Open interest for options on the MSCI Emerging Markets Index (MXEF)<http://www.cboe.com/micro/msci/mxef/default.aspx> grew from 98 contracts in mid-January to 9,855 contracts yesterday. Over the past year several institutional investors have expressed to me their interest in the potential for a liquid MXEF options contract, particularly because the MXEF options contract is cash-settled and has a notional size that is about 24 times larger than options on the EEM ETF.
KEY FEATURES OF MXEF OPTIONS
Key features of MXEF options include:
· Large Notional Size — around $80,200 per contract with the MXEF index at 802 (approximately 24 times that of options on the EEM ETF)
· No Early Exercise of MXEA Options – European-style Exercise
· Cash-settlement with No Delivery of Stocks or ETFs
· Price and Quote Transparency with Competitive Auction Markets for Leading Option Contracts
· Daily Mark-to-market for SEC-regulated securities
· Clearance of Transactions is guaranteed by the Options Clearing Corporation
· Tax Treatment under section 1256 of the Tax Code. Profit and loss on transactions in certain exchange-traded options, including MXEF options, may be entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the U.S. Tax Code.
IMPORTANT INDEXES - CAPITALIZATION AND ASSETS UNDER MANAGEMENT
In mid-2015 the total market capitalizations were $13 trillion for MSCI EAFE (MXEA) and $4 trillion for MXEF. In 2014 the estimated amount of assets under management tracking the indexes was $2 trillion for MSCI EAFE and $1.7 trillion for the MXEF Index.