European Rates

European Monetary Policy Option Contract

• The product

  The impacts of monetary policies have led several agents of the financial and capital markets to find new ways of hedge their portfolios related to the decisions made by the European Central Bank Governing Council.

  Aware of this need, B3 created the European Monetary Policy Option Contract of Europe available for trading on our electronic platform. It is an instrument that allows trading in a safe and transparent way the variation of the Deposit Facility Rate decided at each Council meeting.

  The product is innovative in the listed options market, with a model similar to Copom Options, and has a cash-or-nothing payoff, that is, if the movement of the Deposit Facility Rate defined in a given Council meeting is equal to the traded change (strike price), the option will be exercised with the payment of a fixed amount from the writer to the holder. In any other scenario, there will be no exercise and the option will not generate payment or receipt other than the premium paid by the holder at the start of the transaction.

• Specifications

  Underlying	The variation of the Deposit Facility Rate set at meetings of European Central Bank Governing Council
  Ticker	DFE
  Option style	European
  Contract size	100 points with each point being equivalent to EUR 1.00
  Quotation	Option premium expressed in points to one decimal place
  Tick size	0.1 point
  Round-lot	1 contract
  Last trading day	The last business day before the expiration date
  Expiration date	The business day following the end date of Council’s meeting
  Contract months	All months
  Option exercise	On the expiration date, the option exercise is performed automatically by B3, according to the contract conditions

• Benefits
  • Standardized option with trading on B3’s electronic platform
  • Ease to trade the Deposit Facility Rate movement
  • Possibility of independent trade for each Council meeting (not depending on previous Council’s decisions until the option’s maturity)
  • Transparency in the information of the scenarios’ probability per meeting