Browse DFOL
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- 1.1 What Is a Derivative?
- 1.2 Common Features of All Derivative Instruments
- 1.3 Types of Derivative Instruments
- 1.4 Key Differences Between Option-Based and Forward-Based Derivatives
- 1.5 Exchange-Traded and Over-the-Counter Derivatives
- 1.6 Key Differences Between Exchange-Traded and Over-the-Counter Derivatives
- 1.7 Types of Underlying Interests (Commodities, Financials)
- 1.8 Why Are Derivatives Useful?
- 1.9 Operational Considerations
- 1.10 Who Uses Derivatives and to What Extent Are They Used?
- 1.11 The New CIRO Regulatory Landscape
- 1.12 Emerging Asset Classes (ESG and Crypto Derivatives)
- 1.13 Technology in Derivatives Trading (Electronic Platforms, Algorithmic Trades)
- 1.14 Overview of Bourse de Montréal and Other Global Derivatives Exchanges
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- 2.1 A Brief Overview of Forward-Based Derivatives
- 2.2 A History of Forwards
- 2.3 What Is a Forward Agreement?
- 2.4 What Is a Futures Contract?
- 2.5 Organized Futures Markets
- 2.6 Buying and Selling a Futures Contract
- 2.7 Cash Settlement
- 2.8 Margin Requirements and Marking-to-Market
- 2.9 Futures Trading and Leverage
- 2.10 Reading a Futures Quotation Page
- 2.11 Contract Size and the Value of the Underlying Interest
- 2.12 CIRO Oversight and Margin Guidelines for Futures
- 2.13 Key Global Futures Exchanges (Comparison to Bourse de Montréal)
- 2.14 Electronic Order Routing and Market Data Feeds
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- 3.1 A Brief Overview of Futures Pricing
- 3.2 Futures Market vs. Cash Market
- 3.3 Cost of Carry
- 3.4 Basis
- 3.5 Cash and Carry Arbitrage
- 3.6 Reverse Cash and Carry Arbitrage
- 3.7 Conditions that Facilitate Arbitrage
- 3.8 Inverted Markets
- 3.9 Convergence
- 3.10 Practical Pricing Examples in Canadian Markets (e.g., Interest Rate & Index Futures)
- 3.11 Seasonal Basis Factors & Monetary Policy Impact
- 3.12 Scenario Analysis (Volatility & Interest Rate Shifts)
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- 6.1 The History of Options
- 6.2 Key Option Terminology and Definitions
- 6.3 Application of Key Terms and Definitions
- 6.4 Why Investors Buy Options
- 6.5 Why Investors Write Options
- 6.6 Other Related Benefits of Options
- 6.7 Advantages of Exchange-Traded Options vs. OTC Options
- 6.8 Reading Option Quotations
- 6.9 Common Questions Pertaining to the Options Market
- 6.10 Role of CIRO and the Bourse de Montréal in Regulating Listed Options
- 6.11 Retail Growth in Options Markets (Lower Commissions, Educational Platforms)
- 6.12 Introduction to Option Greeks (Beyond Delta)
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- 9.1 Overview of the Swap Market
- 9.2 What Is a Swap?
- 9.3 Role of the Swap Dealer
- 9.4 History of Swaps
- 9.5 OTC Derivatives Market Reform
- 9.6 CIRO/CSA Requirements for Swap Transactions (Trade Reporting, Clearing)
- 9.7 Bilateral vs. Cleared Swaps
- 9.8 ESG & Sustainability-Linked Swaps
- 9.9 Cross-Border Swaps Considerations
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- 10.1 Plain Vanilla Interest Rate Swap
- 10.2 Rate & Day Count Conventions
- 10.3 The Structure of an Interest Rate Swap
- 10.4 Pricing an Interest Rate Swap
- 10.5 Indication Pricing Schedule
- 10.6 Credit Risk
- 10.7 Terminating an Interest Rate Swap
- 10.8 Why Interest Rate Swaps Are Used
- 10.9 Deliverable Interest Rate Swap Futures & Centrally Cleared Swaps
- 10.10 Other Types of Interest Rate Swaps
- 10.11 Swaptions
- 10.12 Transition from CDOR to CORRA in Canada & Global LIBOR Phase-Out
- 10.13 Mandatory Clearing Thresholds for Certain Swaps
- 10.14 Advanced Uses (Hedging Corporate Bonds or Floating-Rate Notes)
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- 11.1 The Structure of a Currency Swap
- 11.2 Currency Swaps as a Portfolio of Fixed- and/or Floating-Rate Bonds
- 11.3 Pricing of Currency Swaps
- 11.4 Reasons for Currency Swaps
- 11.5 Managing FX & Settlement Risks
- 11.6 Emerging Markets Currencies (Liquidity, Volatility)
- 11.7 Reporting Cross-Currency Swaps to Trade Repositories
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- 12.1 Credit Derivatives
- 12.2 The Role of Credit Derivatives
- 12.3 The Structure of Credit Default Swaps (CDSs)
- 12.4 What are Index CDSs?
