Outline for Three-month TONA futures option contracts

Item
I. Trading
1. Definitions

March 20, 2023
Revised January 4 2024
Tokyo Financial Exchange Inc.
Remarks

Description
 “Three-month TONA futures option contract” means a market derivatives transaction
wherein one party agrees to grant the other party an option on Three-month TONA futures
and the other party agrees to pay the value of the option therefor.
 Three-month TONA futures option contract traded on the Exchange Market consists of (1) an
option on Three-month TONA futures to enable their grantee thereof to execute one trading
unit of a sale contract for the underlying futures contract with its traded figure equal to theexercise price (hereinafter called a “put option on Three-month TONA futures”), and (2) an
option on Three-month TONA futures to enable their grantee thereof to execute one trading
unit of a purchase contract for the underlying futures contract with its traded figure equal tothe exercise price (hereinafter called a “call option on Three-month TONA futures”).

 A “ market derivatives transaction ” asprescribed under Article 2(21) (ⅲ)(b) of theAct.
 An “underlying futures contract” means aThree-month TONA futures contract with a
specified contract month to be executed as aresult of an option exercise.

2. Contract month(1) Listed Contract
Months 5 contract months the last trading days of which shall correspond to those of their respective
underlying futures contracts.

 The last trading days of their respective
underlying futures contracts are the trading
days, the day session of which occurs on thethird Wednesday (if such day falls on a
Japanese bank holiday, the day immediately
following such day which is a Japanesebanking day) of March, June, September orDecember.

(2) Period The period of 15 months shall be applied to the contract months.

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Description

Remarks

 The first trading day for each contract month is the trading day immediately following thelast trading day for the then first expiring contract month, and such new contract month shallbecome available for trading from the opening of its first trading day’s day session.

 A “trading day” shall be a period
commencing on the opening of the evening
session that starts after the day session on thebusiness day immediately preceding a
specific business day and ending on the closeof the day session that starts on such specificbusiness day.

 The last trading day shall correspond to that of its respective underlying futures contract.

 Please refer to the attached examples inReferential Document.

 On the business day on which the day session of the first trading day for each contract month
falls, TFX shall calculate the figure equal to an integral multiple of 0.125, the nearest to the
Official Closing Price for the respective contract month of the underlying futures contract
calculated on the previous business day (“option criterion price”) and set the next 6 upper
figures above the price and the next 6 lower figures below the price at intervals of 0.125
respectively, resulting in total 13 figures set as the exercise price.

 The Official Closing Price is a price that
TFX shall calculate and inform after theclose of the evening session of each businessday.

(2) Setting
additional
exercise prices

 TFX shall calculate each business day’s option criterion price for each contract month, in
accordance with the conditions described (1) above, resulting in total 13 figures. If these 13
figures include any figure that has not yet been listed, such figure shall be additionally listed
as the exercise price.

 In principle, exercise price shall not beabolished.
 TFX may additionally list new exercise
prices when the Exchange deems necessary
to do so.

4. Matching Algorithm

 The matching of the trades is based on the auction method.

 The auction method means the trade shall be(3) First
Day

Trading(4) Last Trading Day

3. Setting
ExercisePrice(1) Setting
newexercise prices

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Item
5. Trading Hours

6. Trading Unit, etc.
(1) Trading Unit

Description

Remarks

 Day session: 8:45-15:30 (no trade matching between 11:30-12:30 on each trading day), savethat the last trading day’s Day session is 8:45-9:30.
 Evening session: 15:30-20:00 (no trade matching on the last trading day of the contract monthwhich reaches the last trading day.) One Trading Unit for Three-month TONA futures.

(2) Bid/Offer Order types are Limit Order and Market Order.
 Bid/Offer is quoted to the third decimal place (indicated by an integral multiple of 1/1000).
 Minimum price fluctuation of bids and offers is 0.001 (0.001 = 250 yen).

7. Trading Member An Entity that intends to trade Three-month TONA futures option contracts shall obtain the“Japanese Yen Interest Rate Trading Membership” or “Japanese Yen Interest Rate Remote
Trading Membership” as the case may be.

II. Clearing
1. Margin

executed on an individual auction basis.
 There is a pre-open session (session only forquote acceptance; no matching), which is 15
minutes prior to market open of the day
session.
 TFX may change trading hours on atemporary basis when it finds necessary.

 The amount of margin requirement for customer trades and member’s proprietary trade arecalculated using SPAN®.
 The margin for Three-month TONA futures option contracts using SPAN® may be reduced3

 During the Pre-open period, a Market ordershall always be submitted with “On-Open”
modifier.
 TFX may reject any bid or offer when TFX
finds such reject necessary to ensure a fairmarket and the trading system’s stable
operation.
 Maximum order volume Trading Member
can submit in a single order is 99,999 lots.

