Margins

 

About the Wool Futures markets available at ASX

 

The ASX Group of companies, includes the combined operations of ASX (formerly the Australian Stock Exchange) and ASX 24 (formerly SFE Corporation).
 
The ASX Group's activities span primary and secondary market services, including capital formation and hedging, trading and price discovery (Australian Securities Exchange); central counterparty risk transfer (ASX Clear); and securities settlement for both the equities and fixed income markets (ASX Settlement Corporation).
 
Effective 1 August 2010, the supervision of trading on Australia’s domestic licensed markets and the supervision of trading participants has been transferred from ASX to ASIC.  ASX Compliance, formerly ASX Markets Supervision, is a wholly owned subsidiary company of ASX which fulfils ASX's oversight obligations as a market operator and clearing and settlement facility operator. 
 
Greasy Wool Futures and Options, Fine Wool and Broad Wool Futures are listed on the ASX 24 platform (SYCOM) in accordance with the ASX 24 Operating Rules and ASX Clear (Futures) Operating Rules.
 
China Type Wool Futures are listed on the ASX Trade platform in accordance with the ASX Operating Rules and ASX Clear Operating Rules.

Margins

 Listed below is Initial Margin information for both markets.

When a Futures contract is traded, the investor does not pay, or receive, the full value of the contract. Instead, both buyers and sellers of Wool Futures contracts pay an Initial Margin, and from trade day until settlement or close-out are liable for daily Variation Margin calls.

China Type Wool Futures Margin Information

Initial margin rates for China Type Wool Futures are as follows:

Contract Code Initial Margin Rate Inter-Month Spot Rate Inter-Month Remote Rate

China Type 19.5 mic

54W

$1500

$300

$300

China Type 21.0 mic

55W

$1500

$250

$250

China Type 22.6 mic

56W

$1500

$200

$200

 

China Type 21.0 Micron Wool example:

1. In December 2009, buy 1 December 09 contract and sell 1 Feb 10 contract. For this trade, a margin of $500 (not $3,000) would be required as both legs of this spread are margined at the inter-month spot rate, i.e. $250 each for December 09 and February 10.

2. In December 2009, buy 1 December 09 contract and sell 1 April 10 contract. For this trade, a margin of $500 (not $3,000) would be required as the December leg of this spread is at the inter-month spot rate and the April 09 leg is at the inter-month remote rate, i.e. $250 for December 09 and $250 for April 10.

How margins are calculated

ASX Clear* calculates margins using the ASX Derivatives Margining System (ADMS). 

ASX Clear (Futures)* calculates margins using Standard Portfolio Analysis of Risk (SPAN)^.

The total margin is made up of two components, the initial margin and variation margin.

Initial margin

Both buyers and sellers of futures contracts pay the initial margin, which acts like a deposit. The initial margin represents the maximum probable one-day move in the price of the futures contract. The Clearing House retains the initial margin for as long as the position remains open. Initial margins are met with cash, and earn interest at the overnight cash rate less 0.5%.

Variation margin

The variation margin, or mark to market margin as it is sometimes referred to, represents the market value of the futures contract at the close of trading each day. The variation margin is the difference between the closing price of the futures contract from one day to the next. If the position has moved against the investor, the investor will be required to make a payment to the Clearing House. On the other hand, if the movement is favourable, the investor will be credited by the Clearing House. Variation margins are cash settled daily.

*ASX Clear, a wholly owned subsidiary of ASX and is the clearing house for ASX Wool Futures.

*ASX Clear (Futures), a wholly owned subsidiary of ASX 24 and is the clearing house for ASX 24 Wool Futures and Options.

^'SPAN' and 'Standard Portfolio Analysis of Risk' are trademarks of the Chicago Mercantile Exchange. The Chicago Mercantile Exchange assumes no liability with the use of SPAN by any person or entity.