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FAQs on transaction reporting – Question II.1.1.12

How can we distinguish a contract with optionality embedded in it and reportable lifecycle events from an option that does not have life cycle events?


Answer:

In our view there are at least three different type of contracts with optionality.

1.  Options with given strike price(s) and traded at organised market places

2.  Options with given strike price(s) and traded bilaterally

3.  Option with complex price structure

In cases (1) and (2) above, there is no lifecycle event reporting requirement for the exercise of the option itself. However, if a new contract for the supply of gas or electricity is signed, then a trade report for that contract must be reported separately. The exercise of the option is not a reportable event, the new contract, the one that was created as a result of the option exercise, is a reportable trade.

However, the Agency recommends market participants to consider linking the transaction resulted from the option exercise to the option itself through the field linked transaction ID (32) to avoid possible false positive signals to the market monitoring activity of the Agency and/or the National Regulatory Authorities.  e.g. if a call option with a strike price of EUR 50 it is exercised, then market participants will report a separate trade for the price of EUR 50. However, if the market price of that forward on the day of the option is exercised, or the new contract is created, is EUR 60 this may cause a false positive signal to the market monitoring activity of the Agency and/or the National Regulatory Authorities.

Last update: 16/02/2016   RSS_Icon Subscribe to this Page’s RSS