Stock Futures

Regulations and
trading rules
among top
futures markets
Group 9
Hoàng Nhi - BAFNIU20088
Đào Nhật Hưng - BAFNIU20296
Phạm Võ Như Ngọc- BAFNIU20141
Trần Thị Hồng Phúc - BAFNIU20092
Lecturer: Dr. Vo Xuan Hong
 Content
1. Overview Stock Futures
2. Regulations and trading rules of
CME Group (USA)
Eurex (Europe)
Hong Kong Exchanges and Clearing
(HKEX)
 Definition
Stock futures are contracts that represent
the obligation to buy or sell a specific
stock at a predetermined price and date in
the future. They are traded on exchanges,
just like stocks themselves, but offer some
unique pros and cons.
Key factors affecting Stock Futures:
Underlying stock price
Interest rates
Volatility
Supply and demand
 Stock Futures

Advantages Disadvantages
Leverage: Futures require a smaller Risk of loss: Due to leverage, futures can lead
initial investment compared to buying to significant losses if the market moves
the actual stock, allowing for greater against you.
leverage. Margin requirements: To maintain a futures
Hedging: Futures can be used to hedge position, you must deposit a margin, which is
existing stock positions and protect a percentage of the contract value. This can
against potential losses. tie up capital and increase your risk.
Short selling: Futures allow you to profit Expiration: Futures contracts have a
from falling stock prices by selling short predetermined expiration date, after which
contracts. This is not possible with they become worthless.
traditional stock ownership. Complexity: Futures can be more complex
Liquidity: Some futures markets offer than traditional stock trading and require a
high liquidity, making it easy to enter good understanding of leverage, margin,
and exit positions quickly. and expiration dates.
 CME GROUP
A global derivatives marketplace

Operateing several exchanges:

- Chicago Mercantile Exchange (CME)
- Chicago Board of Trade (CBOT)
- New York Mercantile Exchange (NYMEX)
- Commodity Exchange (COMEX)

Offering a wide range of future contract on

- Commodities: Agriculture products: corn,
wheat, soybeans and livestock; Energy products:
crude oil, gasoline, natural gas,...
- Equity indexes: S&P 500, Nasdaq-100 and
Dow Jones Industrial Average
- Interest rates: the 10 year US Treasury note,
Euro dollar future,...
- Foreign exchange: the US Dollar, Euro,
Japanese Yen, and British Pound,...
 REGULATIONS

Regulatory Authority Self-Regulation Proactive Measures

Regulated by the CME Group's Market Encourages market
Commodity Futures Regulation Department participants to self-
Trading actively conducts trade, report incidents that may
Commission (CFTC) position, account, and violate exchange rules
-> Oversee brokers and market surveillance and regulations
merchants, conduct risk -> Identify and prevent Stay up-to-date with
surveillance of potential rule violations across changing regulatory
derivatives trades, and all four of their Designated environments and take
investigate market Contract Markets (DCMs): CME, proactive steps to
manipulation and other CBOT, NYMEX, and COMEX mitigate risks and
abusive trade practices -> Maintain market integrity prevent harm to the
and protects all participants marketplace
 TRADING RULES

Price Limits Vary depending on the product

Set at a certain percentage above or below the previous day’s
settlement price

Position Limits Vary across different products

Define the maximum size of a position

Maintain a robust market surveillance program to monitor trading

Market surveillance activities and detect any potential market manipulation or abusive
trading practices
Use of advanced technology and data analysis
-> Identify irregularities and take appropriate actions
 TRADING RULES
Vary depending on the product
Trading hours
Sunday at 5pm CT - Friday at 4pm CT

Initial Margin: For speculative/non-member accounts -> set

at 110% of the maintenance margin requirement for a given
product.

Margin Maintenance Margin: Help ensure that clearing members

requirements meet their obligations to customers and to CME Clearing.

Recent Changes:
- *Corn Futures*: Maintenance margins for speculators were
lowered by 25% to $1,500 per contract. Initial margins reduced to
$2,025 per contract.
- *Silver Futures*: Raised margin requirements from $14,000
to $16,500 per contract, marking an 17.8% increase.
EUREX
(Eurex
Exchange)
Specializing in European-based
derivatives, Eurex provides a diverse
range of financial products, including
equity, equity index, volatility index,
Exchange Traded Funds (ETFs), credit
derivatives, and interest rate derivatives
 Clearing Procedures
Ensure an efficient, orderly, and well-regulated marketplace
Efficient Trade Transfer Default Management Approach

