Pages: 18

Publication date: 24 February 2024

Authors: Paul Besson, Head of Quantitative Research & Anatole Casimir, Quant Research Analyst

In this Quant Research report, we look at implicit latency costs of London-based Dark MTFs for trades on stocks listed on Euronext, whose data centre is located in Italy.

Did you know you are paying a latency tax?

The matching engines of continental Primary Markets are located in Europe, hundreds of kilometres away from London-based Dark MTFs.

It takes 7-8 milliseconds for MTFs to import Euronext Mid-Point prices from Euronext’s Data Centre in Bergamo to London.

31% of Dark trade prices on MTFs are stale on Euronext-listed stocks, and the Opportunity Cost per stale Dark trade amounts to 1.0 tick and 2.3 bps. The overall expected Implicit Latency Cost for a passive Dark trade therefore amounts up to 0.69 bp for a participant unable to benefit from favourable stale trades.

How can you avoid it?

We encourage Sell-Side and Buy-Side institutions to conduct bespoke estimates on their proportion of stale Dark trades, and on their Implicit Latency Costs.

Nevertheless, Euronext’s new Dark trading functionality - Euronext Mid-Point Match - will have no latency; therefore, its total trading cost will amount to only 0.3 bp, as no participants will be exposed to Latency Costs.

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For more information and to receive a copy of the report, contact QuantReports@euronext.com

To connect to Euronext Mid-Point Match, contact EquitiesTeam@euronext.com and check out our webpage.

The holder of an option has the right to buy or sell the underlying asset at a specified price, while the seller of the option has the potential obligation to buy or sell the underlying asset. Learn what it means to open a position and how it can be closed.

Understand the consequences of buying and selling options.

Positioning Management explained in detail

How does an option work

A right to buy or an obligation to sell and vice versa.

What is an option? An option gives the buyer the right, during a fixed period, to buy (call option) or sell (put option) a specified amount of the underlying asset at a fixed price. On Euronext’s derivatives market, options are traded on various underlying assets such as shares, indices, and commodities. The underlying asset of an options contract is also known as the “Underlying Value”.

An investor who buys an option concludes what is known as an opening buy transaction, and is called the buyer. An opening buy transaction creates a long position in call or put options. Each option gives the holder the right to buy (call option) or sell (put option) a specified amount of the underlying value at a fixed price. The investor can liquidate this position by means of a closing sell transaction.

An investor who sells an option is called the writer. The writer concludes an opening sell transaction which creates a short position in call or put options. The writer of an option has the obligation, if assigned, to sell (call option) or buy (put option) a specified amount of the underlying value at a fixed price. Note that exercising some types of options does not result in physical delivery of the underlying value but in cash settlement.

Open positions can be closed before maturity

An investor who has previously sold (written) an option, but wants to be released from the resulting obligation to buy or sell the underlying value, can do so by means of a closing buy transaction. Writers can do this up until the point that they have been assigned, i.e. called upon to meet their obligations. When investors write call options on an underlying value that they own (and are therefore agreeing to sell at a fixed price if assigned to do so), these options are regarded as covered options.

Investors can also write call options without actually owning the underlying value. If the option is then exercised, the writer has to buy the underlying value before delivering it to the buyer. In this case, the option is called a naked option. Written put options are always naked options. Investors are only allowed to write naked options if they deposit sufficient collateral (margin).

Exercise of an option leads to setlement

After being exercised, options can be settled in two ways: by means of either physical delivery or cash settlement. In most cases, exercising an option results in the physical delivery of the underlying value. However, a number of Euronext options are settled in cash on the basis of the difference between the exercise price and the settlement price. The form of settlement used for each option class and, where applicable, the method used to calculate the settlement price, is detailed in the contract specifications.

Netting, the offsetting of opposing positions

There is no direct relationship between the buyer and the writer of an option that is traded on Euronext. Instead, the clearing acts as counterparty for both buyer and seller in each transaction and as such mitigates the risk of the transaction for both.

