JGB Futures
Settlement
Update : Nov. 29, 2012
5, 10, and 20-year JGB Futures contracts may be settled either by offsetting or by delivery.
mini-10 year JGB Futures contracts may be settled either by offsetting or by cash.
(1) Offsetting
A transaction for the purpose of offsetting on either a customer's account or on the Trading Participant's own account must be reported by the Trading Participant to the TSE by 4:30 pm on the same day. TSE then subtracts the reported amount from the Trading Participant's open long/short positions.
(2) Delivery
Positions which have not been closed out by the end of the last trading day must be settled by delivery on 20th (or the next business day if that is a holiday) of each delivery month.
a. Delivery
Delivery of actual JGBs is made for the net taxable and non-taxable final long/short positions of the same contract month held by each Trading Participant. Final long/short positions matched within a Trading Participant are settled by internal delivery.
Deliverable bonds are as follows:
5-year JGB Futures
Publicly offered interest-bearing JGBs with 4 years or more but less than 5.25years remaining to maturity as of the issued date and the delivery date. (The deliverable grade has to be issued at least 3 months prior to the delivery month.)
10-year JGB Futures
Publicly offered interest-bearing JGBs with 7 years or more but less than 11 years remaining to maturity as of the issued date and the delivery date. (The deliverable grade has to be issued at least 2 months prior to the delivery month.)
20-year JGB Futures
Publicly offered interest-bearing JGBs with 15 years or more but less than 21 years remaining to maturity as of the issued date and the delivery date. (The deliverable grade has to be issued at least 2 months prior to the delivery month.)(TSE has decided to halt trading on new contract months for 20-year JGB Futures beginning with the December 2002 contract.)
TSE provides lists of deliverable bonds for each contract month before the commencement of trading in the new contract month, and also before the first date in the delivery month.
b. Sellers' Delivery Options
Sellers of futures contracts are granted options regarding deliverable JGB issues, provided that:
if the final open position for which delivery is made is taxable, the delivery unit may be composed of physical certificates, registered or book-entry bonds; or,
if non-taxable then the delivery unit may be composed of either registered or book-entry bonds only.
Additionally, each component of a delivery unit, as classified by issue and type of bond, must be in multiples of 100 million yen.
c. Payment
By using the DVP settlement system, payment is made simultaneously with delivery of the bonds, by transferring funds between relevant current accounts held at the Bank of Japan.
d. Delivery Price and Conversion Factors
The amount to be paid or received at delivery is determined on the basis of the final settlement price on the last trading day of that contract.
While JGB Futures are based on the 6% coupon, any eligible JGBs may be delivered. As each eligible bond has a different coupon, maturity and consequently value, the value must be adjusted for delivery using conversion factors to reflect the contract standard at the established settlement price. Conversion factors are calculated, according to a formula set out in TSE's rules, on the basis of a semi-annually compounded interest rate. As a service, the TSE provides conversion factor tables in advance, and the conversion factor for each deliverable bond is announced along with a list of deliverable bonds for each contract month.
(3) Cash
If a position of mini-JGB Futures has not been closed out by the end of the last trading day, it must be settled by cash on the following 2nd business day of the last day of trading for the mini-10 year JGB Futures contract, while 5, 10, and 20-years JGB Futures are settled by delivery on 20th (or the next business day if it is a holiday) of each month of delivery.
The Final settlement Price for mini-JGB Futures is the opening price of the 10-year JGB Futures for the same contract month on the business day following the last trading day for the mini-10 year JGB Futures contract. In cases where there is no opening price for the 10-year JGB Futures with same contract month, as a result of no trades being executed or a trading suspension, the TSE will set to final settlement price for the mini-10 year JGB Futures.