To fully understand the structure of the markets and the associ-
ated processes involved, let us start by looking at the situation in the
exchange and clearing house environment.
Futures trading
Futures are traded on exchanges either by an electronic dealing sys-
tem or by an open outcry in designated trading areas on an exchange
floor. In some cases futures are traded by both mechanisms, for
instance on the CBOT, but a majority of the major markets are today
solely electronic.
Prices and the volume of contracts traded of the futures available
for trading are distributed by the exchange and major information
systems like Bloomberg on a continuous basis during the trading
period.
At the close of trading each day the exchange publishes a closing
price and that price is used to compute the VM and value positions
held in portfolios or trading books.
A trade is made between two members of the exchange through the
relevant trading mechanism.
The trade details will be matched, automatically on an electronic
exchange and through a matching system on an open outcry market.
The matching fields will be:
Contract The reference or identifier of the relevant listed contract,
often numeric or alpha
Quantity The number of contracts the trade represents
Maturity The month in which the contract will mature
Price The price traded by the two parties
Buy/Sell The act of either being the buy or the sell side of the
transaction
Time of trade Time at which the trade is recorded as being carried out
Counterparty The person on the opposite side of the trade often identified
by a standard mnemonic
In the case of an electronic exchange these details are automati-
cally captured from the trader’s action on the dealing screen. In the
case of an open outcry market, either the details are input into an
electronic matching system by the trader or alternatively a deal ticket
is completed and is then passed to support staff for input to the
exchange matching system.
Futures processing 49
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