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| What are derivatives ? |
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Derivative is a contract between two parties, of whom the value is dependent on the value of an underlying asset or an index. The price of the derivative product is directly related with the progress in prices of other primary products. Thus, derivative products refer to stocks, stock indexes, forwards, futures, swaps and options.
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| What is a future ? |
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A legally binding agreement between two parties, of whom, one promises to buy and the other to sell a certain quantity of a standardized product , at a pre-specified future date and price.
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| What is an option ? |
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An agreement that gives the buyer the right but not the obligation to buy or sell the underlying asset at a pre-arranged price, during a certain period of time or at a pre-specified date.
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| How do we define a swap ? |
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A swap is an agreement between two parties to exchange cash flows for at certain period in the future.
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| What is the purpose of using derivatives ? |
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Two significant benefits are related with derivatives. Firstly, they are used for managing and transferring investment risk and, secondly, their trading provides predictable prices which in turn provide information to the market for the true value of certain investment assets , as well as for the future direction of the economy.
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| Are there any derivative products today in the Greek market? |
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There are derivative products but they are traded in the over the counter market (OTC). These products are mainly forwards and swaps and are usually offered by banking institutions.
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| What are the advantages and disadvantages of the over the counter market (OTC)? |
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Utilizing this market, investors have the advantage to determine the conditions of the contract they wish to enter, develop tailor-made contracts, while they secure a certain degree of confidentiality in respect to their transactions. The disadvantages of using this market are the lack of transparency and control, the fact that it does not obey to any precautionary measures, there is no authorized body to approve the traded products or limit the positions taken while there is no clearing house to guarantee the transactions and thus eliminate credit risk.
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| What is the role and purpose of the creation of the Athens Derivatives Exchange (ADEX) and the Athens Derivatives Exchange Clearing House (ADECH)? |
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The main purpose of both ADEX and ADECH, is to create an organized derivatives market in Greece.
Derivative products traded on an exchange have two critical characteristics-advantages. Firstly, they are agreements between a member and the exchange and thus the derivative products have the "guarantee" of the market in which they are traded. Secondly, every derivative product is standardized and this standardization makes them easily transferable, adds liquidity to the market and makes it possible for netting.
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| Who uses derivative products and why ? |
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Import-export companies, banks, mutual funds, investment companies, insurance companies, pension funds, and the public in general are to name a few of those that use derivatives. For example, the manager of a pension fund can reduce the investment risk associated with his stock portfolio and thus enhance the prosperity of the pension fund shareholders. Also, a food company that plans to invest in another country may abandon the decision to proceed if it cannot manage the financial risks associated with such a venture. An individual investor that for example wants to purchase a house, can choose between a fixed or a floating interest rate loan. The ability of a financial institution to offer such a choice to its customers stems from its ability to manage its own financial risk, which can be achieved through the organized derivatives market.
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| Which products will be traded on the Athens Derivatives Exchange (ADEX) ? |
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ADEX will be trading futures and options which will be based on different financial assets such as stocks, stock indexes, bonds, interest rates and currencies. More specifically the products that have already been developed and which are planned to be introduced gradually are :
Stock index derivatives (FTSE/ASE-20)
Futures on the FTSE/ASE-20
Options on the FTSE/ASE-20
Stock derivatives
Options on blue chip stocks
Bond derivatives
Futures on the 10-years Greek government bond
Interest rate (short-term) derivatives
Futures on the 3-month ATHIBOR (ATHens InterBank Offer Rate)
Exchange rate derivatives
Futures on GRD/USD,GRD/XEU,GRD/JPY
Stock Lending products
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