8.1 Overall Architecture
FpML Transparency view supports standardized OTC equity options without customizations. More precise high-level documentation will be available in a future draft. The following descriptions may include features not included in Transparency view. Please consult the schema reference for more precise documentation.
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The underlyer component specifies the asset(s) on which the option is granted, which can be either on either a singleUnderlyer or basket, and consist of equity, index, or convertible bond components, or some combination of these The description element is used to provide a free-form text description of the asset, whereas instrumentId contains a short-form, unique identifier (e.g. ISIN, CUSIP) for the asset. At least one instrumentId must be present. The exchangeId element contains a short form unique identifier for an exchange. If omitted then the exchange shall be the primary exchange on which the underlying is listed. The relatedExchangeId element contains a short form unique identifier for a related exchange. If omitted then the exchange shall be the primary exchange on which listed futures and options on the underlying are listed. The clearanceSystem element contains the identity of the clearance system to be used. If omitted, the principal clearance system customarily used for settling trades in the relevant underlying shall be assumed. |
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FpML supports three styles of equity option: European, American and Bermudan. For consistency of representation with interest rate derivatives each of these styles is represented using its own component. Each of these components is described more fully below. The automaticExercise element contains a boolean value. If true then each option not previously exercised will be deemed to be exercised at the expiration time on the expiration date without service of notice unless the buyer notifies the seller that it no longer wishes this to occur. The EquityValuation component specifies the date and time on which the option is valued. The element valuationDateis assumed to have the meaning as defined in the ISDA 2002 Equity Derivatives Definitions. It enables the valuationDate to be expressed in relation to some other date defined in the document (the anchor date), where there is the opportunity to specify a combination of offset rules. This component will typically be used for defining the valuation date in relation to the payment date, as both the currency and the exchange holiday calendars need to be considered. Alternatively, valuationDate is a date that shall be subject to adjustment if it would otherwise fall on a day that is not a business day in the specified business calendar locations, together with the convention for adjusting the date. The element valuationDate specifies the interim equity valuation dates of the swap. The valuationDate can be specified as a series of dates that shall be subject to adjustment if they would otherwise fall on a day that is not a business day in the specified business calendar locations, together with the convention for adjusting the date, otherwise, the valuationDate is a series of dates specified as some offset to other dates (the anchor dates). The element valuationTimeType is the time of day at which the calculation agent values the underlying, for example the official closing time of the exchange. The element valuationTime specifies the time of day at which the calculation agent values the underlying. The futuresPriceValuation element contains a boolean value to indicate whether or not the official settlement price as announced by the related exchange is applicable, in accordance with the ISDA 2002 definitions. The optionsPriceValuation element contains a boolean value to indicate whether or not the the official settlement price as announced by the related exchange is applicable, in accordance with the ISDA 2002 definitions.. The EquityExerciseValuationSettlement component specifies equity option contractural settlement information. The settlement date specifies when the option is to be settled relative to the valuation date. If the settlement date is not specified explicitly then settlement will take place on the valuation date. The settlementType component is used to specify whether the option is settled in cash or physically. The settlementPriceSource element specifies the source from which the settlement price is to be obtained, e.g. a Reuters page, Prezzo di Riferimento, etc. The settlementType element shows how the transaction is to be settled when it is exercised. The values comes from list: Cash, Election, Physical. |
8.2.2.1 European Exercise
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The sub-components of the EquityEuropeanExercise component specify the date and time when the option will expire. The element expirationDate enables the expiration date to be expressed as adjustable or relative date to some other event, such as the close of business for the exchange. The element equityExpirationTimeType is the time of day at which the equity option expires, for example the official closing time of the exchange. |
8.2.2.2 American Exercise
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The commencementDate and expirationDate are used to specify the period during which the option may be exercised (more than once if permitted by the equityMultipleExercise component). The option may be exercised on any business day in this period up to the latest time specified for exercise. The element
latestExerciseTimeType-The latest time of day at which the equity option can be exercised, for example the official closing time of the exchange.
The element
equityExpirationTimeType-The time of day at which the equity option expires, for example the official closing time of the exchange.
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8.2.2.3 Bermuda Exercise
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The commencementDate and expirationDate are used to specify the period during which the option may be exercised (more than once if permitted by the equityMultipleExercise component). The option may be exercised on any of the days in the list bermudaExerciseDates up to the latestExerciseTime specified for exercise. The element
latestExerciseTimeType-The latest time of day at which the equity option can be exercised, for example the official closing time of the exchange.
The element
equityExpirationTimeType-The time of day at which the equity option expires, for example the official closing time of the exchange.
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The EquityPremium component specifies the amount and timing of the premium payment that is made for the equity option. payerPartyReference and receiverPartyReference are pointer style references to Party components that specify the payer and receiver of the premium respectively. In FpML the premium amount can be expressed in a number of ways: as a monetary amount ( paymentAmount), as a price per option ( pricePerOption) or as a percentage of notional ( percentageOfNotional) - if more than one method is used then they must be mutually consistent. There are circumstances in which no premium would be specified, for example if the trade formed part of a put/call combo structure. The swapPremium element holds a boolean value that, if "true" specifies that the premium is to be paid in the style of payments under an interest rate swap contract. |
When a date specified in an equity option contract falls on a non-business day then it may be necessary to adjust it to be a business day. At the time the contract is agreed it is not always possible to determine whether or not a particular date in the future will be a business day.
The meaning of "business day" varies according to the context in which it is used. When the context is the payments of monetary amounts then the rules for adjustment according to currency business days apply, and the equity option product architecture uses the same AdjustableOrRelativeDate component ( or derivations ) as the interest rate and foreign exchange products.
However, when the context is the valuation or settlement of equities or equity indices then the term "business day" means "exchange business day". In this case the equity option product architecture specifies the use of unadjusted dates with the adjustment rules being implicitly inherited from the ISDA definitions.