Standardized Terms

Definition

Standardized Terms. A set of standardized terms, published by some body, and capable of being incorporated into a contract by agreement

Issues and Challenges

The things that are standardized: The strike price Contract size Expiry Date These three are standardized regardless of what exchange they are on. Each exchange has a standard for these specific terms, for contracts that are traded on that exchange. Expiry: there is a standard date that the exchange will have, for example in the US it is the Saturday following the third Friday of every month. So there is a set expiration date for all exchange traded optons Strike: there are set increments for strike for exchange traded options. Contract sizes are also stipulated, for example in the US these are standardized by the OPRA Convention (Options Pricing Reporting Authority). Ajay: Exchange traded is tri party contract with central counterparty for the setelemtn fo the options. Market place (usually electronic), hence standard to process data. Not necessarily a legal difference? So for instance you would not be able to trade different lot sizes. So they enter in the contract which is guaranteed by the exchange. Members of the exchange trade with each other. The Exchange then being a third party. OTC: Bilateral Exchange traded: Still bilateral, using standardized terms. Lookalikes: for examples, where there are usually ones with monthly margin calls (exchange traded), there are 'lookalike' ones which look like an ET but are traded outside the market. Common in commodities market. What else can be standardised? What must be standardidsed? Date Convention: Standardized by juridction US: All single-Equity Options are American; all European exercise for Indices. This is not a convention for say London, where various conventions may exist on different contracts.

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.