uk stock exchange-liffe

7/29/2019 UK Stock Exchange-LIFFE

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UNITED KINGDOM STOCK EXCHANGES:

WHAT IS A COMMODITY EXCHANGE?A commodities exchange is an exchangewhere various commodities and derivatives products

are traded. Most commodity markets across the world trade in agricultural products and

otherraw materials (likewheat,barley,sugar,maize, cotton, cocoa,coffee, milkproducts,pork

bellies,oil, metals, etc.) and contracts based on them. These contracts can include spot

prices,forwards,futures and optionson futures. Other sophisticated products may

include interest rates, environmental instruments ,swaps, or ocean freight contracts.

Commodities exchanges usually trade futures contracts on commodities, such as trading

contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a

future contract on his corn, which will not be harvested for several months, and guarantee the

price he will be paid when he delivers; a breakfast cereal producer buys the contract now and

guarantees the price will not go up when it is delivered. This protects the farmer from price drops

and the buyer from price rises.

HISTORY OR FUTURES:

Futures contracts for agricultural commodities have been traded for more than 100 years and

have been under Federal regulation since the 1920s. In the last 20 years, futures trading has

expanded rapidly into many new markets, beyond the domain of traditional physical and

agricultural commodities. Futures and options now are offered on many energy commodities

such as crude oil, gasoline heating, oil, and natural gas, as well as on a vast array of financial

instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and

foreign stock indices. In recent years, new futures contracts have been offered in non-traditional

commodity areas such as electricity, seafood, dairy products, crop yields, and weather

derivatives.

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LONDON INTERNATIONAL FUTURES & OPTIONSEXCHANGE:

INTRODUCTION:

The London International Financial Futures and Options Exchange (LIFFE) is the

worlds largest electronic exchange by value of financial, equity and non-financial (commodity)

products.

As the popularity of LIFFE contracts grows accordingly and an increasing number of

users are turning to historical data to track trends, perform technical and quantitative analysis and

to build and utilise trading models. The analysis of complete tick by tick data, detailing every

bid, offer and trade, time stamped, brings market participants a wealth of information about the

behaviour of financial prices and new perspectives in the field of risk management and

forecasting.

LIFFE' s PRODUCTS:

LIFFE offers the most extensive range of derivative products of any exchange in the

world. LIFFE provides futures and options contracts across five different currencies and product

lines: bonds, short terms interest rates, swaps, equities and equity indices, and non-financials

(commodities). LIFFE continually reviews its products to determine what enhancements can be

made to existing products and what new products could be introduced.

LIFFE' s products are supported by additional trading facilities that meet the particularneeds of the market. For example, inter contract spread, basis, block, Flex trading facilities and

against actual.

BOND PRODUCTS:

Futures and option contracts, especially those with the liquidity offered at LIFFE, have

helped to pave the path of globalisation.

For investors, futures and options markets have offered a tool for hedging the interest rate

risk of holding government securities. As these risks are reduced, the incentive to invest outside

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ones own country is enhanced. For dealers, futures and option markets offer an effective tool for

managing stocks of government securities. With reduced dealing risk these firms are freed to

become more active, offering tighter pricing spreads and increased liquidity in the cash markets.

There is evidence that the existence of futures and options markets has had the effect of reducing

the cost of funding debt for the governments involved.

NON-FINANCIAL PRODUCTS:

LIFFE lists a range of contracts covering soft and agricultural products. These contracts,

covering both futures and options, offer an effective and efficient tool for hedging the price risk

and volatility inherent in the underlying markets, providing price transparency as well as creating

the benchmark for physical market transactions. In recent years commodities have also

increasingly been recognised as an important part of an investment portfolio, leading to an

increase in the use of such products by managed funds and institutional investors as well as by

short-term investors.

All LIFFE's Non-Financial Products have been traded on LIFFE CONNECT since 27

November 2000, giving market customers the ability to take advantage of unparalleled trading

technology and potential global access.

