Exchange-traded market

The gilt market forms the cornerstone of the sterling asset markets. Therefore the exchange-traded market in gilt derivatives is an important feature of the debt capital markets as a whole. In terms of derivatives... 

Until recently, the interest rate options market was dominated by OTC transactions—trades executed directly between professional counterparties like banks, insurers, investment institutions, and corporates. However, as Exhibit 17.14 shows, dramatic growth of the exchange-traded markets in recent years has seen them catch up with the OTC markets in terms of notional amounts outstanding, and the two are now neck-and-neck. 

The emergence, to date, of national and regional carbon markets has been characterized by a virtual absence of institutional stmctures for the governance of trading markets across borders. Where it has occurred, cooperation between states has been informal in nature, and has been largely limited to the exchange of information and experience. In some cases, cooperation has achieved a certain degree of institutionalization, as in case of the International Carbon Action Partnership (ICAP). ... 

This chapter explores interest rate options—a vitat part of the European fixed income securities market. The first section tooks at exchange-traded options, where 20 bittion worth of bond options and over 250 billion of options on short-term rates change hands every day. Next, we ll look at the flexible OTC markets for interest rate options, including caps, collars, swaptions, and structured products. Finally, having explained the products themselves, we ll move on to explore how they can be used to hedge interest rate risk. 

Despite the recent growth of exchange-traded products, the OTC market is still very much a major feature of the interest rate options... 

EXHIBIT 17.14 Growth of OTC versus Exchange-Traded Interest Rate Derivatives Markets... 

Statistics on the relative size of the European market for exchange-traded interest rate options are relatively easy to come by, and the Bank for International Settlement (BIS) publishes a regular breakdown of geographic activity. This is summarised in Exhibit 17.15, which shows how notional amounts outstanding on European exchanges have quadrupled over the 3-year period from 1999 to 2002. 

Unfortunately, without a central clearing house to monitor and record all transactions, it is difficult to obtain reliable statistics for the OTC interest rate options market. However, the BIS conducts regular surveys of the markets and publishes a breakdown of notional amounts outstanding by currency (but not by country) of all interest rate derivatives (including swaps, ERAs, futures, as well as options) across all markets (OTC as well as exchange-traded). A summary of this is shown in Exhibit 17.16, from which it can be seen that the size of the euro-denominated market now virtually matches that of the US dollar, signalling the increasing importance of the European interest rate derivatives market. 

Handbook of Alternative Assets by Mark J. P. Anson The Exchange-Traded Funds Manual by Gary L. Gastineau The Global Money Markets by Frank J. Fabozzi, Steven V. Mann, and Moorad Choudhry... 

Bonds. Exchange-traded options on bonds are invariably written on the bonds futures contracts. One of the most popular exchange-traded options contracts, for example, is the Treasury bond option, which is written on the Treasury futures contract and traded on the Chict o Board of Trade Options Exchange. Options written on actual bonds must be traded in the OTC market. 

The market uses implied volatilities to gauge the volatility of individual assets relative to the market. The price volatility of an asset is not constant. It fluctuates with the overall volatility of the market, and for reasons specific to the asset itself When deriving implied volatility from exchange-traded options, market makers compute more than one value, because different options on the same asset will imply different volatilities depending on how close to at the money the option is. The price of an at-the-money option is more sensitive to volatility than that of a deeply in- or out-of-the-money one. 

All market participants in exchange-traded contracts trade with a central counterparty, the exchange s clearing house. This eliminates counterparty risk. The clearing house is able to guarantee each deal, because all participants are required to contribute to its clearing fund... 

Hydraulic and Heat-Transfer Fluids. HydrauHc fluids (qv) for high altitude supersonic aircraft and thermal exchange appHcations including solar panels employ fluids such as tetrakis(2-ethyIhexoxy)silane. These products have been marketed under the trade name Coolanol by Monsanto (see Heat-exchangetechnology). 

Marketing. Most of the cocoa beans and products imported into the United States are done so by New York and London trade houses. The New York Sugar, Coffee, and Cocoa Exchange provides a mechanism by which both chocolate manufacturers and trade houses can hedge their cocoa bean transactions. Additional information on the functions of the New York Cocoa Exchange is available (3). 

The London-based International Petroleum Exchange (IPE) is the second largest energy futures exchange in the world, listing futures contracts that represent the pricing benchmarks for two-thirds of the world s crude oil and the majority of middle distillate traded in Europe. IPE natural gas futures may also develop into an international benchmark as the European market develops larger sales volume. 

In addition to providing some control of price risk, futures and options markets are also very useful mechanisms for price discovery and for gauging market sentiment. There is a world-wide need for accurate, real-time information about the prices established through futures and options trading, that is, a need for price transparency. Exchange prices are simultaneously transmitted around the world via a network of information vendors terminal seiwices directly to clients, thereby allowing users to follow the market in real time wherever they may be. Energy futures prices are also widely reported in the financial press. These markets thus enable an open, equitable and competitive environment. 

Resin type Functional group Mobile ion PH range for exchange Resin (regeneration, preparation) wash with Trade names of market products... 

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