Types of derivative securities
Derivative securities are those securities that the mechanism of issue and circulation of which is connected with the right to purchase or sale within the period established by the contract, securities, other financial and/or commodity resources.
To derivative securities include stock options, warrants, futures and forward contracts. Being specific in its nature, in the conditions of an unstable economy and inflation they are the tool which allows investors not only to preserve, but also to increase their capital by the conclusion of fixed-term contracts on assets of enterprises, creating the basis for subsequent sustainable their work.
Participants of the futures contract is called the counterparties. By tradition in this sector of the stock market of the person transmitting (selling) any part of the assets, opens the so-called a short position for the contract, and the host (buying) - a long position.
Option (German option from the Latin optio (optionis) - choice) - one of the securities of the futures contract. In its essence it is a type of the certificate and is an independent security, with which you can perform the corresponding operations on the sale or purchase. However, upon expiration of the term he loses its quality. The call option on the stock exchanges is the privilege of the acquired upon the payment of the well-known prize for the receipt of the goods at a predetermined price within a certain period. At the same time to refuse to perform certain operations with securities or commodity.
Optional evidence is recognized as a registered security that fixes the rights of its owner to the terms and on the conditions specified in the certificate of the certificate and the decision on their issue (for the documentary form of issue) or the decision to issue such certificates (for the non-documentary form of issue), to buy (optional certificate of purchase) or sell (a special certificate on sale) of securities (underlying asset) Issuer's option certificates or third parties, a report on the the results of the issue of which was registered prior to the date of the issue of option certificates.
Optional certificate is a derivative security. It may be issued under the collateral provided by the Issuer for the purposes of the third parties, as well as under the pledge of certain property of the Issuer. In particular, the call option is the right to exchange the convertible preferred shares or bonds to ordinary shares, as well as the right of a member of the labour collective of the company to buy a number of shares on preferential terms, etc.
Distinguish between the options of sale (put) - the right to sell the securities and options to purchase (call option - the right to buy a security. Each of them is a tool, with which you can afford to regulate the degree of risk and profit. The investor, buying a call option, shifting the risk to the seller of the option. At the risk of the first of them is the second award of its expected profit, which, by the way, he may fix in advance.
Purchase of an option put warrants participants of the securities market, buying up shares from private individuals, stable selling them at a fixed price. Banks such a purchase of put options only provides the ability to risk-free crediting on pledge of securities, as are known in advance the interest rates on credits and conditions of the option agreement.
At the same time, the purchase of call option provides the ability to calculate the sustained profits of the company by way of regulating the inflow of shares. Operations with the call option attractive, although quite risky for those buyers who rely on shares of investment companies or privatized enterprises with the unsustainable rate quotes. The risk of them in this case is defined the size of the premium, while the gain is not limited.
Unlike other types of securities in a transaction with an option shall participate only two persons. One of them buys an option, and the other sells. The transaction is effected or in any day before the expiration of the term of the contract (the so-called American variant), or only on the day of its expiration (European option). execution of the obligation provided for in a certain day, if it establishes or allows you to set the day of his execution, or, respectively, at any time within the period of validity of the contract, i.e., in essence, it is recognized American version of repayment of obligations on the deals. In the rest of the call option has a lot in common with a warrant.
The warrant as a security certifying the right of the holder to purchase not only the additional shares of the company, but also bonds, gold and other valuables. The warrants have a longer life on the securities market compared with preferred guarantees - from one to several years.
Thus, the option allows to guarantee limit risk and is an independent form of securities. The very nature of the treatment option assumes the presence in the transactions of this kind of a mediator, which acts as a one of the above persons.
The availability of options makes the securities market more dynamic and predictable. In terms of income expectations at a fixed size, they are akin to the other types of securities, such as bonds. Only if the owner of bonds of the right to fixed income gains from the date of purchase, then the owner of an option acquires the right to purchase the shares in intermediary after some time on the firm today's price.
To trade securities include such shipping documents, as bills of lading and warehouse receipts.
A bill of lading is recognized as property confirmation certifying the right of its holder to dispose specified in the bill of lading cargo and to receive the cargo after the completion of the carriage. He may be bearer, order or registered. When drafting the bill of lading in several originals delivery of the goods to the first claim brought by the bill of lading shall terminate the rest of the copies.
The warehousing certificate can be simple or double. Simple warehouse certificate is предъявительская security, whose holder acquires the right to dispose of the goods, having not the goods, and security. Feature of double warehouse certificate is the fact that it consists of a warehouse certificate and the pledge certificate (or warrant), which may be separated from each other and treat yourself.
Warrant (from English warrant - proxy, power of attorney) - certificate, issued by the commodity warehouses of accepting goods for storage. This certificate is a legal document, on the basis of which the goods may be laid down or sold, in essence is the same option, but not from an intermediary, as issued by the organization itself. In the period when the process of revitalization of industrial production has not received the sustainable growth, the warrant may find wide application. The organization that do not have clearly established a system for sales of the products can place it to the warehouse in the pledge, filling out this operation warrants - a double warehouse certificate.
