1. International Development of Futures and Options Karyn Yamamura BA 543 May 26, 2005

2. OverviewOverview FLEX and Exotic Options FLEX and Exotic Options Developed and Developing Markets Developed and Developing Markets Europe Europe China China Trading Floor Movement Trading Floor Movement Electronic vs Open Outcry Electronic vs Open Outcry

3. FLEX and Exotic Options Flexible Exchange Options (FLEX) Flexible Exchange Options (FLEX) 1993 CBOT 1993 CBOT Customization Customization Exotic Options Exotic Options Average Rate (a.k.a. Asian Rate) Option Average Rate (a.k.a. Asian Rate) Option Barrier Option Barrier Option Knock-out Knock-out Knock-in Knock-in Basket Option Basket Option

4. International Options and Futures Markets Buenos Aires Cereal Exchange Mercado Abierto Electronico SA Rosario Board of Trade Buenos Aires Futures Market Merfox Rosario Futures Exchange Australian Derivatives Exchange Asian Capacity Exchange Sydney Futures Exchange Securities Exchange of Barbados Bahia, Sergipe, Alagoas Stock Exchange Brazilian Futures Exchange Pernambuco and Paraiba Stock Exchange Minas, Espirito Santo, Brasilia Stock Exchange The Commodities & Futures Exchange Sofia Commodity Exchange Montreal Exchange Canadian Venture Exchange Winnipeg Commodity Exchange Bolsa Electronica de Chile China Zhengzhou Commodity Exchange Guandong United Futures Exchange Shanghai Cereals and Oils Exchange Beijing Commodity Exchange Wuhan Securities Exchange Centre Hong Kong Futures Exchange Shenzhen Mercantile Exchange China-Commodity Futures Exchange, Inc of Hainan Finnish Options Exchange Helsinki Exchanges MONEP MATIF Deutsche Terminborse Athens Derivatives Exchange Chinese Gold and Silver Exchange Society Budapest Commodity Exchange Madhya Pradesh Stock Exchange The OTC Exchange of India Capital Market Supervisory Agency Indonesian Commodity Exchange Board Italian Derivatives Market Italian Financial Futures Market Tokyo Commodity Exchange Maebashi Dried Cocoa Exchange Osaka Textile Exchange Kobe Raw Silk Exchange Kobe Rubber Exchange Nagoya Textile Exchange Osaka Securities Exchange Tokyo Grain Exchange Tokyo International Financial Futures Exchange Niigata Securities Exchange Japan Securities Dealing Association Kammon Commodity Exchange Kansai Agricultural Commodities Exchange Cubu Commodity Exchange Sapporo Securities Exchange Yokohama Raw Silk Exchange Amman Financial Market The Kuala Lumpur Options & Financial Futures Exchange Malaysia Derivatives Exchange Commodity and Monetary Exchange of Malaysia Mexican Derivatives Exchange AEX-Agricultural Futures Exchange AEX-Options Exchange Financiele Termijnmarkt Amsterdam NV New Zealand Futures & Options Exchange Ltd Muscat Securities Market Manila International Futures Exchange Warsaw Commodity Exchange Oporto Derivatives Exchange Romanian Commodities Exchange Sibiu Monetary-Financial and Commodities Exchange Moscow Interbank Currency Exchange Russian Exchange St Petersburg Futures Exchange Moscow Commodity Exchange Saudi Arabian Monetary Authority Singapore Commodity Exchange Ltd Singapore International Monetary Exchange Ltd Commodity Exchange of Ljubljana South African Futures Exchange Spanish Options Exchange Citrus Fruit and Commodity Market of Valencia Spanish Financial Futures Market The Swedish Futures and Options Market Swiss Options & Financial Futures Exchange AG Swiss Exchange London International Futures & Options Exchange The Baltic Exchange London Metal Exchange The London Securities and Derivatives Exchange International Petroleum Exchange of London Ltd Tradepoint Investment Exchange

5. Developed Markets Europe - London Europe - London Has some of the most developed and widely used Futures and Options Markets Has some of the most developed and widely used Futures and Options Markets Eurex Eurex Euronext.liffe Euronext.liffe OMX OMX Consolidation Consolidation Electronic trading system Electronic trading system

6. Developed Markets (cont.) Euronext.liffe Euronext.liffe Euronext established in 2000 Euronext established in 2000 LIFFE ( London International Financial Futures Exchange ) LIFFE ( London International Financial Futures Exchange ) LIFFE LIFFE Connect LIFFE Connect Euronext.liffe is creating a single market for derivatives, by bringing all its derivatives products together on a single electronic trading platform Euronext.liffe is creating a single market for derivatives, by bringing all its derivatives products together on a single electronic trading platform Future Future Consolidate Consolidate Acquire London Stock Exchange Acquire London Stock Exchange

7. Developing Market China China 1500 to 1978 country faced war, poverty, corruption 1500 to 1978 country faced war, poverty, corruption Prohibited foreign investment Prohibited foreign investment 1978 opened economy to outsiders 1978 opened economy to outsiders 1990 Futures Market established 1990 Futures Market established Corrupt Corrupt Plagued with insider trading, scandals, fraud, etc Plagued with insider trading, scandals, fraud, etc Many Markets closed Many Markets closed 1992 CSRC (China’s Securities Regulatory Commission) 1992 CSRC (China’s Securities Regulatory Commission) Similar to the SEC (Securities and Exchange Commission) Similar to the SEC (Securities and Exchange Commission) Enforce regulations Enforce regulations Future Opportunities Future Opportunities One of the world’s leading countries in natural resources, population, and land One of the world’s leading countries in natural resources, population, and land Futures market limited to domestic financial institutions Futures market limited to domestic financial institutions Options markets Options markets

8. Trading Floor Movement Traditional Open Outcry Traditional Open Outcry Sentimental value Sentimental value 150 year history in USA 150 year history in USA Excitement Excitement Shouts, hang signals, etc. Shouts, hang signals, etc. Source of Revenue Source of Revenue Tourist Attraction Tourist Attraction Employment Employment Floor brokers, clerks, assistants, etc. Floor brokers, clerks, assistants, etc. Electronic Platform Electronic Platform Speed milliseconds Cost 20-30% less Robustness/Stability Fewer mistakes Resilient to catastrophes

9. ConclusionConclusion FLEX and Exotic Options FLEX and Exotic Options Developed and Developing Markets Developed and Developing Markets Electronic vs Traditional Open Outcry Trading Floor Electronic vs Traditional Open Outcry Trading Floor

10. Questions?Questions?