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Australian short term derivatives

Australian short term interest rate futures and options include:

ASX 30 day interbank cash rate futures and options

ASX’s 30 day interbank cash rate futures contract, based on the interbank overnight cash rate published by the Reserve Bank of Australia, allows users to hedge against fluctuations in the overnight cash rate and better manage their daily cash exposures. The 30 day interbank cash rate futures and options also present both outright and spread trading opportunities for traders.

The ASX 30 day interbank cash rate futures and options contracts can specifically be used for:

  • Managing interest rate risk at the short end of the yield curve
  • Managing balance sheet mismatches
  • Hedging against anticipated fluctuations in the overnight cash rate
  • Outright trading on anticipated changes, or lack of changes, in the official cash rate
  • Trading on anticipated changes in the yield curve shape
  • Income enhancement opportunities for portfolios with cash exposures
  • Spread trading against 90 day bank bill futures and options.

The 30 day interbank cash rate futures and options are approved for trading by:

  • US Commodity Futures Trading Commission (CFTC)
  • UK Financial Services Authority (FSA)
  • Monetary Authority of Singapore (MAS) and
  • Hong Kong Securities and Futures Commission (SFC Hong Kong).

30 day cash rate futures features

  • Contract unit: Average monthly Interbank Overnight Cash Rate payable on a notional sum of AUD 3,000,000
  • Monthly contracts available up to 18 months ahead
  • Minimum price increment of 0.005 per cent (0.5 basis points). A one basis point move is equal to AUD24.66
  • Cash settled against the monthly average of the interbank overnight cash rate as published by the Reserve Bank of Australia for that contract month
  • Official market makers provide two way quotes in all 18 months

30 day cash rate options

Monthly options are listed on the first four 30 day interbank cash rate futures months.

Pre-negotiated business rules are applicable to the 30 day interbank cash rate options. These rules provide participants with the opportunity to facilitate client business off market prior to disclosing and then crossing orders on the trading platform, ASX Trade24.

Trading ASX 30 day interbank cash rate futures

  • Trading in ASX's 30 day interbank cash rate futures is conducted on-market via ASX's electronic platform ASX Trade 24
  • Spread trading functionality is available for calendar spreads
  • Attractive spread concessions are available on calendar spreads as well as inter-commodity spreads for off-setting positions held in other ASX interest rate futures

An example of the cash settlement price calculation is accessible here.  

ASX 90 day bank accepted bill futures and options

ASX’s 90 day bank bill futures and options product is Australia’s benchmark indicator for short term interest rates. Launched in 1979, the 90 day bank bill contract was the first interest rate futures contract to be listed outside the United States. The 90 day bank bill contracts are cost effective tools for enhancing portfolio performance, reducing and managing risk and outright trading.

90 day bank bill futures are an efficient way to gain exposure to the Australian debt markets. Their trading behaviour and liquidity make them ideal for short term trading, long term trend following and hedging of short term AUD fixed interest securities and interest rate swaps.

90 day bank bill futures and options are approved for trading by:

  • US Commodities Futures Trading Commission (CFTC)
  • UK Financial Services Authority (FSA)
  • Monetary Authority of Singapore (MAS) and
  • Hong Kong Securities and Futures Commission (SFC Hong Kong).

The negotiable securities market

Bank accepted bills of exchange and negotiable certificates of deposit are negotiable short term securities issued by trading banks used to effect short term financing for periods typically between 30 and 180 days. Bank bills and other discount securities issued by banks totalled AUD235 billion at the end of June 2013 with annual turnover of AUD2,949 billion.

90 day bank bill futures features

  • 90 day bank bill futures contract is ranked among the top 10 short-term interest rate futures contracts in the world by turnover
  • Average daily turnover in 2013 was 120,000 contracts
  • Contract unit of AUD1,000,000 face value 90 day bank accepted bills of exchange or EBAs  
  • Deliverable – 90 day bank bill futures contract is deliverable. Approved bank accepted bills of exchange and negotiable certificates of deposit are eligible securities for delivery
  • Variable tick value – 90 day bank accepted bill futures are valued using a simple interest formula for pricing discount securities. Due to this convention the dollar value of the minimum price movement, or tick value, does not remain constant but changes in accordance with movements in the underlying interest rate.

Quarterly and serial options

  • Quarterly options expire in the same calendar month as the underlying futures contract. Serial options are listed in non-financial quarter months
  • Pre-negotiated business rules are applicable to quarterly and serial 90 day bank bill options. These rules provide participants the opportunity to facilitate client business off market prior to disclosing and then crossing orders on the trading platform, ASX Trade24.

