Exercising Option

You can manually exercise specific styles of interest rate and currency options and security options. Automatic exercise of an option, if the option is marked for auto exercise, is handled by a system batch process if the option is in-the-money at maturity.

You can invoke the ‘OT Contract Exercise’ screen by typing ‘OTDXCXER’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.

The settlement date is the date when you enter the application for manual exercise of the contract. This is populated automatically by the system.

The reference rate is also automatically picked up by the system based on your specifications for the contract. You can modify it. This is used for calculating the settlement amount.

For swaption trade deals, you have to enter the swap value. This field is disabled for other types of options.

For below mentioned options, styles exercise is allowed only on the maturity date.

 Plain vanilla with European Style

 Binary

 Digital

 No touch

 Asset or Nothing

 Asian

 Look-back Fixed

 Look-back Floating

The following fields are not applicable for Securities Option:

 Swap Value

 Counter Currency

 FX Product Code

 FX Reference

Reference rate for Plain Vanilla

If closing price is available as on that day will be defaulted here, otherwise user has to mention the reference rate to compute profit or loss.

You can override this price.

Reference rate in the case of Asian Options

Average price of an option contract gets defaulted here. System computes the Asian Price (Average price of every day closing price of underlying from the value date till exercise date). For this average price system considers number of decimals & rounding based on the currency definition. You can override this average price during manual exercise

To compute the average price, user needs to maintain the closing price of underlying security to compute the average price. If user does not specify the price system consider previous day price by assuming there is no change in the price.

Reference rate in the case of Asian Options (Currency Option)

Average price of an option contract gets defaulted. System computes the Asian Price (Average price of every day closing price of currency from the date of value date till exercise date). You can override this average price during manual exercise

To compute the average price, you need to specify closing price of currency. On any day if you do not specify the price, system considers previous day price by assuming there is no change in the price.

Reference rate in the case of Look Back – Fixed

Call Option: System selects the highest price during the date of premium settlement day till exercise date for the settlement price, when the strike price is fixed during the period Put Option: System selects the lowest price during the date of premium settlement day till exercise date for the settlement price when the strike price is fixed during the period.

Reference rate in the case of Look Back – Floating

Reference rate remains same as closing price of the Underlying Security You can override this Reference rate.

Reference Strike Price in the case of Look Back – Floating

Call Option: System selects the lowest price for the strike price during the date of premium settlement day till exercise date when the settlement price is fixed as of the exercise date.

Put Option: System selects the highest price for the strike price during the date of premium settlement day till exercise date when the settlement price is fixed as of the exercise date. You can override the Reference Strike price during manual exercise.

With SE Deal

Check this box to indicate the underlying Securities deal.

SE Product Code & Reference

SE product code gets defaulted from the option product maintenance.

The Exercise Payment Date is the date on which exercise amount to be paid or received in the cash settlement or other delivery type. This date is greater than or equal to the system date. If you do not specify this date, then system defaults system date. "

During EOTI process, the system will run a validation to check whether the creation of DV contract is pending for any IRO contract with its Swaption style as ‘External’.

For external currency option contract, the FX contract is separately uploaded with Oracle FLEXCUBE reference number. While uploading the contract, the validation is done between maturity date of currency option contract and value date of FX contract.

Key details pertaining to the option – counterparty, contract currency, premium, premium currency, counter currency and strike rate – are automatically populated by the system.

A foreign exchange spot contract is created by the system on the exercise of physically settled currency options. For such contracts, the FX spot product under which the FX contract is to be created has to be specified. This is defaulted from your specifications at the product level. For such contracts, the contract reference number of the uploaded FX product is also displayed on the screen.

Manual exercise of an option contract is subject to the following conditions:

 Manual exercise is possible for all expiration styles for all types of options, except for non-swaption IROs – caps / collars / floors / corridors. These IROs can only have European style expiration. These IROs are automatically exercised as part of end-of-day or beginning-of-day batch process if they are in-the-money on maturity.

 For digital and no touch currency options, and for binary and plain vanilla currency options with European expiration style, auto exercise is done on the maturity date of the contract during end-of-day or beginning-of-day batch process if the option is in the money. These options can also be exercised manually, but only on the maturity date

 Swaptions can only be manually exercised. If a swaption is not exercised manually, it expires worthless on maturity. In case of manual exercise, revaluation at swap value is triggered. In case of a cash settled swaption, swap value is the settlement amount.

 For a physically settled swaption, the interest rate swap contract remains uninitiated until the manual exercise of the swaption is authorized.