Functions

Personal foreign exchange options (referred to as “options” below) are a right that a client purchases from or sells to CCB to buy or sell a certain amount of a certain foreign currency at a specified exchange rate at some point in the future or within a particular period. Options take various forms. Generally, there are call options and put options.

Options are derived from foreign exchange trading between two currencies; trading in foreign exchange options is not trading in the currencies themselves, but trading in the right to buy or sell a currency in the future. When a client buys an option, the bank gives him or her the right to buy or sell a foreign currency in the future; if the price is unfavorable in the future, the client can give up this right, and he or she will only lose the price of the option. However, if the price is favorable in the future, the client can exercise the right. If a client sells an option, he or she receives the option proceeds, but must bear foreign exchange risks when the bank chooses to exercise the option in the future.

Target Clients

Chinese residents, and foreign nationals who have resided in China for over one year, provided that they have opened a foreign exchange deposit account with CCB or who hold foreign currency in cash,.

Means and Time of Trading

 Currently at CCB, personal foreign exchange options are traded over the counter. Trading hours are 10 a.m. to 11:30 a.m. and 1 p.m. to 7:00 p.m. Monday through Friday. At present, CCB only trades in European options, which allows the purchasers to exercise their rights only at maturity. 

Currencies, Maturities and Minimum Amounts of Trading

CCB offers trading in personal foreign exchange options in the US dollar, Euro, Japanese yen, Australian dollar, British pound sterling, Canadian dollar and Swiss frank. Currently trading is limited to options on the exchange rates between the US dollar and each of the other currencies.

Two-week, one-month, and three-month maturities are available. If a contract matures on a non-business day or a holiday of the international market, then it is adjusted according to competent international market practices so that it matures on a business day.

The minimum amount required for trading is the equivalent of 10,000 US dollars (calculated on the basis of CCB’s bid and offer quotations for personal exchange trading at the time the option contract is entered into).

Notes

The Rights and Obligations of the Buyer and Seller of Personal Foreign Exchange Options.

The purchaser of a personal foreign exchange option has the right to buy or sell a certain amount of a certain foreign currency at a fixed price at the expiration of the option; the purchaser also has the right not to exercise the option. If the purchaser chooses to exercise the right at expiration, the seller of the option has the obligation to perform the option contract, and sell or buy the currency in the amount, at the rate and on the date specified in the option contract. The purchaser of the option must pay a premium, and this premium is determined on the basis of the currency, amount, exchange rate and date specified in the contract.

Call Options and Put Options

A call option gives the owner the right to buy the underlying currency and sell the trading currency at expiration. A put option gives the owner the right to sell the underlying currency and buy the trading currency at expiration.

Parity, out-of-the-money, and in-the-money options

Parity options are those whose strike prices are the same as the spot rates. Out-of-the-money options are call options whose strike prices are higher than the spot rates, or put options whose strike prices are lower than the spot rates. In-the-money options are call options whose strike prices are lower than the spot rates, or put options whose strike prices are higher than the spot rates. Currently, CCB only offers parity and out-of-the-money options in personal foreign exchange options trading. Therefore, we only quote these two types of options; we quote in-the-money options only when we buy options to close out a position.

Exercise Price and Exercise Settlement Value

The exercise price is the rate at which the client trades foreign currencies with CCB, if he or she chooses to do so, at the expiration date. It is fixed in the option contract, and is based on the spot rate (with adjustments) published by CCB at the time the contract is entered into. The exercise settlement value is the spot rate in the international market at 2 p.m. (Beijing Time) of the expiration date. It is the mean of the rates published in the TKFE, AUDH=, and CADH= pages of the Reuters system, and is used by the client to decide whether to exercise the option. If the exercise settlement value is more favorable than the exercise price, and as a result, the client makes a profit by exercising the option, CCB exercise the option on behalf of the client and deposit the profit in an account designated by the client.

Liquidating or Exercising an Option

Before an option expires, the client can request the price of the option and sell it at a CCB counter on any business date. If the client sells the option, settlement at expiration is not necessary.

When a client purchases a personal foreign exchange option, he or she must appoint CCB to exercise the option on his or her behalf and settle the payment if the client makes a profit at expiration. An option must be settled by 2 p.m. (Beijing Time) of the business day on which the option expires. At the time, the client must have sufficient trading currency in a designated demand deposit account; otherwise, it is assumed that the client has given up the right to exercise the option.

By default, the call options clients purchase from CCB are cash-settled options. If the buyers of call options desire physical-delivery settlement, they must make a written request to CCB.

Notes: A cash-settled option is settled automatically when the market rate (the mean of the rates published in the TKFE, AUDH=, and CADH= pages of the Reuters system at 2 p.m. Beijing Time) is in the owner’ favor. CCB deposits profits directly into an account designated by the client.

Client Process

1. The client signs a Client Commitment for Personal Foreign Exchange Options with CCB at an options-trading outlet.

2. The client fills out an Application for Purchasing Personal Foreign Exchange Options.

3. The client signs a Confirmation of Purchasing Personal Foreign Exchange Options, issued at a CCB counter.

4. The client pays a premium (by cash or account transfer).

5. The client receives a client copy of the Confirmation of Purchasing Personal Foreign Exchange Options.

6. If the client wishes to sell the option before it expires, he or she must fill out an application for Liquidating Purchased Personal Foreign Exchange Options, and present to a CCB counter the Confirmation of Purchasing Personal Foreign Exchange Options. If the client accepts the price quoted by CCB, he or she must sign a Confirmation of Liquidating Purchased Personal Foreign Exchange Options. After the client sells the option, CCB deposits the premium in an account designated by the client. The client will receive the client copy of the Confirmation of Liquidating Purchased Personal Foreign Exchange Options, and must enter “Sold” on the Confirmation of Purchasing Personal Foreign Exchange Options.

7. On the expiration date, if the client chooses to exercise the option, he or she must deposit a sufficient amount of the trading currency in a designated demand deposit account by 2 p.m. Otherwise, it is assumed that the client has relinquished the right to exercise the option. At 2 p.m. (Beijing Time) of the expiration date, CCB performs cash settlement of the option.

8. After cash settlement, the client will receive from CCB a client copy of the Notice on the Settlement of Purchased Personal Foreign Exchange Options.

Special Notes

 In light of business needs, CCB reserves the right to modify the means, currencies, hours, premiums, contracts, etc. of personal foreign exchange options trading. When such modifications occur, CCB will announce them at trading outlets or through other means.

When major market changes occur, CCB may update quotations and announce them at any time through the trading outlets.

When a personal foreign exchange is settled, it may not be cancelled. If the client disagrees with the cash settlement, he or she must raise the disagreement with the trading outlet at which the trading was conducted within one month of the settlement day.

 The account used to settle a personal foreign exchange option must be a demand deposit account.

Currently CCB does not charge any fees in addition to the premium in offering the personal foreign exchange options service.

 

The actual transaction process may vary.