UnderstandingLEPOs - LEPOs Low Exercise Price Options...

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LEPOs Low Exercise Price Options Explanatory Booklet
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ASX has changed its business framework for trading, clearing and settlement. As a result there have been changes to the terminology used in this document. Options Clearing House Pty Ltd Australian Clearing House Pty Ltd ASXF Pty Ltd ASX ASX Futures Exchange ASXF Exchange SCH Business Rules ASTC Settlement Rules ASXF Exchange Business Rules ASX Market Rules ASXF Business Rules ASX PO Market Participant / Trading Participant (may also be a ACH Clearing Participant and/or ASTC Settlement Participant) Participating Organisation Non-Broker Participant (NBP) General Settlement Participant NSSP Account Participant Non sponsoring settlement participant Derivative Financial Product Clearing Participant Only (currently derivatives only) Direct Clearing Participant Non-CHESS Approved Security Non-CS Approved Product Participating ASX Security Participating ASX Traded Product Participating Foreign Exchange Participating Overseas Exchange For further details of the Financial Services Reform terminology changes, please visit www.asx.com.au/fsr.htm . TERMINOLOGY CHANGES FSR
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LEPOs key features Name LEPO – Low Exercise Price Option. Description A LEPO is like a forward purchase of shares for the buyer and a forward sale of shares for the seller. Note that the buyer of a LEPO does not obtain voting rights or dividends until the shares are acquired on exercise. Characteristics • Relatively high premium • A low exercise price • Relatively low outlay • Ongoing margins are payable. Underlying shares A complete list is available on our website www.asx.com.au/optionsecurities Contact size 1,000 shares per contract, subject to usual adjustment for rights, bonus issues and other capital adjustment events. Expiry cycles Spot (1month forward) plus quarterly expiries of which next 3 traded at any time. Maximum maturity is usually 9 months, although some classes of LEPOs have other maturities of up to 1 year. Benefits • Leverage • Cash efficient • No risk of early exercise • Physical delivery of shares on exercise • Good proxy for share trading • Ease of account opening • Availability of offsets on some margins • Ability to lodge non-cash collateral. Suitable for Experienced investors who understand and accept the risks associated with leverage and derivatives. Risks • Leverage • Margin payments. This material contains information only. ASX does not represent or warrant that it is complete or accurate. The information is for education purposes only and any advice should be sought from a professional adviser. If you are seeking advice (including a recommendation or opinion) about a financial product you should consult an Australian financial service licensee. To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) suffered by anyone acting or refraining from acting as a result of this material is accepted by ASX.
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