The effort to switch credit options to an automated expiry process has been pushed back at least until next year, as a debate continues among dealers about what fixed strikes to offer. The industry also has yet to decide how best to net the options at expiry and whether the automated process would be run by an inter-dealer broker, or agent group such as Markit Group or Creditex. Plans for a trial run last week, when contracts expired on the 20th, were scuttled to allow for more discussion, according to dealers. If credit options are to be fully automated across the Street, the idea is to offer a range of fixed strikes for both protection payers and receivers options. If the index traded above or below a certain level, then all paired options below a payer’s strike or above a receiver’s strike would exercise automatically, according to a trader.
Around the index roll every six months, dealers have scrambled to exercise options when they are in the money (DW, 9/23/05). As volumes have grown dealers have pushed automated settlement. “It’s a crazy day here when the roll happens. I have never not exercised because I could not get somebody on the phone, but it happens,” one trader said.