Trade transfers are Manage defaults

facilitated through
effectively and
the Eurex OTC Clear
maintain market
GUI, available in both
stability
the Production and
Provided to
Simulation
illustrate its
environments
Ensures the smooth practical
transfer of trades application
 Anti-Money Laundering
Compliance Collects and maintains up-to-date KYC (Know Your

Assessment
Customer) documents and information to prevent illegal
financial activities

External Audit

Ensure all market participants Contribute to the transparency and accountability of

the exchange's compliance framework
adhere to regulatory standards
and maintain the integrity of Risk Management Framework
the exchange
Include risk methodology descriptions and assessments
of default management procedures to manage and
mitigate risks effectively

Continuous Assessment
Ensure market participants consistently meet regulatory
requirements and adhere to established standards
 Admission Criteria

Evidence that the respective Minimum equity capital

Conduct of derivatives
applicant is subject to proper of EUR 50,000, unless
trading in a
banking or exchange regulation the applicant is a bank
commercial manner
in its country of origin or is MiFID II regulated
 Trading Rules

Trading Hours Position Limits

Pre-trading from 07:30 CET, allowing order Imposed on long call or long future
management without inside market information positions.
Trading from 07:30 to 22:00 CET, involving Total position calculations include
continuous matching and real-time standard and Flex contracts with physical
confirmations delivery.
Post-trading: serving various purposes such as No netting between long and short
order modifications, option exercises, and data positions; excludes cash-settled contracts.
inquiries
Margin Requirements
Intra-day margining
Reduce counterparty credit risk by promptly responding to price
volatility and members' growing positions
Enables risk mitigation and accommodates day trading clients
Allow forecasts of overnight requirements for cash and collateral
management

Risk-based margining
Cover investors’ account risk with collateral based on total risk
exposure
Combining positions optimizes security with minimal collateral for
current liquidation risk
Additional and Futures Spread Margins cover potential risks for
upcoming days
Intraday margin calls can be directly debited by the Clearing House,
ensuring intraday risk management
HKEX- Hong Kong Exchanges and Clearing
Hong Kong Exchanges and Clearing (HKEX) was formed
in 2000 through the merger of HK's three key markets at
the time - stocks, futures and clearing functions. By
unifying these capabilities under one roof, HKEX
provides integrated trading, clearing, and settlement
across key products like stocks, ETFs, REITs and
derivative contracts.

With over HKD 50 trillion market value hosted on its

platform as of 2022 and an average daily turnover
exceeding HKD 150 billion, HKEX now ranks among the
top 10 largest exchanges globally - cementing Hong
Kong's status as an international financial center.

2,300 companies Total market cap of Host approximately

listed over USD 6.5 trillion over USD 145 million
STOCK FUTURES PRODUCT IN HKEX

NOT JUST ONE ...

IN FACT ...
HKEX provides both stock index futures and single stock futures as derivative
products to cater to the diverse needs of market participants. The
coexistence of equity index futures and single stock futures on HKEX allows
investors and traders to tailor their investment and trading strategies
according to their preferences, risk appetite, and market views.
Comparision
AS IN MANY OTHER
MARKETS, THEIR
REGULATIONS INVOLVE

Licensing and Supervision

Market Conduct Oversight

Listing Rules Approval

Investor Protection
 HOW THAT WORK?

Licensing Market Investor

Listing Rules
and Conduct Protection
Approval
Supervision Oversight
Operates under Governed by SFc Listing Rules Mandates disclosure,
SFc and Securities and Code of governed by HKEX. corporate
and Futures (Stock Conduct for governance, and
Market Listing) Persons Licensed Proposed rule transparency
Rules. by or Registered changes measures.
with SFC. submitted to SFC
Framework aims for compliance Regulatory actions
to maintain Aims to ensure and investor address violations
market integrity fair, transparent, protection. impacting investors.
and orderly
markets
 TRADING RULES
TRADING HOURS
TRADING TIME
Derivatives: Varies by product, ~9:15am - 4pm

FOR INDEX:
MARGIN 15% initial margin for Hang Seng Index Futures
REQUIREMENT FOR SINGLE STOCKS
10% initial margin for single stocks

Position Limits
POSITION LIMITS AND 5,000 contracts for Single / 10,000 for Index
CIRCUIT BREAKERS CIRCUIT BREAKERS
15 min trading halt if index moves >10%
References
https://www.investopedia.com/terms/f/futures.as
p
https://www.cmegroup.com
https://www.eurex.com/ex-en/find/about-
us/the-market-place
https://www.hkma.gov.hk/eng/key-
functions/international-financial-centre/hong-
kong-as-an-international-financial-centre/
Thank You
For Your Attention