Non-Financial Products

Cocoa, Cocoa Future, Option on Cocoa Future

Coffee, Robusta Coffee Future, Option on Robusta Coffee Future

Wheat, Wheat Future, Option on Wheat Future

Barley, Potato Future

Cocoa Future

Unit of trading 10 tonnes

Delivery months March, May, July, September, December, such that ten delivery

months are available for trading

Delivery units1 Standard Delivery Unit bagged cocoa with a nominal net

weight of 10 tonnes

Large Delivery Unit bagged cocoa with a nominal net weight of

100 tonnesBulk Delivery Unit loose cocoa with a nominal net weight of

1000 tonnes

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Last trading day Eleven business days immediately prior to the last business day

of the delivery month at 12.00

Notice day/Tender day The business day immediately following the last trading day

Price basis2 Pounds sterling per tonne in an Exchange Nominated

Warehouse in a Delivery Area which is, in the Boards opinion, in

or sufficiently close to Amsterdam, Antwerp, Bremen, Brighton

and Hove, Dunkirk, Felixstowe, Hamburg, Humberside,

Liverpool, London, Rotterdam or Teeside3

Minimum price 1 per tonne (10)

movement

(Tick size & value)

LIFFE CONNECT 09.30 - 16.50

Trading hours

Origins tenderable Cameroon, Cte dIvoire, Democratic Republic of Congo

(formerly know as Zaire), Equatorial Guinea, Ghana,

Grenada Fine Estates, Jamaica, Nigeria, Sierra Leone, Togo,

Trinidad and Tobago Plantation, Western Samoa at contract

price. All other growths tenderable at set discounts

1 Where necessary upon tender, a seller may be instructed by the Clearing House to convert a

Bulk Delivery Unit into a Large and/or Standard Delivery Units, or a Large Delivery Unit into

Standard Delivery Units.

2 Bulk Delivery Units are tenderable at a discount of 20 per tonne to the contract price.

3 Contact the Exchange to determine which Delivery Areas have Dual Capacity Warehouse

keepers (i.e. those nominated for the storage of Bulk Delivery Units as well as Standard and

Large Delivery Units).

Unless otherwise indicated, all times are London times.

Option on Cocoa Future

Unit of trading One Cocoa futures contract

Expiry months March, May, July, September, December, such that ten expiry

months are available for trading, subject to the option expiring

before the underlying future

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Expiry day 12.00 on the last trading day of the calendar month

preceding the expiry month

Price basis Pounds sterling per tonne

Minimum price 1 per tonne (10)

movement

(Tick size & value)


Trading hours

Strike price 25 per tonne

increments

Option Price: The contract price is not paid at the time of purchase. Option positions, as withfutures positions, are marked-to-market daily giving rise to positive or negative variation margin

flows. If an option is exercised by the Buyer, the Buyer is required to pay the original contract

price to the Clearing House and the Clearing House will pay the original option price to the

Seller on the following business day. Such payments will be netted against the variation margin

balances of Buyer and Seller by the Clearing House.

Robusta Coffee FutureUnit of trading 5 tonnes

Delivery months January, March, May, July, September, November, such that

seven delivery months are available for trading

Last trading day Last business day of the delivery month at 12.30

Tender period Any business day during the delivery month

Price basis US dollars per tonne in an Exchange Nominated Warehouse in

London and the UK Home Counties, or in a Nominated

Warehouse in, or in the Boards opinion, sufficiently close to

Amsterdam, Antwerp, Barcelona, Bremen, Felixstowe,

Hamburg, Le Havre, Marseilles-Fos, New Orleans, New York,

Rotterdam and Trieste

Minimum price $1 per tonne ($5)

movement

(Tick size & value)


Trading hours

Origins tenderable Angola, Brazilian Conillon, Cameroon, Central African Republic,

Cte dIvoire, Democratic Republic of Congo (formerly known as

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Zaire), Ecuador, Ghana, Guinea, India, Indonesia, Liberia,

Malagasy Republic, Nigeria, Philippines, Sierra Leone,

Tanzania, Thailand, Togo, Trinidad, Uganda and Vietnam


Option on Robusta Coffee Future

Unit of trading One Robusta Coffee futures contract

Expiry months January, March, May, July, September, November, such that

seven expiry months are available for trading, subject to the

option expiring before the underlying future

Expiry day 12.30 on the third Wednesday of the calendar month preceding

the expiry month.