- 12.5 Why are CDSs and Index CDSs Used?
- 12.6 New Regulatory Requirements (Clearing/Reporting) for Credit Derivatives
- 12.7 Credit Event Settlement (Bankruptcies, Restructurings)
- 12.8 Standardization via ISDA & Market Trends (Index-Based CDS)
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- 14.1 Regulatory Framework for Canadian Investment Funds and Structured Products
- 14.2 Use of Derivatives in Mutual Funds
- 14.3 Risks of Derivatives Use by Mutual Funds
- 14.4 Limits on Derivative Use & Leverage (under CIRO/CSA Rules)
- 14.5 Disclosure of Derivative Strategies in Simplified Prospectuses
- 14.6 Custodians’ Role in Monitoring Exposure
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- 15.1 Use of Derivatives by Alternative Mutual Funds and Closed-End Funds
- 15.2 Hedge Funds Compared to Alternative Mutual Funds
- 15.3 Types of Alternative Strategies
- 15.4 Advantages and Disadvantages of Derivatives
- 15.5 Expanded Hedge Fund Strategies (Global Macro, Managed Futures, Relative Value)
- 15.6 Valuation & Liquidity Challenges in Alternative Products
- 15.7 Operational Due Diligence (Prime Brokers, Service Providers)
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- 16.1 Principal-Protected Notes (PPNs) – What Are They?
- 16.2 PPN Structures and the Use of Derivatives
- 16.3 CPPI and Zero-Coupon Bond Plus Call Option Structures – Key Differences
- 16.4 CSA Disclosure Standards for PPNs
- 16.5 Embedded Derivatives & Credit Risk to Issuer
- 16.6 Comparing PPN Structures with Other Structured Notes
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- 18.1 Introduction to Bullish Strategies
- 18.2 The Long Call Strategy
- 18.3 The Married Put (Protective Put)
- 18.4 The Covered Call Strategy
- 18.5 Additional Bullish Strategies: Bull Call Spread & Short Put
- 18.6 Greek Considerations for Bullish Strategies
- 18.7 Suitability, Risk Tolerance, and CIRO Guidance
- 18.8 Risk and Reward Analysis for Bullish Strategies
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- 19.1 Understanding the Bearish Outlook
- 19.2 Strategy: Long Put
- 19.3 Strategy: Short Call (Naked Call)
- 19.4 Strategy: Bear Put Spread
- 19.5 Strategy: Bear Call Spread
- 19.6 Protective Call or Synthetic Short
- 19.7 Greek Considerations for Bearish Strategies
- 19.8 Scenario Analysis and Stress Testing
- 19.9 Concluding Remarks and Additional Resources
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- 20.1 Introduction to Volatility Strategies
- 20.2 Long and Short Volatility Approaches
- 20.3 Straddles, Strangles, and Combinations
- 20.4 The Role of Greeks in Volatility Strategies
- 20.5 Volatility Crush & Earnings Plays
- 20.6 Options Stress Testing & Risk-Adjusted Returns
- 20.7 Iron Condors, Butterflies, and Other Volatility Spreads
- 20.8 Additional Resources and Concluding Remarks
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- 21.1 Options Regulation
- 21.2 Individual Registration Categories
- 21.3 Registrant Code of Ethics
- 21.4 Registrant Standards of Conduct
- 21.5 Trading and Sales Practices
- 21.6 Regulations Covering Registrants Employed by CIRO Investment Member Firms or Approved Participants of the Bourse
- 21.7 Conflicts of Interest & Best Execution (CIRO Guidelines)
- 21.8 Client Relationship Model (CRM) Enhancements for Derivatives
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- 22.1 Completion and Approval of Option Account Application Forms
- 22.2 Significant Items of Information on the Option Account Application Form
- 22.3 Unanswered Questions on the Option Account Application Form
- 22.4 Responsibility for Final Acceptance of an Option Account
- 22.5 Completion of the Derivatives Trading Agreement Prior to Option Transactions
- 22.6 Risk Disclosure Statement
- 22.7 Applying a Suitability Concept to Option Recommendations
- 22.8 Managed Accounts and Simple Discretionary Accounts
- 22.9 Transfer of Option Accounts
- 22.10 Commissions
- 22.11 Digital KYC Processes & Ongoing Suitability Monitoring
- 22.12 Margin Expansion & Frequent Trading Alerts
- 22.13 Electronic Recordkeeping Requirements
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- 23.1 Basic Margin Terms
- 23.2 Factors Affecting the Amount of Margin Required
- 23.3 CIRO and Bourse de Montréal Minimum Margin Requirements for Equity and Index Option Strategies
- 23.4 Meeting Margin Calls
- 23.5 Capital Requirements for Firm and Market Maker Accounts
- 23.6 Member Firm Clearing Deposit Requirements at the Clearing Corporation
- 23.7 Updates in Margin Rules Post-Pandemic Volatility
- 23.8 Stress Testing Client Positions
- 23.9 Handling Complex Structured Option Spreads and Margins
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- 24.1 Essential Information Required for All Types of Orders
- 24.2 Order Ticket Information Unique to Options
- 24.3 A Generic Order Entry Screen
