ICE Clear Europe Ltd

Option Exercise/Abandonment Guidance

Document

v.1.0
Which Option Contracts does this relate to?

Option TRS Code

ICE Brent Crude B

ICE Gasoil G

ICE Richards Bay Coal AFR

ICE Rotterdam Coal ATW

ICE Newcastle Coal NCF

ICE WTI T

ICE MISO Cinergy MCG

ICE Mid C Mini Peak MDF

ICE PJM WM Mini Peak PMI

ICE SP-15 DA Mini SPY

(Which Option Contracts does this

relate to?)
Contents

1. Process Overview Page 1 - 5

2. Manually Exercising an Option in TRS Pages 6 - 11
3. Manually Amending the Auto-Exercise Parameters in TRS Pages 12 – 16
4. Deleting a manual Exercise request Pages 17 – 23
Process Overview

The purpose of this document is to clarify the process involved in

amending the Auto- Exercise Parameters in TRS (Screen 15) and the
manual exercise of options in the Exercise Notification (screen 17).These
functions are used on the relevant options (see earlier list) last trade date
where a Clearing Member requires an “In the money” (ITM) long option
(dictated by the option reference price) to be abandoned or the manual
exercise of an out of the money option (dictated by the option reference
price). These requests are normally advised/required very close to the
exercise deadline so a solid understanding of the procedure is
required by all Clearing Members.

(Process Overview) 1
Disclaimer

• NYSE.Euronext provide Clearing Members with access to the Trade Registration System (“TRS ”) within which Clearing
Members are able to process the exercise/abandonment of option contracts on the markets operated by
IntercontinentalExchange, Inc. and ICE Futures Europe.
• This guidance document is provided by ICE Clear Europe Limited to assist Clearing Members, and their Representatives, in
relation to their use of the exercise/abandonment functionality in TRS. In providing this guidance document ICE Clear Europe
Limited does not make any representations or warranties, express or implied, including, without limitation, implied warranties
of fitness for a particular purpose in relation to the exercise/abandonment functionality in TRS. No oral or written information
or advice given by ICE Clear Europe Limited, including the contents of this document ,in relation to the exercise/abandonment
functionality in TRS shall create a warranty and neither a Clearing Member, nor a Clearing Member’s Representative, may rely
upon such information or advice.
• Neither ICE Clear Europe Limited, nor any of its officers, employees, agents, or licensors shall be liable in any way to any
Clearing Member or a Clearing Member’s Representative, to any other person or entity for any losses, damages, costs or
expenses, including, but not limited to, loss of profits, loss of use or direct, indirect, incidental or consequential damages, even
if they were foreseen, foreseeable, known or otherwise arising from:

a) any faults with the option exercise/abandonment functionality in TRS, however those faults may arise; or,
b) the suspension, termination or inability to access or use the option exercise/abandonment functionality in TRS, or any
inaccuracies or omissions in any information provided, however such suspension, termination, inability to access, inaccuracy
or omission may arise; or,
c) any other cause in connection with the furnishing, performance, maintenance or use of or inability to use all or any part of
the option exercise/abandonment functionality in TRS; or,
d) any losses resulting from unauthorised access, alteration, or any other misuse of the option exercise/abandonment
functionality in TRS.

(Process Overview) 2
Key Points

• These processes only relate to the option contracts listed at the beginning of this
document.

• Amending the Auto-Exercise Parameters ONLY affects ITM positions against the
reference price, it will not move an out of the money (OTM) position ITM.

• Amending the Auto-Exercise Parameters to abandon a Call option will also affect
all current ITM Put positions (and vice versa)

• OTM Positions that Clearing Members require exercised can be done manually on
the TRS 17 Screen

• If a Clearing Member requires a partial abandonment on their ITM position they

must remember to manually exercise the balance that they do require to be
exercised, after adjusting the parameters, to prevent that instrument from being
automatically exercised.

(Process Overview) 3
Basic Concepts

• In order for a Call Option to be considered “In the money” ,by TRS, its exercise price
(strike) must be below the option reference price published by ICE.

• In order for a Put Option to be considered “In the money” ,by TRS, its exercise price
(strike) must be above the option reference price published by ICE.

• Some ICE Futures Europe options expire into futures contracts ,that are continuing to
trade, and do not expire until a future date. In these cases, an option can be in/out of
the money according to the option reference price (which is what the expiry process
is based on) but their exercise can become undesirable based on the price
movement of the underlying future. This means that the period of underlying futures
trading between the release of the reference price and the option exercise deadline is
extremely important to monitor in order to try to anticipate exercise/abandon requests
from clients/traders.

• The Auto-Exercise Parameters are defaulted to the minimum price movement of the
contract in question (i.e.1c for Brent and 25c for Gasoil) but can be altered by
Clearing Members to abandon long positions that would normally be automatically
exercised.