Price basis US dollars per tonne

Minimum price $1 per tonne ($5)

movement

(Tick size & value)


Trading hours

Strike price $50 per tonneincrements

Option Price: The contract price is not paid at the time of purchase. Option positions, as with

futures positions, are marked-to-market daily giving rise to positive or negative variation margin






Wheat Future


Delivery months January, March, May, July, September, November, such that ten

delivery months are available for trading

Last trading day 23rd calendar day of delivery month (in the case of July

delivery months, the 7th calendar day) at 12.30 (if not a

business day then the first business day immediately

preceding)

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Tender period Except in respect of January delivery, any business day from the

seventh calendar day (if not a business day, then the next

business day following) preceding the first business day of the

delivery month, up to the last trading day of the delivery monthinclusive. For January delivery, earliest tender day shall be the

second business day after Christmas Day

Price basis Pounds sterling and pence per tonne, free delivered to buyers

lorry in bulk, from a registered store in mainland Great Britain

Minimum price 5 pence per tonne (5)

movement

(Tick size & value)


Trading hours

Quality EU origin and of the following standard:

Sound and sweet and in good condition and to contain not

more than 3% heat damage.

Natural weight to be not less than 72.5kg per hectolitre.

Moisture content not to exceed 15%.

Admixture:i. seeds and/or total admixture of farinaceous grain (including wild

oats) and dirt not to exceed 2% of which the dirt content not to

exceed 1%;

ii. ergot or garlic not to exceed 0.001%; and

iii. sprouted wheat not to exceed 8%.

All the above tests to be applied on weight basis


Option on Wheat Future

Unit of trading One Wheat futures contract

Expiry months January, March, May, July, September, November, such that ten expiry

months are available for trading, subject to the option expiring before the

underlying future

Expiry day 16.45 on the second Thursday of the calendar month preceding the

expiry month.

Price basisPounds sterling and pence per tonne


movement

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(Tick size & value)


Trading hours

Strike price 1 per tonne

increments

Option Price: The contract price is not paid at the time of purchase. Option positions, as with

futures positions, are marked-to-market daily giving rise to positive or negative variation margin






Barley Future


Delivery months January, March, May, September, November, such that six

delivery months are available for trading

Last trading day 23

rd

calendar day of delivery month at 12.30 (if not abusiness day then the first business day immediately

preceding)

Tender period Except in respect of January delivery, any business day from the

seventh calendar day (if not a business day, then the next

business day following) preceding the first business day of the

delivery month, up to the last trading day of the delivery month

inclusive. For January delivery, earliest tender day shall be the

second business day after Christmas Day

Price basis Pounds sterling and pence per tonne, free delivered to buyers

lorry in bulk, from a registered store in mainland Great Britain


movement

(Tick size & value)


Trading hours

Quality EU origin and of the following standard:Sound and sweet and in good condition and to contain not

more than 3% heat damage.

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Natural weight to be not less than 62.5kg per hectolitre.

Moisture content not to exceed 15%.

Admixture:

i. seeds and/or total admixture of farinaceous grain (including wild oats) and

dirt not to exceed 2% of which the dirt content not to exceed 1%; and

ii. sprouted barley not to exceed 8%.

All the above tests to be applied on weight basis


WEEKLY PRICE FLUCTUATION OF WHEAT

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YEARLY DIFFFERENCE IN THE WHEAT PRISES

SPREAD OF COCOA

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VOLUMES OF CONTRACT OF COFFEE THAT ARE TRADED

PRICE OF ROBUSTA COFFEE

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LONDON METAL EXCHANGE

The London Metal Exchange (LME) is the futures exchange with the world's largest market inoptions, andfutures contractsonbase and othermetals. As the LME offers contracts with dailyexpiry dates of up to three months from trade date, along with longer-dated contracts up to 123months, it also allows for cash trading. It offers hedging, worldwide reference pricing, and the

option of physical delivery to settle contracts.

It is located at 56Leadenhall Street in the City of London.

