Introduction of mid-curve options on BAX futures

The Montréal Exchange will list serial and quarterly (one year and two year) mid-curve options on BAX futures on May 21, 2010, subject to compliance with the conditions set forth in the self-certification process as established in the Derivatives Act (R.S.Q., chapter I-14.01).

This initiative follows strong growth in our existing short-term interest rate OBX options business so far this year (+175% for the first three months of 2010, an average of 1,102 contracts per day). OBX short-dated options on deferred BAX futures will deepen the current listing of quarterly OBX options that are based on the same underlying BAX contract month.

Mid-curve options are American-style options that can be exercised to take delivery of an underlying BAX futures contract. They offer a cost-effective way to hedge or trade the mid-portion of the yield curve. The new mid-curve options will give market participants a new way of achieving exposure into the futures contracts representing the yield curve one year and two years forward (known as "reds" and "greens", respectively).

Contract months available

• For serial OBW mid-curve options, the underlying BAX contract is the futures contract that expires one year from the next quarterly month that is nearest to the expiration of the option. At all times, two nearest non quarterly months (serials) in the January, February, April, May, July, August, October, November cycle are available for trading.
• For 1-year OBY and 2-year OBZ quarterly mid-curve options, the underlying BAX contract is the corresponding quarterly futures contract that expires one or two years after the option expires, respectively. At all times, four nearest months in the March, June, September, December quarterly cyble are available for trading.
• For standard quarterly OBX options, the underlying BAX contract is the futures contract that expires in the month in which the option expires. At all times, four nearest months in the March, June, September, December quarterly cyble are available for trading.

In addition to the current listing of OBX options (June 2010, September 2010, December 2010 and March 2011), the following mid-curve expiries will be available on launch date:

Serial mid-curve options (symbol: OBW)

1-year quarterly mid-curve options (symbol: OBY)

2-year quarterly mid-curve options (symbol: OBZ)

Last trading day/expiration

• For all OBW, OBY, OBZ mid-curve options: Trading ceases at 10:00 a.m. (Montréal time) on the Friday immediately preceding the 3^rd Wednesday of the contract month.
• For standard quarterly OBX options: Trading ceases at 10:00 a.m. (Montréal time) on the 2^nd London (Great Britain) banking day prior to the 3^rd Wednesday of the contract month.

Note: Providing it be a business day; if not, first preceeding day.

Should you require technical assistance or wish to carry out testing in our development environment, do not hesitate to contact our Technical Help Desk at 1-877-588-8489 or by e-mail at samsupport@m-x.ca.

For all business related questions, please contact our Customer Relations representative at 1-866-871-7878 or by e-mail at info@m-x.ca.

Claude Cyr
Senior Vice-President, Financial Markets
Montréal Exchange

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