- 24.4 Types of Buy and Sell Orders
- 24.5 Types of Contingent Orders
- 24.6 Implied Orders and the Bourse de Montréal’s Implied Pricing Algorithm
- 24.7 The Bourse de Montréal’s User-Defined Strategies (UDS) Functionality
- 24.8 Algorithmic & High-Frequency Order Entry Controls
- 24.9 Time-Stamps & Regulatory Reporting Requirements
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- 25.1 Professional vs. Non-Professional Option Traders
- 25.2 Federal Tax Consequences for Non-Professional Traders
- 25.3 Federal Tax Consequences for Professional Traders
- 25.4 Tax Consequences for LEAPS® Investors
- 25.5 Allowable Use of Exchange-Traded Options in RRSPs, RRIFs, and RESPs
- 25.6 Recent CRA Interpretations on Derivatives
- 25.7 Tax Implications of Derivative Overlays in Balanced/Equity Portfolios
- 25.8 Tracking Adjusted Cost Base (ACB) in Complex Strategies
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- 26.1 Opening Corporate Option Accounts
- 26.2 Opening Option Accounts for Acceptable Institutions
- 26.3 Know Your Client (KYC) Rule for Institutional Clients
- 26.4 Permissible Option Transactions for Pension Plans, Insurance Companies, and Trust Companies in Canada
- 26.5 Canadian Mutual Funds
- 26.6 Multi-Layer Sign-Offs & Corporate Board Approvals
- 26.7 Additional Documentation (ISDA Protocol for Institutions)
- 26.8 Asset Managers and Pension Plans: Derivatives Governance
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- 28.1 What is an Options Exchange?
- 28.2 Providing a Trading Forum
- 28.3 Adding and Deleting Option Classes
- 28.4 Adding and Deleting Option Series
- 28.5 Expiration Cycles on the Bourse
- 28.6 Setting Reporting Levels, Position Limits, and Exercise Limits
- 28.7 Setting Capital and Margin Rules
- 28.8 Developing and Administering Rules Governing the Marketplace and Approved Participants Dealing in Options
- 28.9 Recent Technology Upgrades & Matching Engines
- 28.10 Cross-Border Coordination with U.S. Exchanges
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- 32.1 Introduction to Derivatives
- 32.2 Key Differences Between Exchange-Traded and Over-the-Counter Products
- 32.3 Exchange-Traded Options: Pricing, Hedging, and Speculating
- 32.4 OTC Options: Caps, Floors, Collars, and Exotic Options
- 32.5 Swaps: Basic Features, Role of the Swap Dealer, and Types of Swaps
- 32.6 How Investment Funds and Structured Products Use Derivatives
- 32.7 The Function of Exchanges and Clearinghouses
- 32.8 OTC Forwards and Other Futures Contracts
- 32.9 Determining Client Suitability
- 32.10 Strategies Based on Market Outlook and Risk Tolerance
- 32.11 Entering Orders
- 32.12 Executing Orders on Exchanges
- 32.13 Payment for Options, Exercise Assignment, or Option Expiry
- 32.14 Tax Implications of Listed Options Trading
Chapter 11: Currency Swaps
In this section
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The Structure of a Currency Swap
Discover how currency swaps are structured, including their typical cash flow patterns, principal exchanges, and key regulatory requirements in Canada’s OTC derivatives market.
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Currency Swaps as a Portfolio of Fixed- and/or Floating-Rate Bonds
Learn how currency swaps resemble a combination of fixed-rate and floating-rate bonds, facilitating cross-border financing and hedging strategies under Canadian regulatory and accounting frameworks.
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Pricing of Currency Swaps
Discover how to determine the fair value of currency swaps using interest rate differentials, discounting methods, and multi-currency cash flow modeling in this comprehensive guide to pricing currency swaps.
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Reasons for Currency Swaps
Discover how currency swaps serve as powerful tools for cost savings, hedging, and strategic financing in global markets, helping companies manage currency exposures, optimize borrowing costs, and mitigate potential exchange rate risks.
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Managing FX & Settlement Risks
Explore the key strategies and mechanisms to mitigate foreign exchange settlement risk, including Herstatt risk, PvP solutions, netting, and collateralization in currency swaps under Canadian and global regulatory frameworks.
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Emerging Markets Currencies (Liquidity, Volatility)
Explore how liquidity constraints, capital controls, and volatility affect currency swaps in emerging markets, alongside strategies for managing risks.
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Reporting Cross-Currency Swaps to Trade Repositories
Learn how cross-currency swaps are reported to trade repositories under Canadian and global regulations, including key data fields, timelines, and best practices for operational compliance.