 SPAN® used herein is a registeredtrademark of Chicago Mercantile ExchangeInc. and used herein under license. Chicago

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2. Payments
andreceipts of option
premiums(1) Payment
andreceipts of option
premiums
between Trading
MemberandExchange(2) Payment
andreceipts of option
premiums
between Trading
MemberandCustomer

Description

Remarks

by netting of risk arising from other Interest Rate contracts on TFX.
 Daily settlement prices for option contracts shall be theoretical prices calculated by theformula in Appendix.

Mercantile Exchange Inc. assumes noliability in connection with the use of
SPAN® by any person or entity.

 The amount which each Clearing Member shall pay to or receive from the Exchange shall be
the net difference between the respective aggregate amounts which such Clearing Member is
to pay and those which it is to receive as the option premiums which are payable or receivablewith respect to such Clearing Member.
 While Each Clearing Member who is liable to pay the said amount shall pay it by 11:00 a.m.
on the business day immediately following the business day on which there occurs the day
session of the trading day on which the sale or purchase contract is executed, each Clearing
Member who has right to receive the said amount shall receive it after 2:00 p.m. on thebusiness day immediately following the business day on which there occurs the day sessionof the trading day on which the sale or purchase contract is executed.
 The provision of the payment of option premium between Clearing Member and Exchange
above shall apply mutatis mutandis with respect to the payment of option premiums between
a Non-Clearing Member and its Designated Clearing Member.

 Option premium is the consideration for theacquisition of an option on Three-month
TONA futures.

 When a purchase contract is executed based on Customer’s order, the Customer shall pay the
option premium therefore to the concerned Trading Member by the time and date designatedby the Trading Member, which date shall be on or before the second business day following
the business day on which there occurs the day session of the trading day on which theoffsetting transaction is effected.
 When a sale contract is executed based on a Customer’s order, the concerned Trading
Member shall pay the option premium therefore to the Customer in the manner prescribed by

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Item

Description

Remarks

the Trading Member.
3. Open Interest andSettlement(1) Open Interest(2) Offset Trades

4. Exercise(1) Option Exercise
Period(2) NotificationofOption Exercise

 Unsettled positions by the execution of orders are recognized as open interest.
 When a Trading Member makes a purchase contract (hereinafter called “Repurchase” ) inorder to close out a short position or makes a sale contract (hereinafter called “Resale” ) inorder to close out a long position, that Member is to notify TFX of the classification of Resale
or Repurchase and its volume by 5:00 p.m.(by 2:45 p.m. with respect to any contract monthon its last trading day) on the business day on which there occurs the day session of the trading
day on which the buy in or sell out order is executed. TFX will reduce the notified quantity
from the Member’s open interest (in the case of a Non-Clearing Member, the open interest ofits designated Clearing Member) for settlement.

 There are 2 way to notify offset trades:(1) Individual notification (make separate
notifications for each trade)(2) Bulk notification (make collective
notifications by contract month andproprietary/customer account) On any business day which falls during the period from and including the business day on
which the day session of the first trading day of each contract month occurs to and including
the business day on which the day session of the last trading day of the same contract monthoccurs.

 Exercise style: American Type In order to exercise options on Three-month TONA futures, Trading Member shall notify the
Exchange until5:00 p.m. of the option exercise date. (2:45 p.m. with respect to any series of
option on the last day of its option exercise period) In order to exercise options on Three-month TONA futures, customer shall notify the
Exchange until 4:30 p.m. of the option exercise date. (2:30 p.m. with respect to any series of
option on the last day of its option exercise period)

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Description(3) Automatic
Option Exercise

 A Trading member shall be deemed to have notified the Exchange of exercising option on
Three-month TONA futures of which is In The Money even when such member did not notify
the Exchange of exercising such option expiration date, except where the member notifies
the Exchange of not exercising such option by 2:45 p.m.
 The Customer shall be deemed to have notified the Trading Member of exercising option on
Three-month TONA futures of which is In The Money even when such customer did not
notify the Trading Member of exercising such option expiration date, except where thecustomer notifies the Trading member of not exercising such option be 2:30 p.m.

(4) Assignment Upon making an assignment, the Exchange shall select the short positions and notify therelevant member of the details of such assignment without delay, specifying whether theassignment is for its own account or for the accounts other than the Trading member’s houseaccount.
 If a reassignment is made to its Customers in accordance, the Trading Member shallimmediately notify such Customers of the detail of such reassignment relevant to thereassignment.

(5) Decreaseinposition resulting
from
OptionExercise① Decreaseinpositionresulting from
Option Exercise
byTrading

Remarks

 When a Trading Member notifies the Exchange of the exercise of options on any businessday, the Exchange shall decrease the long positions held by such Clearing Member at 5:00
p.m. (or shall be 2:45 p.m. in the case of the last day of the option exercise period)

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 The manner of reassignment shall be any oneof the following methods.
(1) Assignment in the order of execution of
the Three-month TONA futures option
contract.
(2) Assignment in a random drawing.
(3) Assignment pro rata in accordance with
the Customer’s volume of positions.
(4) Assignment in any other equitablemanner without arbitrariness.

Item
Member② Decreasein
Positionresulting from
Assignment(6) Three-month
TONA Futures
Contracts
resultingfromoption Exercise
and Assignment① Exercise of aput option② Exercise of acall option

5. Clearing Member

Description

Remarks

 When the Exchange makes assignment to a Clearing Member, the Exchange shall decrease
the short positions held by such Clearing Member at 5:00 p.m. (or shall be 2:45 p.m. in thecase of the last day of the option exercise period) In the event that a Clearing Member notifies the Exchange of the exercise of a put option on
Three-month TONA futures, the Clearing Member shall be deemed to have executed with the
Exchange a sale contract of the underlying futures or the Assigned Clearing Member shall bedeemed to have executed with the Exchange a purchase contract of the underlying futures,with the contract figure equal to the relevant strike price, as at 5:00 p.m.(or shall be 2:45 p.m.
in the case of the last day of the option exercise period) In the event that a Clearing Member notifies the Exchange of the exercise of a call option on
Three-month TONA futures, the Clearing Member shall be deemed to have executed with the
Exchange a purchase contract of the underlying futures or the Assigned Clearing Member
shall be deemed to have executed with the Exchange a sale contract of the underlying futures,with the contract figure equal to the relevant strike price, as at 5:00 p.m.(or shall be 2:45 p.m.
in the case of the last day of the option exercise period)
 An entity that intends to act as a counterparty in the financial futures obligation assumption
business for Three-month TONA futures option contracts shall obtain Interest Rate Futures
Clearing Membership.

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III. Fees
1. Per-contract
Exchange fee
2. Brokerage
Commission
Ⅳ．Others
1. Block Trades

2. Give-up Trades

Description

Remarks Per-contract Exchange Fee is 50 yen in principle.

 Consumption tax, etc. is charged in addition.

 The amount and method of payment of brokerage commission charged to a customer by a
Trading Member shall be negotiated and agreed beforehand between such customer and such
Member.
 Block trades are available.
 Trading Members who intend to execute a block trade shall make an application to TFX
during trading hours excluding the last 15 minutes of each session (i.e. prior to the close of
the day session and the close of the evening session) and the period between 11:30-12:30.
 Minimum volume for an application of a block trade is 1 contract.

 Block trades are, with prior application to
TFX, having buy and sell orders of the same
contract month simultaneously executed
outside competitive auction.

 Give-up trades are available.

 Give-up means that Executing Member(Trading Member who has executed a tradeof Three-month TONA futures options
contracts) have another Trading Member
clear such trade.
 Take-up means that Trading Member
undertake clearing of Three-month TONA
futures options contracts.

3. Market
Maker  Three-month TONA futures option contracts will be included as the designated products
Programunder the Market-Making program.
 The originals of this outline of rules have been prepared in the Japanese language only and the Japanese language texts shall govern for all purposes and in all respects.
Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions and stipulations of the rules, regulations andagreements shall be decided in accordance with the Japanese language texts. Whilst reasonable care has been taken to ensure that these translations are accurate and freefrom errors, no liability is accepted by TFX in any circumstances.

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(Appendix)

Theoretical Option Price Formula
The theoretical call option price (hereinafter shown as “C”) and the theoretical put option price (hereinafter shown as “P”) shall be calculated by reference t o thefollowing formulae:

C = e－rt [FN（d）－KN（d－σ√t）]
P = C－e－rt (F－K)

As used in the above formula, “d” shall be calculated by reference to the following formula:d = [ln（F／K）＋σ2 t／2]／σ√t

Where:
F:

daily settlement price of the underlying futures contracte:Napier's numbert:number of days elapsed up until the option exercise date/ 365

K:strike priceΣ:

implied volatility calculated for each series of options in the manner prescribed by the Exchange / 100r:Three-month Japanese Yen TIBOR as published by General Incorporated Association JBA TIBOR Administration (JBATA) on the relevant date divided by 100 and rounded to
the nearest 2nd decimal point

N(x) :ln :cumulative density function of the standard normal distribution where the value is x

Napierian logarithm9(Referential Document)

Examples of the Last Trading Days for option contracts and underlying futures contracts

Product
Three-month TONA futures
option contracts【For Reference】
Three-month Euroyen futures
option contracts

Option Contracts
Contract Month
June 2023

June 2023

Underlying Futures Contracts
Last Trading Day
Underlying Futures Contract
Contract Month Last Trading Day
September 20, 2023 (Wed)Three-month TONA futures
June 2023
September 20, 2023 (Wed), available for trading until 9:30
, available for trading until
a.m.
9:30 a.m.
June 19, 2023 (Mon)
June 19, 2023 (Mon), available for trading until
Three-month Euroyen futures
June 2023, available for trading until
11:00 a.m.
11:00 a.m.

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