Forward transactions (also time transactions ; English forward or English future ) are financial contracts in which the contracting parties undertake to postpone mutual fulfillment ( payment and delivery ) for more than two trading days to an agreed time . These can be financial instruments of various types. Cash business , for example, is a complementary term .
The original futures trading began initially in goods and raw materials trading and initially took place over the counter, it was a non-standardized, direct agreement between the raw material seller ( producer ) and raw material buyer ( consumer ). These futures contracts emerged from the consideration that the importer when shipment of goods or raw materials , the shipment was able to secure an early stage at a fixed price in overseas and contributed goods arrival after several weeks or months, no price risk. Conversely, the futures transaction means that the exporter already knows the buyer abroad and the price that he will receive for his goods abroad. Forward deals used to be called "time deals".
Treatises on business "ad terminum" or "ad tempus" existed as early as the 14th century, for example by Thomas Aquinas .
In modern times, the first city to enter into futures contracts is Amsterdam . It was here in 1556 that the "Sheriff" Willem Dirkszoon Baerdes accused German and Flemish traders for the first time of driving up the price of grain through futures contracts, so that futures trading was still banned in 1556. From 1609 onwards there was speculation in Amsterdam with shares in the “Verenigte Oostindische Compagnie” through short selling via futures contracts. In 1612, 200 brokers with 600 employees were trading futures in Amsterdam. Amsterdam created an exchange for the grain trade in 1617 , in which the government itself participated in 1647/48. In 1637, futures contracts played an important role in the tulip mania . Amsterdam prohibited the grain futures trading in 1693, in 1720 it came here for a first date mass trade in cereals, vegetable oil , oil seeds , coffee , cocoa , brandy , cochineal and saltpeter .
The first pure futures exchange was the “Dojima Rice Market”, founded in Osaka in 1732 , with 800 brokers and 500 wholesalers among its 1,300 rice dealers. In the coffee trade, the New York Stock Exchange introduced futures trading in 1880, Le Havre followed in 1881. In 1884, the Chicago Board of Trade processed standardized commodity futures for the first time. Since Hamburg did not want to lose its trading position, the coffee futures exchange began here in 1887. Hamburg coffee futures trading was aimed at protecting against price risks and took place in the mornings and afternoons in a trading hall in the Freihafen (Sandtorquai in the Speicherstadt ) rented by the coffee association .
With the Reich Stock Exchange Act of June 1896, the German legislature reacted to the dangers for investors from speculative stock exchange futures and made their effectiveness dependent on the previous entry (subject to a fee) of the participants in the stock exchange register (Section 66 BörsG). In § 48 BörsG it defined stock exchange futures as "purchase or other acquisition transactions for a fixed delivery time or with a fixed delivery period if they are concluded according to terms and conditions that are set by the exchange board for futures trading, and if for those in question Stock exchange closed transactions of this kind an official determination of forward prices ... takes place ". Max Weber saw the futures business as the only form of speculation. The Reich government banned grain futures trading by law on January 1, 1897, because it had assumed speculative proportions. The amended Stock Exchange Act in May 1908 fundamentally reorganized some aspects of futures trading, which it continued to prohibit in grain. In Section 53 (1) of the Stock Exchange Act, it introduced the “ability to enter into futures trading”, which it generally only allowed merchants . All non-merchants were considered to be unable to deal with deadlines; If they concluded futures transactions anyway, they were considered a game according to §§ 764, 762 BGB (§ 58 BörsG). As a result, no material and legally enforceable liability arose in forward transactions with this group of people as a natural obligation ; fulfillment could be denied by the objection.
Due to the crisis, futures trading was restricted from 1914 onwards; the amendment to the Stock Exchange Act, which came into force on January 14, 1921, extended the regulations on securities futures trading to include banknotes , payouts , instructions and checks . As a result, forward exchange transactions could only be classified as forward exchange transactions if the foreign currency concerned was admitted to official forward exchange trading. It was not until an ordinance dated March 1925 that currency forwards were included. In the coffee trade, Willy Kranke made a distinction in his dissertation “Organization and Pricing in German Wholesale” in 1928 between delivery and time trading, whereby for him the most important function of time trading is “the insurance option for effective traffic”. The black Thursday on 24 October 1929 led to the abolition of forward contracts by decree on June 11, 1931 the Stock Exchange Act Amendment of March 1934 still banned futures trading.
