Options and Futures:
MEFF
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46
STRUCTURE ORGANISATION AND OPERATION
OF THE SPANISH SECURITIES MARKET
A. The options and futures
market
Derivative products are contracts, which forma-
lise an agreement between two parties and allow a
specific operation on certain underlying assets (finan-
cial or non-financial). Among the financial products
for which there are derivative instruments are listed
shares, stock market indices, interbank interest rates
and bonds traded in fixed income markets.
The existence of organised markets for the tra-
ding of these products means their standardisation
(in terms of the amount of the underlying or maturity
dates) and the presence of a clearing entity, normally
associated with the same market, which is responsible
for the settlement of transactions.
These features differentiate the products traded
in organised markets from those freely traded bet-
ween two parties (known as over-the-counter (OTC)
derivatives) which are not subject to standard trading
rules or conditions. Both derivative products traded
in organised markets as well as OTC products have
become very important, reflected in significant trading
volumes worldwide.
The derivatives market has been at the heart of
the debate on the new regulation of the financial sys-
tem during the financial crisis that began in 2007. The
fact that an extraordinary volume of these products
is traded bilaterally and not under trading rules or
standard trading conditions (i.e. over-the-counter) has
highlighted the potential systemic risk of these pro-
ducts. It is for this reason that it is very important to
know the potential risks and try to limit them.
The response of regulators to these potential risks
of OTC derivatives is two-fold:
On the one hand, there is an attempt to pass
more derivatives contracts by central clearing hou-
ses (CCH), while on the other, efforts are focused on
trying to boost the trading of more derivative products
on the stock exchanges as standardised products.
The trading of derivatives, options and futures
in organised markets began in Spain in 1989, but it
was not until 1992 that they were fully structured and
consolidated through the MEFF SociedadRectora de
ProductosDerivados, the governing body responsible
for managing market trading and the central clearing
services it offers.
The specific regulatory framework for the Spanish
derivatives market was revised through Royal Decree
1282/2010 of October 15, 2010, which regulates offi-
cial futures and options markets and other financial
and derivative instruments, as well as the approval by
the CNMV of the new MEFF Regulation. This legisla-
tion has substantially widened the range of products
for which MEFF can offer trading or central clearing
house services.
Part of MEFF’s role as a derivatives market in-
cludes operating as the market and as the clearing
entity, and has been recognised internationally as a
“Designated Investment Exchange” by the Securities
Investment Board (SIB) and a “Recognised Overseas
Investment Exchange” by the UK Treasury. It has also
been authorised by the US Commodity Futures Tra-
ding Commission (CFCT) to trade its products in the
US and has obtained the Part: 30 exemption for all
members of the market.
TRADING SYSTEMS
MEFF is a fully electronic market, which integra-
tes trading, clearing and settlement in a single system
and provides the most advanced,real-time services for
supervision and risk control.
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