The twofold warehouse certificate consists of two parts, and only the second part - a mortgage certificate is essentially performs the role of the warrant. The first part - warehouse certificate performs the direct role of the storage of the document, i.e. the usual warehouse receipt confirming the acceptance of the products warehouse. Therefore, the presence of double warehouse certificate may be in the form of a single whole warehouse of the document, and separately in the form of the first part (of the warehouse certificate) or the second part (the mortgage certificate). In each part of the document should be specified the same requisites:
the name and location of the warehouse, has accepted goods for storage;
the current number of the warehouse certificate in the register of the warehouse;
the name of the legal or physical person, on whose behalf the goods have been accepted for storage;
place of location (residence) of the owner of the goods;
name and the number of accepted for storage of the goods with the indication of the number of physical units and (or) product availability and (or) actions (weight, volume) of the goods;
the term for which the goods have been accepted for storage, or an indication that the goods have been accepted for storage on demand;
the amount of payment for storage or tariffs, on the basis of which it is calculated, and the procedure for payment for storage.
In the case of double warehouse certificate must be the date of its issue, the stand identical signatures of the authorized person and printing warehouse.
Current legislation requires strict compliance with the double warehouse certificate all the above conditions hold, that entitles the owner to receive the credit in Bank for replenishment of their working capital, as well as the implementation of any other action in full. At the same time, the holder of the warehouse certificate (if it is separated from the mortgage certificate) is limited in the rights in this volume. His actions can only be applied at the disposal of the goods. However, he is not entitled to take the goods from the warehouse until not repay the loan, issued under the warrant.
The owner of the warrant may sell it as a security. Who have purchased the mortgage certificate - in fact acquired the right of ownership to pledged property, located in a warehouse, became its owner.
Security warehouse certificate (warrant) acts in the sphere of circulation in its essence as товаросопроводительный a document transmitted in the order of endorsement and used in the sale and pledge. Thus, recognizing that the warrants have a treatment on the secondary market, i.e. have the properties inherent security. This similarity with promissory notes, as both those and others are filled with the trademark content. Advantages and disadvantages of each of them are so clear, because the criteria of effectiveness of their treatment will ultimately depend on the stability of the economy. In addition, if the bill circulation in the legislative plan mainly regulated, the warrants as a type of the securities do not have a regulatory framework in terms of not only the issue and circulation, but also taxation.
A simple warehouse certificate shall only be issued in bearer form and in terms of content has a lot in common with a double warehouse certificate.
Futures contracts in contrast to option represent a firm commitment to purchase or sell a security at a specified day at a specified price at the moment of the conclusion of the contract.
The question of the functioning of the futures current legislation is not regulated, but the General scheme provides for the possibility of forecasting the prices of the product concerned or the exchange rate, which allows you to hedge against price shocks and reduce losses from risk. The company providing for such a purpose, refers to a futures broker, makes a margin of 10% of the contract amount, and the broker on the stock exchange enters into the transaction on purchase of a commodity, or currency at a predetermined price.
The size of the pledge in principle may be different and determined by the exchange chamber based on the results of the analysis of the data of daily departures by type of property under the contract for the previous periods of time. The provision of collateral is called the initial margin. He is credited on the so-called маржевый account. The transaction is executed a contract with the payment of the fee to the broker. This operation gives each of the transaction participants, first of all, a possibility to predict the size of the profit in the short term, pre-protecting against fluctuations of market prices, changes in exchange rates, which are taken into account at the time of the conclusion of the contract. Such insurance against loss is called hedging. It is an integral part of the futures market and means minimizing the insurance risk on cash position by covering the opposite of a derivatives position (with a subsequent offsetting). A similar procedure in the formation of the insurance Fund of the guarantee of execution of obligations of the market participants by means of a clearing. The insurance Fund is formed at the expense of the funds of the brokerage firms, submitted as a collateral for the opening position. The brokerage firms are allowed on the futures market only under the condition that they are the owners of shares of stock of the chamber. The seller in this situation takes a short position, and the buyer - a long position.
A futures contract can be any day of the closed by conducting a reverse transaction. If such a procedure for the closure of a contract is not provided before the official date of the delivery, the customer is obliged to perform his obligation.
Transactions in options, futures contracts and other types of securities often are performed between their participants directly in the commodity and stock exchanges. For each participant of the trades the exchange opens in the current account of the card analytical accounting. The card consists of two parts: the address indicating the registration sheet of the client and accounting. The latter is essentially a card lender. In addition, for each of the participants in the accounts Department of the stock exchange opens the personal account of the client. On this account kept his calculations with other clients and to the clearing house.
When the seller and the buyer have agreed to a price for a particular contract, the broker of the exchange announces the transaction held with the registration thereof in the minutes of trading. At the end of bidding shall be calculated the average price of all of homogeneous transactions under each name of the goods, after which filled the settlement Protocol transaction. He serves as the only source of information, on the basis of which is calculated with each participant of the trades.
If the sale of goods by a particular party concluded at trades at a price above the market average, the seller receives additional income (margin). This income is obliged to pay to the buyer; otherwise, the winner is he.
The calculation of income (margin) of the clients and the cost of services rendered by them clearing house, is carried out in accordance with the instructions of the transaction. In addition, the income of the stock exchange is formed in the form of Bank interest on the space of mortgage customers amounts on Deposit accounts in banks.
Closing position on a futures contract is the performance of the obligations under the contract, when the participants of the change places: the seller must buy, and the buyer - sell. This position is most often determined by the parties on the eve of the execution of obligations, when the real price of the assets on the market is different from the fixed price of the contract. This variant of execution of obligations on the futures contract in the countries with developed market economies is the predominant
Forward contract provides for a clearly specified fixed date of delivery of the subject matter of contract at a fixed price, which, however, does not exclude for its participants to after payment of a predetermined amount of the penalty to refuse from performance of the obligations. The disadvantage of this type of contract is also limited space in the secondary market, because they have some difficulty in finding a third person, the interests of which would fully meet the conditions of this contract, oriented at the interests of the original members.