Trading ASX 90 day bank bill futures

  • Trading in ASX's 90 day bank accepted bill futures is conducted on-market via ASX's electronic platform ASX Trade24 and off-market through block trade and exchange for physical transactions
  • Spread trading functionality is available for calendar spreads and inter-commodity spreads
  • Attractive spread concessions are available on calendar spreads as well as inter-commodity spreads for off-setting positions held in other ASX interest rate futures.

ASX Packs and Bundles on 90 Day Bank Bill Futures

ASX’s Packs and Bundles on 90 Day Bank Bill Futures provide users with an exchange alternative to OTC Swaps and enable hedging activity for FRA and Swap traders. Packs and Bundles allow users to gain access to the most actively traded short-term interest rate derivatives product in the Asian region with the ease of a single transaction and greater capital efficiency.

Packs and Bundles are an efficient way to trade a 1, 2 or 3 Year Swap exchange equivalent single transaction, with the added benefits offered by exchange traded markets.

Packs

A Pack is a strip of four successive Bank Bill Futures products that allows users to trade segments of the yield curve in a single transaction, without the legging risk inherent with trading each Bank Bill Futures contract separately. ASX offers three Bank Bill Futures Packs:

  • White Pack on 90 Day Bank Bill Futures (1st to 4th quarterly expiry months)
  • Red Pack on 90 Day Bank Bill Futures (5th to 8th quarterly expiry months)
  • Green Pack on 90 Day Bank Bill Futures (9th to 12th quarterly expiry months)

Bundles

A Bundle is a strip of successive Bank Bill Futures products covering more than four successive futures contracts. The first contract in a Bundle is the 1st quarterly contract in the respective Bank Bill Futures contracts. ASX offers two Australian Bank Bill Futures Bundles:

  • 2nd Year Bundle on 90 Day Bank Bill Futures (1st to 8th quarterly expiry months)
  • 3rd Year Bundle on 90 Day Bank Bill Futures (1st to 12th quarterly expiry months)

Provide trading flexibility

Packs and Bundles provide trading flexibility in managing interest rate exposure and allow you to execute additional trading strategies. Packs and Bundles:

  • Allow users to trade segments of the yield curve in a single transaction
  • Are traded as an average price of the constituent Bank Bill Futures contracts, providing a transparent mechanism for users to match an executed Pack or Bundle price with allocated leg prices
  • Are available to trade at a narrower tick increment of 0.005 compared to outright Bank Bill Futures that trade at 0.01 increments. Allocated Bank Bill Futures will clear at the narrower tick increment. 

Upon execution of a Pack or Bundle on ASX Trade24, underlying Bank Bill Futures positions are allocated through to ASX Clear (Futures). The allocated Bank Bill Futures will be marked-to-market together with Bank Bill Futures created from outright futures trades. Allocated Bank Bill Futures contracts benefit from the same margin offsets available when trading outright Bank Bill Futures contracts.    

Cost efficiency

Packs and Bundles provide users with the benefit of trading a single product in order to gain multiple Bank Bill Future contract exposure, thereby reducing legging risk inherent with trading individual futures contracts.

Tighter bid-ask spreads for Packs and Bundles - 0.5 basis point increments - allows for Bank Bill Futures positions to be established at a finer price than through trading the individual contract months.

Trading ASX Packs and Bundles on 90 Day Bank Bill Futures

Trading of Packs and Bundles is conducted on-market via ASX's electronic platform ASX Trade24, and off-market through block trade and exchange for physical transactions.

Leg price allocation procedure

Upon execution of a Pack or Bundle, underlying Bank Bill Futures prices will be determined through a strip leg allocation process.

The previous Daily Settlement Price (DSP) of the underlying futures contract will be used as a starting point and adjusted by a price adjustment factor to achieve an implied Pack or Bundle price which equates to the price of the executed underlying futures contracts.

Price adjustments will be made via a consistent proportional price movement from the DSP with exception that the underlying futures contract with the longest dated expiry will be further adjusted up or down in increments of 0.005 to the extent that such adjustment will achieve a more accurate implied Pack or Bundle price.

Detailed examples of the leg price allocation procedure are outlined in the ASX Pack and Bundle Allocation presentation.  

Leg price confirmation messages

Following determination of the underlying leg price, the buyer and seller of the transaction will recieve a series of FIX text messages notifying each of the details of the trade including deal numbers, time stamps, strip price, leg codes and leg prices. Further information regarding the leg price confirmation message is outlined in the ASX Trade24 Market and Functionalities Guide.

Data vendor codes

Updated data vendor codes are available here