HISTORY

The London Metal Market and Exchange Company was founded in 1877, but the market tracesits origins back to 1571 and the opening of the Royal Exchange, London. Before the exchangewas created, business was conducted by traders in London coffee houses using a makeshift ring

drawn in chalk on the floor.At first onlycopperwas traded. Lead and zincwere soon added but only gained official tradingstatus in 1920. The exchange was closed during World War II and did not re-open until1952.The range Of metals traded was extended to

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include aluminium(1978), nickel (1979),tin (1989), aluminium alloy (1992), steel(2008), andminor metals cobaltandmolybdenum (2010). The exchange ceased tradingplastics in 2011. Thetotal value of the trade is around $US 11.6 trillion annually.

Many deals are made for commodities to be delivered in three months' time.

FEATURES

Transparent pricing

The LME provides a transparent forum for the trading of futurescontracts fornon-ferrous metals,minor metals and steel billet. Asa result of this trading, daily prices are 'discovered' and published

by the Exchange which the physical industry around the world use

as the basis of price negotiations for the physical sale or purchaseof metal.

Risk management tools

Through its trading members, the LME offers those at all stages ofthe industrial raw materials supply chain, including both buyersand sellers, the opportunity to 'hedge' their price risk, and thereforegain protection from future adverse price movements. Hedging inthis way is most efficient when the physical and futurestransactions are made basis the current LME price.

Delivery points of last resort

As a 'market of last resort', the physical non-ferrous metals andsteel industries can use the Exchange's delivery option to sellexcess stock in times of over supply and as a source of material intimes of extreme shortage. The market does not replace the normalchannels for the buying and selling of material and only a verysmall proportion of contracts actually result in delivery. The

presence, or 'threat', of physical delivery plays a vital role increating price convergence between the futures and the physicalmarket.

Warehousing

To support this mechanism the Exchange approves and licensesa network of warehouses and storage facilities around the world.Warehouse companies must meet strict criteria before they areapproved for the handling of metals.

Warehouse Minimum Loading Out Rates

On 27 May 2011 the LME issued a notice regarding warehouse

minimum loading out rates for the Board of the LME to considerat their meeting on 16 June 2011.

Warehouse Locations

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LME approved delivery locations are typically located in areas ofhigh consumption and are logisitical trading hubs for the shipmentof material.The LME has a formal policy and guidelines on the selection of

new delivery points.

TRADING PROCESS

The LME provides the flexibility of three trading platforms; whichoperate side-by-side:

Ring trading

1145 to 1700 hours, London TimeOpen-outcry is the oldest and most popular way of trading on theExchange. It is central to the process of price discovery, a termused to describe the way LME official prices are established. These

prices are derived from the most liquid periods of trading; the shortopen-outcry ring trading sessions, and are most representative ofindustry supply and demand. The official settlement price, on whichcontracts are settled, is determined by the last offer price before the

bell is sounded to mark the end of the official ring.

LME select

LMEselect is the official Exchange-operated electronic trading platform.LME member firms are connected to the LMEselect system which allowsaccredited traders to execute trades electronically. It allows for straight-through processing in which LMEselect trades are automatically sent tothe matching and clearing systems operated by LCH.Clearnet.

The system also enables LME members to connect their clients directlyto the LMEselect trading system via third party applications, a processknown as order-routing.

Telephone trading24 hours a dayThe Exchange also supports an inter-office telephone market

between LME members which operates 24 hours a day.

TRADING VOLUME

The London Metal Exchange is the world centre for the trading of industrial metals more than80% of all non-ferrous metal futures business is transacted on our platforms. In 2011 thisequated to:

$15.4 trillion notional

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3.5 billion tonnes

146 million lots

record open interest of 3 million lots.

TRADING TIMEInter-office telephone trading - available 24 hours a day.LME Select - available from 01.00 - 19.00 (London time).Ring trading - available from 11.40 - 17.00 (London time).

LME CONTRACTS

The LME's forward contracts allow producers, fabricators, merchants and consumers to insure

against price risk.

The LME also offers traded options contracts based on each of these futures contracts, togetherwith traded average price options contracts (TAPOs) based on the monthly average settlement

price (MASP) for all metals futures contracts.

