Position Limits - Open Interest Rules

Limits based on open interest are often expressed as a % of the total open contracts in the market - it is a calculation used for some but not all exchanges.

FundApps require the customer to provide the open interest figure in their positions file. It is defined on an derivative type (asset class) basis, i.e. the open interest of futures and options are 2 separate figures.

1. OpenInterestSingleMonth - the open interest figure for a single contract month of the option or futures contract (separately)
2. OpenInterestAllMonths - - the open interest figure for a all contract months of the option or futures contracts (separately)

In our understanding, OpenInterestSingleMonth is commonly available from data vendors, but some may not provide OpenInterestAllMonths explicitly. In this case, you could use OpenInterestSingleMonth as a proxy, but would lead to incorrect monitoring against the limit.

There are many ways that exchanges can identify open interest. Some examples are: open interest for a specific commodity/symbol or all delivery months, open interest for a specific commodity for a specific delivery month, or even more granular such as open interest for a specific series or option type (call/put), and more.

Spot/Single Month rules

For these rules we use the OpenInterestSingleMonth property from the position file.

We have 2 cases to consider in the rules/definitions:

1. When the base contract converts into itself when monitoring against the limit. e.g CS6 contract on XPAR.
2. When the base contract must be converted into another (parent) contract when monitoring against the limit e.g GBPUSDO (option) must be converted to the GBPUSD (future) on XNSE as the limit is based on the number of equivalent futures contracts you hold.

In both cases, the OpenInterestSingleMonth figure used in the rule will be that of the contract, which has been converted into (parent contract); the CS6 and the GBPUSD contracts from the examples above.

Important Limitation for Case 2

If a customer only holds the base contract (options contract above) and not the "parent" futures contract, then FundApps will not have the data available to determine the OpenInterestSingleMonth value which should be used in the rule. The only OpenInterestSingleMonth figure that will be available, is that of the base contract. In such cases FundApps will fall back to using the OpenInterestSingleMonth figure of the base contract. Note this will result in the incorrect limit being used for the calculation but we are completely dependent on the customer providing the data, if we do not know what it is, we will make the best approximation we can using the base contract value.

All Month Rules

For these rules we use the OpenInterestAllMonths property. This property represents; the open interest of all contract months of a futures contract; the open interest of all contract months of an options contract (calls and puts combined). 

We have 2 cases here:

1. When the base contract converts into itself when monitoring against the limit. e.g NIFTYO contract on XNSE
2. When the base contract must be converted into another (parent) contract when monitoring against the limit e.g GBPUSDO (option) must be converted to the GBPUSD (future) on XNSE as the limit is based on the number of equivalent futures contracts you hold

In both cases, the open interest limit is defined against the parent contract, so for both instances, the OpenInterestAllMonth value of the parent contract will be used; the NIFTYO and GBPUSD contracts from the examples above.

Important Limitation for Case 2

If a customer only holds the base contract (options contract above) and not the "parent" futures contract, then FundApps will not have the data available to determine the OpenInterestAllMonths value which should be used in the rule. The only OpenInterestAllMonths figure that will be available, is that of the base contract. In such cases FundApps will fall back to using the OpenInterestAllMonths figure of the base contract. Note this will result in the incorrect limit being used for the calculation but we are completely dependent on the customer providing the data, if we do not know what it is, we will make the best approximation we can using the base contract value.