The Hamburg commodity futures exchange did not begin again with futures trading for sugar and coffee until 1954. The first initiatives to reintroduce the securities futures business took place in 1957, but the concrete proposals to issue terms and conditions for trading were unsuccessful. Options on securities were only gradually approved again from July 1970. Only since the opening of the Chicago Board Options Exchange on April 26, 1973 can we speak of modern derivatives trading. Another amendment to the stock exchange law followed in Germany in April 1975, which was intended to adapt the old stock exchange law to the requirements of the time. In July 1989 another amendment was made, which dealt among other things with the difference objection and introduced an expanded term of stock exchange futures in Section 50 (1) sentence 2 BörsG. The German futures exchange DTB took the option trading on 14 German of 26 January 1990. Defaults on. The amendment to the Stock Exchange Act of March 1989 introduced the "forward business ability by virtue of information". The merger of the Swiss derivatives exchange SOFFEX and the German derivatives exchange resulted in EUREX on September 28, 1998 . A complete reform, which also included the futures business, was introduced by the 4th Financial Market Promotion Act, which came into force in July 2002 .
Properties and delineation
Forward transactions are transactions with a deferred delivery time: The fulfillment of the contract (delivery and acceptance) is agreed for a later date, but at the price agreed on the day of the transaction.
Trade subject of the forward - this is described as underlying (English underlying ) - may securities , money market instruments , foreign exchange , varieties , precious metals , swaps , derivatives or other negotiable financial instruments and goods and raw materials ( "commodities") to be. According to (3) No. 2 WpHG, the subject of futures transactions can also be freight rates , emission allowances , climate or other physical variables (see also weather derivative ), inflation rates or other economic variables, other assets , indices ( price index , interest rate index ) or measured values . There is no exhaustive list of possible underlyings; further base values are added through case law .
Forward transactions take place on the futures market . An exchange-traded futures (also called "stock market futures" called) can normally be an appropriate offsetting transaction in the futures market closed out are.
Warrants on stock indices or stock baskets are counted as stock exchange futures by the Federal Court of Justice , although there is no possibility of closing them out through a counter-transaction on the futures market - such warrants do not enable the base value to be effectively obtained and instead rely on cash settlement of a difference. The same applies to transactions with independent bandwidth warrants, in which, as with other warrant transactions, the focus is on price speculation, taking into account their economic purpose, which is of decisive importance for the qualification as a stock exchange futures transaction. Independent index options were already counted as futures contracts in the justification for the amendment to the Stock Exchange Act of March 1989.
According to the express will of the legislature, short sales fall under the term of stock exchange futures because they are associated with a postponed fulfillment time.
In addition, according to the will of the BGH, forward transactions also include non-serious cash transactions, in which the parties, without agreeing a postponed fulfillment date, rule out the immediate exchange of services as a characteristic of the cash transaction by means of ancillary agreements or the actual type of contract execution, in truth no delivery intend, but want to achieve speculative profits through credits from transactions of the same type ("bogus cash transactions"). It is therefore no longer a matter of whether it is formally a forward transaction if the immediate exchange of services between the contracting parties - however - is excluded and the parties are only interested in profit.
In contrast, index certificates , for example, are not futures transactions - they merely certify cash positions.
Forward transactions are divided into unconditional and conditional . With regard to tradability, they can be divided into futures transactions that can be traded on the stock exchange and those that can only be traded over the counter .
Unconditional forward business
In the case of an unconditional forward transaction, both contracting parties ( counterparties ) enter into a binding obligation to deliver and pay at a certain future date. Both counterparties are subject to a performance obligation. Unconditional forward transactions have a symmetrical risk profile because they have a linear price function in relation to the underlying . Profit and loss potential are unlimited; Risks can be neutralized.
Unconditional forward transactions are among the fixed transactions (also called fixed transactions): The underlying is to be delivered and paid for at a postponed point in time.