To illustrate see the example overleaf…

(Process Overview) 4
On LTD for the Brent Options Clearing Member XXX is Long 10 lots of the Dec10 Brent 77.50
Calls and Long 10 lots of the 78.00 Puts…

Clr M Mem Trd C T A Month Strike Lots Adj Long Adj Shrt Adj Uncd
XXX S XXX XXX B C S Dec-10 77.50 1 10 0 10
XXX S XXX XXX B P S Dec-10 78.00 1 10 0 10

The ICE Futures Europe exchange publish the Option reference price as $77.76 making both
positions in the money.
However, the Dec10 futures continue to trade and the price falls to $77.45 making an exercise
of the 77.50 Calls illogical. Clearing Member XXX has monitored this movement and now
wishes to abandon the previously ITM $77.50 calls and so a manual intervention is required.
The Auto-Exercise Parameter determines by what margin a strike needs to be in the money in
order for the option to be automatically exercised.
The 77.50 Calls are 26 ticks in the money so in order for TRS to abandon them Clearing
Member XXX must adjust their parameters from 1c to 27, therefore theoretically ensuring that
only calls with strikes at or below 77.49 (in practice 77.00) will be automatically exercised
(77.76 – 0.27 = 77.49).

What is extremely important to note is that the above manual adjustment of the Auto-
Exercise Parameters has also changed the Auto-Exercise Parameter for Puts, so that only
strikes at or above 78.03(77.76+ 0.27) will now be automatically exercised. This means that
the 78.00 Puts will have to be manually exercised in the 17 screen.

It is therefore vital to check ALL previously in the money positions against the newly
set Call and Put Auto-Exercise Parameter to establish whether you now need to
automatically exercise an option that would normally have been exercised
automatically had you not amended the parameters.
(Process Overview) 5
Manually Exercising Options in TRS
In TRS, Select option 17(Exercise Notifications) by either typing 17 or using the arrow
keys to move to it, followed by the Enter key. An input box will appear just below
option 20 on the Main menu.

6
Type IN followed by the Enter key…

(Manually Exercising an Option in 7

TRS)
You will now be prompted to confirm you want to input an exercise, type Y
followed by the Enter key…

(Manually Exercising an Option in 8

TRS)
You now need to enter the details of the option position you intend to exercise (see
Description of required fields below) followed by Shift F6 to confirm.
Note that to completely clear a field you can use Shift F3.

Trd = Your Member 3 Letter code (XXX)

Com = Contract (B) T = C (Call) or P (Put)

A = H/N/S (House/Non/Seg)

Expry = Month(OCT10)

Exer = Option Strike(8000)

Notiftn = Lots to Exercise(10)

You can type a relevant reference in the “Account ref” field if you require one but
this is not a dependency for the exercise to be accepted

(Manually Exercising an Option in 9

TRS)
In this example, Member XXX has exercised 10 lots (ignore the “ghost” zero to the
right of the 10) of the OCT10 80.00 Calls.

(Manually Exercising an Option in 10

TRS)
Once you have exercised the position you can check the instruction in the 17 screen by typing
AS L=0 C=B( If Brent is the contract code for the option you are checking)

Once in this screen you can also edit (E) or Delete (D) the instruction by Typing E or D followed
by the appropriate line number.(see pages…)

(Manually Exercising an Option in 11

TRS)
Manually amending the Auto-Exercise Parameters in TRS
In TRS, Select option 15(Auto Exercise Instructions) by either typing 15 or using the
arrow keys to move to it followed by the Enter key. An input box will appear just below
option 20 on the menu screen:

12
Type C= followed by the TRS contract code of the product you wish to amend the Auto-
Exercise Parameters for. In the below example C=B to adjust the parameters for Brent

(Manually Amending the Auto- 13

Exercise Parameters in TRS)
This will bring up the default Auto-Exercise Parameters (Should be 1 as default in the “No. of
ticks column” except for Gasoil which defaults to 25)

(Manually Amending the Auto- 14

Exercise Parameters in TRS)
Identify the line number you need to amend and type it, followed by the Enter key. This will
bring up the line to amend. Type Shift F3 to clear the field and input the amount of ticks
required.

(Manually Amending the Auto- 15

Exercise Parameters in TRS)
Hold the Shift key and type F6 to commit the change you have made. Once this has been done
correctly the status on the right hand side of the screen will change to “OK”. Now type F11 to
exit the screen. It is always a good check to re-enter the screen and check the amendment has
been made correctly.

(Manually Amending the Auto- 16

Exercise Parameters in TRS)
Deleting a manual Exercise
In TRS, Select option 17(Exercise Notifications) by either typing 17 or using the arrow keys
to move to it followed by the Enter key. An input box will appear just below option 20 on
the menu screen:

(Deleting a manual Exercise 17

Request)
Type AS C=B (The contract you have just exercised a position in) followed by the Enter Key

(Deleting a manual Exercise 18

Request)
The screen will now show all manual exercises in this product that have been input today.

(Deleting a manual Exercise 19

Request)
To Delete the Exercise type D followed by the Enter key.

(Deleting a manual Exercise 20

Request)
Now type the relevant line number followed by the Enter key.

(Deleting a manual Exercise 21

Request)
You will now be prompted to Confirm if you want to delete the highlighted exercise, type Y
followed by the Enter key.

(Deleting a manual Exercise 22

Request)
The status (St) will now change from RN to DN to acknowledge the deletion. Type F11 to exit
the screen back to the main menu.

(Deleting a manual Exercise 23

Request)
Contacts

For more information/Questions please contact…

Marc Thomas
Deliveries Analyst, Operations
+44 (0)20 7065 7629
[email protected]

Francois Lepart
Head of Operations
+44 (0)20 7065 7605
[email protected]

www.theice.com

(Contacts)