Exercise / Assignment 1 Exercise

The following exercise scenarios are possible:

When a long call position in equity options is exercised, the holder exercises his or her right to demand the delivery of the underlying against payment. When exercising a long put position, the holder uses his or her right to sell the underlying against payment.

When exercising a long call position in options on futures, the holder uses his or her right to open a long position in the corresponding futures contract at the strike price. When exercising a corresponding put position, the holder uses his or her right to open a short position in the underlying futures contract at the agreed strike price.

In the case of exercising a long call position or a long put position in index options, the holder uses his right to receive cash.

Options must be exercised by the NCM/CM holding the position. CMs can see the open positions of their NCMs but they are not able to perform exercises for them, unless clearing operations are outsourced to the CM. For further information on outsourcing please refer to chapter 2.6 of the Basis Module. NCMs/CMs must inform their clients about upcoming expirations. In the Exercise Overview window all long positions (in-the-money (itm), at-the-money (atm), out-of-the-money (otm)) in options in different expiration months are displayed real-time. NCM/CM can exercise their long positions in an option series completely or partially. Adjustments of exercises on the same day are possible until the Post-Trading Restricted Period starts. A fee is charged for exercises.

Equity options and options on futures can be exercised by the buyer on each trading day (American-style) until the end of Post-Trading Full Period (20:00 CET). Options on an index can only be exercised on the Last Trading Day (European-style).

There are some exceptions regarding equity options of certain group IDs (e.g. DE14) which are European- style. In a group ID several equity options which have certain characters, like price source, exercise style and/or country segment in common are grouped.

Russian equity options are European-style and can only be exercised on the Last Trading Day until the end of the Post-Trading Full Period (17:40 CET).

Exact deadlines are listed in the contract specifications and in the trading calendar on the Eurex Exchange website: www.eurexchange.com > Trading > Trading calendar.

Actual exercise is based on the balance of exercise instructions and exercise adjustments at the end of the Post-Trading Full Period, in the Post-Trading Restricted Period.

Eurex Clearing undertakes the assignment of exercised contracts against the holders of short options. Physical delivery of exercised options is made upon instruction by Eurex Clearing on a delivery versus payment basis through a central securities depository (CSD) by the CCP system.

Figure 4-9: Exercise Overview window @X-tract

4.3.2 Assignment

Once an option is sold, there exists a possibility for the option writer to be assigned to fulfill his or her obligation to buy or sell shares of the underlying equity on any business day. For American-style options where exercise can happen on any trading day, assignment is also possible on any trading day. To ensure a fair distribution of assignments, Eurex Clearing uses a random procedure to assign exercise notices to the accounts maintained by each Clearing Member. In turn, the assigned Clearing Member must use a random allocation method to allocate those notices to individual accounts, which have the short positions on those options.

The following assignment scenarios are possible:

• In the case of equity and exchange-traded fund options, the assignment of a call position obliges the seller of a call option to deliver the underlying against payment.

• In the case of equity and exchange-traded fund options, the assignment of a put position obliges the seller of a put option to accept delivery of the underlying against payment.

• In the case of options on futures, the seller of a call option is obliged to take a short position in the corresponding futures contract.

• In the case of options on futures, the seller of a put option has to take a long position in the corresponding futures contract.

• In the case of options on an index, the seller of a call option is obliged to settle in cash.

The exercised long and open short positions are netted within all P and M accounts per member, i.e. if a member with open short positions in a series has exercised positions also, as many open short positions as possible are assigned internally. If exercised long positions still exist after this internal assignment, they are randomly assigned to the remaining open short positions of the same series.

NCMs/CMs receive assignment information before the batch starts via the Exercise Assignment Overview window. The end of the assignment process per option product is indicated by transmission of a product- specific end-of assignment message to the members. Assignments are binding.

Figure 4-10: Exercise Assignment Overview window @X-tract

4.3.3 Automatic Exercise

An automatic exercise facility exercising open long option positions (including flexible options) on the Last Trading Day is available to the members.

The minimum in-the-money-amount specifies the amount a contract (not the single share) has to be in-the- money to be automatically exercised. As a minimum-in-the-money amount for index options the exercise fee is defined. For all other option products a default minimum in-the-money amount of 0.01 is defined.

The minimum in-the-money amount of can be adapted individually per transaction account via the

Automatic Exercise Parameter Maintenance window. An absolute value of up to 99.99 or a percentage of

the exercise price of up to 9.99% can be set.

The Automatic Exercise Parameter Maintenance window also supports setting automatic exercise parameters for product types. These values will be set automatically for all newly introduced products of this type.

Members can exclude individual positions from automatic exercise by using the abandon functionality of the Exercise Overview window.

If no parameters were defined by the member, Eurex exercises itm-options on the Last Trading Day taking the default parameters into account.

Manual exercises are still possible until the end of Post-Trading Period (no position adjustments during Post-Trading Restricted Period!).

4.3.4 Main Reports

Report Description Availability

CE010 In-the- money Advisory

Informs about in-the-money series two weeks before their expiration. It includes information concerning positions abandoned by automatic exercise. It totals by product group (class) and product, the open positions and the in-the-money- amounts.

CMs and NCMs

CE030 Member Expiration

Shows the current balance of a series in the last days before expiration. It shows positions abandoned by automatic

exercise. It is arranged by type of account and gives the details of a series about to expire, the total of open positions and the total in-the-money amount by product group (class), product and by member.

CMs and NCMs

CE070 Exercise and Assign Summary

Lists exercised long positions and assigned short positions of equity options contracts. It contains information about the daily exercises and assignments in each series, arranged by CM, currency, product type, exchange member and account type. There is also a list of delivery instructions resulting from the exercise process. It shows the settlement account of the contracting party, either of the CCP, or in case of an internal assignment a NCM or the CM. The data is sorted by exchange member and underlying. Cash settlement only contains an amount when the payment is made in cash.

CMs and NCMs

CE071 Option on Future Exercise Assign Summary

Provides information on exercised long positions and assigned short positions of options on futures. It provides information about the daily exercises and assignments in each series, arranged by exchange member, account type and underlying futures contract.

CMs and NCMs

CB102 Cash Settled Contracts

Shows the contracts settled in cash on the Delivery Day, detailing the profits and losses produced by these contracts. It shows the previous day net long and net short positions. The previous day cash settlement amount of the net position is calculated by evaluating the daily settlement prices (for futures) or the exercise prices (for exercised options) against the final settlement price. The individual results are added for each currency, per contract, product and account.