Unconditional forward transactions are divided as follows, depending on how they can be traded on the stock exchange:
Other transactions that have additional special features also have the character of an unconditional forward transaction:
- Forward Rate Agreement - a special over-the-counter interest rate contract
- Swap - an exchange transaction that is also a forward transaction. Mostly over the counter; rarely also tradable on the stock exchange.
Conditional forward deal
In the case of a conditional forward transaction, only one counterparty has an obligation to perform, while his business partner has the right to choose (purchase of the underlying or withdrawal). The option of only one of the two counterparties resulting in an asymmetrical risk profile.
The typical representative of a conditional futures contract is the option . It is a contract by which one party ( writer ) grants the other party (option buyer) the right to choose (the option) to enter into a transaction (purchase or sale of an underlying asset) in advance by means of a declaration of intent (exercise) at or up to a future point in time to complete specified conditions.
All forward transactions can be traced back to the two basic types of fixed transactions or options or represent a combination of both.
Ernst Müller-Möhl divides forward transactions according to type and marketability as follows:
|Kind of futures||listed on the stock exchange||not listed|
|Unconditional forward transactions
(symmetrical risk profile)
Fixed deals (fixed deals),
Forward rate agreements ,
forwards , swaps
|conditional forward transactions
(asymmetrical risk profile)
options on futures
Swaptions , caps / floors
or collars .
Another subdivision allows an insight into the subspecies:
- Unconditional forward transactions:
- Conditional futures:
- effectively Underlying: about stock options , bond options , commodity options, currency options , interest rate options ;
- on indices: e.g. stock index , stock market index ;
- on futures contracts as underlyings: index futures contracts , interest rate futures contracts, currency futures contracts, commodity futures contracts;
- other: exotic options , swaptions .
Due to their speculative effect, futures transactions are often the focus of the legislature, which in some cases has also provided for bans, and the case law. For example, futures transactions were banned in Germany in 1929. In 2003 Warren Buffett described some forms as financial "time bombs" and "weapons of mass destruction".
The regulations for the treatment of futures transactions in the BörsG and the BGB contained in the BörsG until June 2002 showed serious deficits. For example, there was considerable legal uncertainty regarding the question of what is meant by a stock exchange futures transaction. According to (1) No. 3 BörsG, the regulations on futures trading as a type of trading are left to the exchange rules. The terms previously used in the Stock Exchange Act, but not defined, of exchange futures and transactions that serve the same economic purposes are replaced by the term financial futures (Section 2 (2a) WpHG old version). The term replaces the previous version in Section 50 (1) BörsG a. F. used terms of stock exchange futures, business that serves the same economic purposes, and stock exchange futures trading. Section 764 of the German Civil Code (BGB) has been dropped because the regulation created a further concept of differential business in addition to the terms of futures and games , without being able to provide a suitable definition.
Article 38 (2) of EU member states , does not speak of a forward transaction, but of a contract if, regardless of its express conditions, there is an agreement between the contracting parties, according to which the delivery of the underlying will be postponed beyond two trading days., which applies in all
There are still no general legal regulations on futures transactions. Rather, special banking supervisory laws deal with this matter.
According to KWG , futures transactions are the purchase, swap or otherwise structured fixed or option transactions that are to be fulfilled with a time delay and whose value is derived directly or indirectly from the price or size of an underlying asset. WpHG replaced Section 58 (1) BörsG a. F., so that the objection is only possible for transactions that do not represent financial futures.(11) sentence 4 no. 1
The Directive 2004/39 / EC on markets in financial instruments (short MiFID; abbreviation MiFID) of 21 April 2004 listed in Appendix 1, Section C, numbers 4 to 10, all business types that are considered transactions. The does not explicitly mention the term of the forward contract, but describes it in Art. 38 para. 1c, after which the contract is standardized so "that in particular the price, the lot, the delivery date or other conditions are mainly determined by reference to regularly published prices, standard trade items or standard delivery dates ”. From Art. 38 (2) of this Ordinance, it can then be concluded, conversely , that mutual fulfillment of futures contracts is delayed by more than 2 trading days. EU law no longer seeks reference to a futures market, but chooses the negative selection of the "non-cash business". This variant is adopted in the Securities Trading Act.