The clearing has the role of “Central Counterparty”, often referred to as CCP. You do not have to worry if payments are made or the underlying value gets delivered. The clearing secures the proper handling and processing of the rights and obligations involved in the transfer of premiums and the settlement or delivery of the option.

As the clearing fulfils this role in all exchange traded options it also allows to calculate the net result of your option transactions. This process is called netting.

Are you afraid of the dark? Thanks to Euronext Mid-Point Match, you won't be.

On 18 March 2024, Euronext will launch dark, mid-point and sweep functionalities with Euronext Mid-Point Match.

For the first time, you will be able to trade Euronext stocks without any implicit cost related to latency, whilst benefiting from a unique pool of liquidity fostered by local brokers and investors.

Did you know? 31% of Dark MTF trades happen at stale mid-point prices, leading to an implicit 'latency tax' up to 0.69bps for your execution on London-based MTFs.

Read all about it below.

 

 

 

Quantitative Research Report:
Latency cost on Dark MTFs when trading continental stocks

Authors: Paul Besson - Head of Quant Research, Euronext; Anatole Casimir - Quant Analyst, Euronext

1. How often do Dark MTFs display stale (i.e. outdated) prices on Euronext listed stocks? And what is the opportunity cost of such stale prices?

31% of Dark trades on MTFs are stale.

The opportunity cost per stale trade amounts to 1 tick. 

2. What is the overall expected latency cost across different stocks?

The overall expected latency cost for a Dark trade is up to 0.69 bps, and it increases up to 0.89 bps for stocks with larger primary spread.

3. How will the total cost of Euronext's Dark offering compare to Dark MTFs' total cost?

Euronext Mid-Point Match will have no latency: total cost to trade in the dark will only amount to 0.3 bps (pure dark execution fees).

You will not be exposed to a 'latency tax' when trading on Euronext.

4. How can Buy-side firms estimate their opportunity costs on Dark MTFs?

Ask brokers for the percentage of stale Dark trades, and the implicit adverse opportunity cost on such trades.

5. How can you avoid paying this implicit 'latency tax'?

Connect to Euronext Mid-Point Match: the suite of dark, mid-point and sweep functionalities embedded within Euronext's Central Order Book.

• No latency in mid-point computation
• No latency in sweeping from dark to lit book
• No implicit 'latency tax'
• Unique liquidity including from local brokers and investors

Download the official communication and technical documentation here:

Euronext Mid-Point Match Dark Order Book Go-Live dates for Euronext Cash Markets  

 

 

The Euronext Equities team at events - see you there!

For more information

EquitiesTeam@euronext.com

Don't hesitate to contact your sales representatives with any queries or feedback.

Thank you!

A Euronext, a infraestrutura líder de mercado pan-Europeia, anunciou no dia 23 de fevereiro de 2024 a lista de nomeados e vencedores da 13ª edição dos Euronext Lisbon Awards.

Criados em 2011, os Euronext Lisbon Awards distinguem emitentes, intermediários financeiros, e outras instituições e pessoas que, no ano anterior à atribuição, se destacaram no mercado de capitais.

Nomeados e Vencedores

Equity Champion - Blue Chip

• Mota-Engil - VENCEDOR
• Galp
• Millennium BCP

Equity Champion – SME

• Altri
• Cofina - VENCEDOR
• Ibersol

Issuer of the Year

• Banco BPI
• EDP – VENCEDOR ex-aequo
• EDP Renováveis - VENCEDOR ex-aequo
• Santander

Local Market Member – Equity

• CaixaBank / BPI
• Caixa BI
• Millennium Investment Banking – VENCEDOR

Market Member – Equity

• Hudson River
• JP Morgan
• Morgan Stanley – VENCEDOR

Market Member – Bonds

• CaixaBank / BPI - VENCEDOR
• Kepler Cheuvreux
• Millennium Investment Banking

Structured Finance – Warrants and Certificates

• Citigroup
• Millennium Investment Banking - VENCEDOR
• Societe Generale

Structured Finance – Derivatives

• Deutsche Bank
• Santander
• Societe Generale - VENCEDOR

Book Runner – Equity

• BNP Paribas
• Citigroup e Morgan Stanley - VENCEDORES
• Goldman Sachs e J.P. Morgan

