market disruption is resolved after less than 15 weekdays, the contracts that are still open would be settled
This can achieve several advantages:
Testing activities in Simulation
Please find below a summary of actions on Market Disruption impacted products FMWB and OMWB. For the simulation event, the scope of the disruption will be the December 2024 expiry and contracts thereof.
The following test scenario will be offered in simulation and the testing will focus on the main trading and clearing systems and associated reports:
On the last trade date 19 December 2024*
Action | Details | |
Contract creation | Eurex generates new contracts which are 15 weekdays from the original last trade date and final settlement date. The new contracts will reflect the last trade date as 8 January 2025 and the final settlement date as 9 January 2025. Only contracts containing open interest will appear after batch processing. Daily contract generation is suppressed. | |
Advanced Risk Protection (ARP) | ARP is deactivated to prevent unintended margin fluctuations. |
On 23 December 2024*
Action | Details |
Book out and book in of Positions | Open positions on the disrupted contracts are booked out and a book-in takes place on the newly created contracts. |
Trading and Clearing | Trading and Clearing is suspended during the booking out and in of positions. After verification of positions, trading and clearing in the disrupted contracts is resumed. |
Advanced Risk Protection (ARP) | ARP is resumed. |
* Please note that not all weekdays are batch days in the simulation environment, therefore the dates shown here slightly differ from the production environment.
On 7 January 2025
Action | Details |
Index level publications | A scenario of the Index provider publishing an adjusted Index price is created. |
Settlement | Futures and Options are settled based on the adjusted Index price, whereby the Options are settled at intrinsic values. |
Booking out of position | Contracts impacted by the Market Disruption are booked out at the settlement prices determined above. |
Background:
The market segment for MSCI index derivatives has grown significantly in recent years. In particular, the number of open positions on certain Asian indices (MSCI EM Asia, China, India, Japan, Taiwan) has risen sharply. With these indices, there is an increased risk that individual markets will be temporarily untradable due to market disruptions, for example during the Pacific typhoon season. In addition, geopolitical tensions have emerged in recent years, leading market participants to advocate extending the adjustment period beyond 5 weekdays. Such an extension not only increases the likelihood that the market disruption will end within the period but also gives the index provider the opportunity for further consultation on the index membership of individual countries.
Further information
Recipients: | All Trading Participants of Eurex Deutschland and Vendors | |
Target groups: | Front Office/Trading, Middle + Backoffice, IT/System Administration, Auditing/Security Coordination | |
Contact: | Eurex Trading Operations, eurextrading@eurex.com, tel. +49-69-211-1 12 10 | |
Web: | www.eurex.com | |
Authorized by: | Randolf Roth |
Market Status ⓘ
XEUR
The market status window is an indication regarding the current technical availability of the trading system. It indicates whether news board messages regarding current technical issues of the trading system have been published or will be published shortly.
Please find further information about incident handling in the Emergency Playbook published on the Eurex webpage under Support --> Emergencies and safeguards. Detailed information about incident communication, market re-opening procedures and best practices for order and trade reconciliation can be found in the chapters 4.2, 4.3 and 4.5, respectively. Concrete information for the respective incident will be published during the incident via newsboard message.
We strongly recommend not to take any decisions based on the indications in the market status window but to always check the production news board for comprehensive information on an incident.
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