According to the BGH , the particular danger of futures transactions is that - unlike cash transactions in which the investor must immediately use cash or take out a loan - the postponed fulfillment time leads to speculation on a favorable but uncertain development of the market price in the future which is intended to enable the termination of the term commitment without using one's own assets and without taking out a formal loan through a profitable liquidation transaction . According to the rulings of the Federal Court of Justice, stock exchange futures are standardized contracts that are only to be fulfilled by both sides at a later point in time - the end of the term - and are related to a futures market. The case concerned contracts for index certificates that do not represent stock market futures. Typically, stock market futures are associated with the risks of leverage and the total loss of the invested capital, as well as the risk of having to use additional funds contrary to plan. However, according to the new definition of Section 2 WpHG, this leverage effect no longer plays a role. For a long time, case law has dealt with questions of definition in order to expand the range of business types to be included in forward transactions with the broadest possible definition. Since 1988, stock market futures have been all contracts for securities , justifiable items or foreign exchange according to similar conditions, which are only to be fulfilled by both sides at a certain later point in time and which have a reference to a futures market that makes it possible to conclude an offsetting transaction at any time. In futures transactions with a stock index, the buyer has the opportunity to participate in the performance of the index and the underlying stocks at a disproportionately high rate with relatively little money. Therefore, the BGH sees a special need for investor protection in general futures transactions. According to the most recent case law of the Federal Court of Justice, stock exchange futures are standardized contracts that are only to be fulfilled by both sides at a later point in time - the end of the term - and are related to a futures market.
Caution is required with commodity futures that are initiated by (unauthorized) telephone channels. Numerous commodity futures brokers who advertise their customers in this way belong to the fraud scene - the money once paid is "rolled" into options or futures ( English round-turn commission ) for as long as only one The minimum amount remains.
Liability of the futures
According to BGB (game, bet) and BGB (lottery), liabilities from games , bets and lottery not approved by the state can not be claimed , but only fulfilled . According to these regulations, games, wagers or non-state-approved lotteries do not result in real liabilities, but rather imperfect liabilities (bonds in kind). The game and betting objection provided in German Civil Code (BGB) means that the transactions affected by this do not result in any enforceable liability for the explanatory part. The game or betting objection can only be made by natural persons , which is why the provision can be found in the BGB. If one of the contracting parties is a private person according to this provision , they can also assert the objection to gambling and betting in futures transactions, with the result that they have no enforceable liability.
In order to nevertheless create binding performance obligations for both contracting parties, WpHG provides that objections to games and differences are excluded in the case of binding stock exchange futures. According to this, financial futures are legally enforceable claims if at least one contracting party is a commercial company that concludes or mediates the conclusion of financial futures or engages in the acquisition , sale or brokerage of financial futures. The regulation also makes it clear that derivatives within the meaning of (3) WpHG and warrants also belong to financial futures.
With regard to the disclosure obligations, the provisions of § claim for damages from the breach of (pre-contractual) disclosure obligations according to (1) BGB.WpHG to WpHG apply , so that the customer is entitled to a
Contract content and form
The content of the contract is in particular the counterparty, the base value, the amount, the due date and the settlement . The seller undertakes
- a certain amount of an underlying asset ( contract size )
- at a future time
- at a fixed price / rate ( forward rate )
- to deliver to a specific buyer.
The buyer undertakes
- at the due date
- to pay the agreed price
- and take the amount of the underlying asset from the seller.
The base value of the traded item and the forward rate are determined when the contract is concluded; the development of the current price of the traded item during the term of the forward transaction has no influence on the contract.
Forward contracts are formally standardized today . The financial futures transactions are usually based on the contract standards of the International Swaps and Derivatives Association (ISDA), which ensures a precise definition of the contract content.