Book Runner – Bonds

• CaixaBI - VENCEDOR
• Santander
• Societe Generale

Research House

• CaixaBank /BPI
• JB Capital - VENCEDOR
• Santander

Law Firm – Equity

• Morais Leitão - VENCEDOR

Law Firm – Bonds

• Morais Leitão
• PLMJ
• VdA – VENCEDOR

Investment Fund Portugal

• Optimize Portugal Golden Opportunities Fund, Optimize Investment Partners
• GNB Portugal Ações, Grupo Novo Banco Gestão de Ativos
• IMGA Ações Portugal, IMGA - VENCEDOR

Finance for the future

• Lançamento de novo certificado OT 2025, Millennium BCP - VENCEDOR
• Ordens Smart, BPI / Grupo CaixaBank

Market Promotion

• “ECO-Talk Futuro das Pensões em Portugal”, BBVA
• “Podcast: No final de Contas, ação no âmbito da literacia financeira”, Doutor Finanças - VENCEDOR
• “III Congresso de Valores Mobiliários”, Governance Lab

Media Article

• “Chuva de lucros em tempo de crise”, Rui Barroso, Exame
• “Salário já não chega. Investir atrai mais jovens.”, Leonor Mateus Ferreira, Jornal de Negócios - VENCEDOR
• “Reportagem primeira linha: Sustentabilidade das bolsas”, Mariana Ferreira Azevedo, Jornal de Negócios

Sustainable Finance

• Linha de Crédito com critérios ESG, EDP - VENCEDOR
• Livro “Climate Finance”, Nuno Fernandes, IESE Business School

Settlement & Custody

• Caixa BI
• Montepio
• Santander - VENCEDOR

 

Vencedores dos Euronext Lisbon Awards 2024

Os prémios foram atribuídos durante o evento anual da Euronext, este ano com o apoio da Capgemini

 

Notas:

Breve descrição das categorias Euronext Lisbon Awards

Equity Champion | Destaca a empresa cotada com o maior retorno total, refletindo a evolução dos preços das ações e o pagamento de dividendos. São elegíveis as empresas cotadas nos mercados geridos pela Euronext Lisbon, incluindo as empresas estrangeiras. As empresas cujo turnover velocity seja inferior a 10%, bem como as que apresentem desempenho negativo, não são elegíveis. Este prémio é atribuído em duas categorias: Blue Chip e SME. Para efeitos de atribuição deste prémio, uma empresa é considerada Blue Chip se apresentar, no final do ano anterior,uma capitalização bolsista igual ou superior a €1.000 milhões de euros, e é considerada SME se apresentar uma capitalização bolsista inferior a esse montante.

Issuer of the Year | É distinguida a Entidade Emitente que realizou a operação com maior relevância e visibilidade no mercado de capitais português.

Market Member | É distinguido o membro com o maior valor (€) negociado na Euronext Lisbon, nos valores mobiliários identificados nesta categoria (Ações e Obrigações).

Structured Finance | É distinguido o membro que gerou maior crescimento dos valores mobiliários identificados em duas categorias: Derivados: e Warrants e Certificados.

Book Runner | O vencedor é o intermediário financeiro colocador com o maior número de emissões e montantes colocados nos valores mobiliários identificados nesta categoria, cotados na Euronext Lisbon. São elegíveis as ofertas iniciais e ofertas subsequentes. Em colocações sindicadas, apenas os intermediários financeiros líderes são selecionados.

Research House | O vencedor é escolhido em função do nível de cobertura das ações cotadas na Euronext Lisbon, examinando o número de empresas avaliadas e relatórios publicados por cada Research House no ano em análise, bem como a respetiva equipa dedicada e alocada para o efeito.

