The STP Flow of Futures and Options Transactions

This chapter describes the straight‐through‐processing (STP) flow of futures and options transactions through examples based on futures and options listed on the Euronext.LIFFE exchange in London, which are cleared by LCH.Clearnet Limited. The identical process steps for futures and options include order placement, order execution, trade agreement, regulatory trade reporting, settlement, mark to market, and accrual of interest on collateral placed or received. The order will always be executed by the sell‐side firm as an agent. The investor places its order with the exchange member firm and the member firm then places it on the order queue maintained by LIFFEConnectTM; the order‐driven platform run by Euronext.LIFFE. As soon as the order is matched on LIFFEConnect, then LIFFEConnect informs the exchange member, who in turn needs to inform the investor. The LIFFEConnect then informs LCH.Clearnet, who then novates the trade. Trade agreement between the member firm and the exchange is facilitated by the exchange acting as a central matching engine. Regulatory trade reporting is achieved by the exchange acting as a central matching engine. The chapter then describes the instrument‐specific process steps for futures and for options.