The motives for futures trading can be arbitrage , speculation or hedging . If a counterparty takes risks with the forward transaction, there is speculation. So-called difference transactions are usually speculation, because the counterparties have no interest in the underlying, they only want to pay the financial difference between the agreed forward rate and the current rate on the settlement date. Arbitrage can be carried out with futures transactions if the arbitrageur carries out the futures transaction as a short sale and, on the day the transaction is concluded, carries out a cash transaction for the purpose of closing or vice versa. The hedging motive is the original form of the futures contract, whereby the exchange rate risk of future exchange rate and price fluctuations can be excluded. If the course / price of the underlying has changed during the term of the contract, the agreed price / course of the forward transaction applies regardless of the performance date. The forward buyer expects rising prices / rates and pursues rate hedging with the forward business . If the price / rate actually rises by the time the forward transaction is fulfilled, it only has to pay the originally agreed lower price / rate on the due date. Conversely, the futures seller expects falling prices; in addition, he may also be interested in the secure purchase of the underlying. Particularly volatile or tight underlyings are suitable for futures transactions. The forward buyer does not need the base value immediately, but only later and can secure later delivery with the forward purchase and vice versa. The function of futures trading in foreign exchange is to offer the possibility of hedging against the exchange rate risk and currency risk and / or to create a calculation basis.
A risk transformation takes place between the futures buyer and the futures seller because the futures buyer loses his market price risk and at the same time the futures seller can hedge his inventory risk and finally give up. In the context of (intertemporal) resource allocation, futures buyers use their financial resources for arbitrage, speculation or hedging purposes and then decide against other uses such as saving , consuming or investing . Forward transactions represent a risk reduction within risk management .
Like the cash market, the futures market is part of the financial market . The cash and futures markets are linked to one another via arbitrage . Trading objects on the futures markets are exclusively futures transactions. There are on- exchange and over-the-counter futures; the latter is also known as OTC transactions (of English over the counter ). In on-exchange futures transactions, the market participants choose the intermediary role of the exchange, while in OTC futures transactions they either come into direct contact with one another or settle them through a clearing house .
Special rules for credit institutions
Most forward transactions are concluded by credit institutions - with one another in interbank trading or with non-banks . According to Article 286 (2a) of the Capital Adequacy Ordinance , credit institutions must subject the creditworthiness of their business partners (“ counterparties ”) to a creditworthiness check. Credit decisions must lead to the granting of internal credit lines for counterparties in order to limit the business volume for each individual counterparty. For forward transactions, bank-internal credit lines are to be granted as pre-settlement limits, in which the replacement costs of the contracts are to be booked. The particular risk for banks lies in the term of the futures contract, because the market value of the futures contract can change during this term . The counterparty is at risk of default if the forward transaction has a positive replacement value and, from the point of view of the bank, a claim against the counterparty arises as a result of market developments .
Forward transactions are considered pending transactions in accounting if the balance sheet date is between the trading day and the settlement date. Under German commercial law , pending transactions are only to be taken into account in the event of an impending loss in the form of provisions ( (1) sentence 1 HGB ). According to IAS 39.AG55, the trading day is the day on which the reporting company entered into the obligation to buy or sell an asset. Settlement date is the day on which an asset is delivered to or by the accounting company (IAS 39.AG56). In the case of cash transactions, any fluctuations in value between the trading day and the settlement date are not recorded as derivative financial instruments due to their short duration (IAS 39.AG12). According to IAS, pending futures contracts are to be accounted for on the trading day as financial assets or financial liabilities because the company has been bearing the market price risk since then . However, the symmetrical futures contract has a value of "zero" on the trading day, because rights and obligations still offset each other. With asymmetrical forward transactions, however, the buyer accounted for the option premium paid by him as an asset, while the seller as a writer of this as a liability passivated . However, the market value of these transactions can change with increasing maturity . The counterparty is at risk of default if futures transactions with it have a positive replacement value and, from the point of view of the bank, a claim against the counterparty arises due to market developments . The expected replacement costs at banks are balanced on the basis of the credit valuation adjustment in accordance with Art. 381 ff. Of the Capital Adequacy Ordinance .
Pursuant to RechKredV , a list of the types of forward transactions that have not yet been settled that involve a settlement risk and other risks must be included in the appendix for credit institutions . Here, the forward transactions are divided into foreign currency , interest rate and price risk-related .Sentences 1 and 2
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