Law Firm | É selecionada a firma de advogados mais ativa, considerando os montantes e o número de emissões de ações e obrigações cotadas nos mercados geridos pela Euronext Lisbon em que estiveram envolvidas. Caso duas ou mais firmas estejam envolvidas na mesma emissão, ambas são consideradas.

Investment Fund Portugal | É reconhecido o fundo de investimento / fundo de pensões aberto que tenha realizado o maior esforço do investimento em ações cotadas nos segmentos da Euronext Lisbon, relativamente à sua carteira inicial de ações nacionais. Este prémio é desenvolvido em parceria com a APFIPP, que contribui para a definição dos critérios e dá o suporte técnico ao apuramento anual do vencedor.

Finance for the Future | Categoria aberta a todas as iniciativas, incluindo produtos, serviços, eventos ou outras, que se distingam pela inovação no mercado de capitais português. Esta categoria carece de submissão de candidatura.

Market Promotion Initiative | Distingue o evento de promoção do mercado de capitais português que revela maior impacto, avaliado, tanto quanto possível, por critérios objetivos, nomeadamente pelo número de participantes, meios envolvidos, e cobertura mediática. Esta categoria carece de submissão de candidatura.

Media Article | Distingue o melhor artigo publicado sobre mercado de capitais, avaliado por critérios de relevância, oportunidade, profundidade e rigor. Os candidatos têm de ser jornalistas com carteira profissional válida à data da publicação (que deverá estar anexa à candidatura). São admitidos os artigos publicados em qualquer formato (papel, online, vídeo) que tenham alguma referência ao mercado de capitais português, no período em análise no ano anterior. Esta categoria carece de submissão de candidatura.

Sustainable Finance | Distingue a iniciativa, projeto, evento, programa e/ou produtos relacionados que revele maior impacto positivo em matérias ambientais, sociais ou de governo da sociedade. Esta categoria carece de submissão de candidatura.

Settlement & Custody | É selecionado o Intermediário Financeiro que efetuou o maior número de emissões de ações e obrigações registados na Euronext Securities Porto (e não admitidas à negociação), ponderado pelos respetivos montantes.

Daily Options on the CAC 40^® Index for short-term trading strategies and exposure to the main index of Euronext Paris

Euronext launches Daily Options on the CAC 40 Index. The Daily Options on the CAC 40 Index are complimentary to the weekly and regular monthly options already traded. Euronext already offered Daily Options on the AEX Index. The new Daily Options provide traders with unparalleled opportunities to capitalise on short-term market movements.

CAC 40 Index Daily Options in short

Daily expiring options are options expiring each day of the week. Already available since 2008 on the AEX Index, Euronext is now additionally providing daily option expiries on the CAC 40 Index.

Daily Options suit the trading strategies of both professional and retail investors looking to gain short-term exposure in one of the world’s most popular country indices.

Daily Options trading facilitates short-term trading strategies, providing greater flexibility to trade and hedge short-term market fluctuations. 

Key benefits 

• High strategy agility
  Daily expiries with a wide range of strikes available gives investors a high degree of autonomy and flexibility for investments  
• React quickly to market movements
  Investors are able to gain more targeted exposure, positioning around key events such as elections and economic figures
• Benefit from high Theta and Gamma
  Market participants can utilise Theta time decay and high Gamma from short-dated options to generate further benefits from small price movements
• Lower time value
  Making Daily Options more affordable than longer-dated alternatives

Trading information

Quote Vendor Codes

Find Euronext CAC 40 Daily Options live quotes with your data vendor

Reuters

Bloomberg

_{Each daily option has the corresponding number of the day inserted in the chain logic. Listed and traded dailies correspond with Euronext trading days whereby options are made available on the trading day before expiration. We do not issue daily options for the expiry dates of weekly and monthly options. The March 28th contract will revert to P28 with the same code as before that was used for Feb 28th.}

Contract specifications

CAC 40 Daily Index Options contract specification on live.euronext.com

Market makers

Liquidity guaranteed by leading market makers, including: