Exercise and Fulfillment

Overview

"Exercise" refers to the action where the buyer of an option contract closes out its positions in the contract by exercising its rights in accordance with relevant rules to buy or sell the underlying futures contract at the strike price. "Fulfillment" refers to the action where, upon the buyer of an option contract exercising its rights, the seller of the contract performs its obligation to buy or sell a certain quantity of the underlying at the strike price agreed in the contract. Exercise and fulfillment of option contracts are centrally organized by SHFE. Members, OSPs, Overseas Intermediaries, and Clients should exercise and fulfill options at SHFE in accordance with the corresponding trading procedures.

Time limit for submitting exercise requests

A buyer of a European-style option may submit a request to exercise or abandon the option, before 3:30 p.m. on the expiration date through the client trading software, the member service system, or the overseas intermediary service system.

A buyer of an American-style option may submit an exercise request during trading hours on any trading day before the expiration date, or a request to exercise or abandon the option before 3:30 p.m. on the expiration date. These requests can be submitted through the client trading software, the member service system, or the overseas intermediary service system.

Results of exercise and fulfillment

Following the exercise and fulfillment of obligations under a call (put) option, the buyer will hold a long (short) position in the underlying futures contract at the strike price and the seller will hold a short (long) position in the underlying futures contract at the same strike price. These positions will be counted toward the open interest of the futures contract.

The exercise of an option held for speculative or hedging purposes will establish a corresponding speculative or hedging futures position.

Automatic exercise

Before time of clearing on the expiration date, SHFE will automatically exercise options that are in-the-money as determined by the settlement price of the underlying futures contract, and automatically abandon all other options, even if no exercise or abandonment request has been submitted within the specified time limit.

Assignment

Upon the closing of the submission window for exercise requests, SHFE's system will randomly assign the resulting positions to sellers based on the buyers' exercise and abandonment instructions and the result of automatic exercise.

Netting of open options positions

A Non-FF Member, OSNBP or Client may request for the netting of its long and short positions in the same option contract held under the same trading code. The positions thusly offset are deducted from the day's open interest for that option contract and added to the contract's trading volume. Request for netting should be submitted during the following hours:

1. European-style option: before 3:30 p.m. on the expiration date;

2. American-style option: during the trading hours on any trading day before the expiration day, and before 3:30 p.m. on the expiration date.

Netting of futures positions created by exercise (fulfillment)

An option buyer (seller) may request for the netting of its long and short futures positions obtained upon the exercise (or fulfillment) of options under the same trading code, or the netting of such futures positions against its existing futures positions to the extent of the former. The positions thusly offset are deducted from the day's open interest for that futures contract and added to the contract's trading volume. Request for netting should be submitted during the following hours:

1. European-style option: before 3:30 p.m. on the expiration date;

2. American-style option: during the trading hours on any trading day before the expiration day, and before 3:30 p.m. on the expiration date.