All LME prices are quoted in US Dollars, but the LME permits contracts in sterling, Japaneseyen, and Euros and provides official exchange rates from US Dollars for each of them.

Trade is conducted in lots rather than tonnes, with each lot of aluminium, copper, lead and zincamounting to 25 tonnes. Nickel is traded in 6 tonne lots, tin in 5 tonnes and aluminium alloy and

NASAAC in 20 tonne lots. PP and LL are traded in 24.75 tonne lots.

The contract for each metal sets out the shapes, weights and methods of strapping (metals) andpackaging (plastics). The contract specifications are for the quality and shape which are mostwidely traded and demanded by industry.

Futures

Futures contracts are purchases or sales of goods for a specified delivery date in the future atprices established today.

Options

Option contracts give trade hedgers and investors a flexible alternative to futures as a means oftrading on the Exchange.

TAPOsTAPO's are Exchange cleared contracts based on the LME Monthly Average Settlement Price(MASP).

LME Aluminium futures contract specification

Delivery/settlement datesFirst prompt date is TOM which is the next business day from today

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The Cash prompt date is two business days from today followed by otherdaily prompts up to three monthsTOM, CASH and 3 MONTH prompt rolls on a daily basisWeekly prompts on every Wednesday of the month from 3 months to 6

monthsMonthly prompts on every third Wednesday from 7 months to 123 months

Quotation

US DOLLAR PER TONNE .Clearing CurrenciesDollar, euro , yen .

\

Ring Trading TimingsFirst Session

1st Ring11:55 12:00

2nd Ring(Official)

12:55 13:00

KerbTrading*

13:20 14:45

Second Session

1stRing

15:15 15:20

2nd Ring 15:55 16:00Kerb Trading 16:15 17:00

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LME Copper Futures Contract Specification

Delivery/settlement datesFirst prompt date is TOM which is the next business day from todayThe Cash prompt date is two business days from today followed by other daily promptsup to three monthsTOM, CASH and 3 MONTH prompt rolls on a daily basisWeekly prompts on every Wednesday of the month from 3 months to 6 monthsMonthly prompts on every third Wednesday from 7 months to 123 months

QuotationUS DOLLAR PER Tone

Clearing currenciesUS dollar, Japanese yen, sterling, euroRing Trading TimingsFirst Session

1st Ring12:00 12:05

2nd Ring(Official)

12:30 12:35

KerbTrading*

13:20 14:45

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Trading specifications for LME Steel Billet

Deliverydates

Daily from cash to 3 months(first prompt date two

working days from cash) .Then every Wednesday from3 months to 6 months. Thenevery third Wednesday from7 months out to 15 months

Quotation US dollars per tonne

Clearablecurrencies

US dollars

MinimumPriceMovement

Ring - Outright $0.50, Carries$0.01LME select - Outright $0.10,Carries $0.01Inter-office -Outright/Carries $0.01

Contractcode

FM

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1stRing

15:10 15:15

2nd Ring 15:50 15:55

Kerb Trading16:15 16:55
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Steel billet Ring trading timesFirst Session

1st Ring 11:40 11:45

2nd Ring (Official Prices) 13:05 13:10

Kerb Trading* 13:20 14:45

Second Session

1st Ring 15:30 15:35

Kerb Trading 16:15 16:40

LME ATEEL BILLET PRICEs

LME Nickel Futures Contract Specification

Delivery/settlement dates

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First prompt date is TOM which is the next business day from todayThe Cash prompt date is two business days from today followed by other daily promptsup to three monthsTOM, CASH and 3 MONTH prompt rolls on a daily basis

Weekly prompts on every Wednesday of the month from 3 months to 6 monthsMonthly prompts on every third Wednesday from 7 months to 63 months

QuotationUS DOLLAR PER Tone

Clearing currenciesUS dollar, Japanese yen, sterling, euro

LME Nickel Ring trading times

First Session

1st Ring12:15 12:20

2nd Ring(Official)

13:00 13:05

Kerb Trading*13:20 14:45

Second Session

1stRing

15:25 15:30

2nd Ring 16:05 16:10

Kerb Trading 16:15 16:45

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