Position Limits - Open Interest Rules

Most limits within Position Limits are a fixed quantity of contracts that an investor can own. However, there are some rules that permit an investor to own a specific % of all open contracts in existence for that contract type. For these rules, we need to know the number of contracts currently open (i.e. the "open interest" for that contract). 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.

FundApps requires the customer to provide the open interest figure in their positions file. It is defined on a derivative type (asset class) basis, i.e. the open interest of futures and options are two separate figures. We require this for both single and all months basis, and sent as two separate properties:

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 all contract months of the option or futures contracts (separately)

Base and Parent contracts

For two leveled asset structures within Position Limits, the "base" contract is what the client holds and the "parent" contract is the underlying contract the base contract converts into (if there is one). For example, for an option > future, the option is the base contract and the future is the parent contract. 

FundApps requires the open interest properties to be sent for both levels. However, most open interest rules only require the data for the parent contract. For example, we have two cases to consider:

1. A base contract that converts into itself when monitoring against the limit, e.g CS6 contract on XPAR.
2. A base contract that converts into another (parent) contract, 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 and OpenInterestAllMonth figures used will be that of the parent contract (the one that has been converted into: the CS6 and the GBPUSD contracts from the examples above.

Important Limitation for Case 2

If a customer only holds the base contract (the option contract in scenario 2 above) and not the parent (futures) contract as well, FundApps will not have the data available to determine the relevant OpenInterest values (i.e. single month and all month) of the parent asset. Note, even where the parent contract is sent in the instruments section of the positions file, the engine will not pick it up unless the contract is actually held (i.e. asset quantity > 0). The only OpenInterest figure that will be available is that of the base contract.

In such cases, FundApps will fall back to using the OpenInterest figure of the base contract. Note this will result in the incorrect limit being used for the calculation but as we require this information from the client, the base contract value provides the best approximation.

To work around this, the client could send the OpenInterest value of the parent contract at the level of the base contract. In other words, send the OpenInterest of the future at the option level. This would mean that the rules use the correct value even where the parent contract is not held. (Note, we understand this data may not be available at the source if the parent contract itself is not held.) This treatment may not be applicable for derivatives where the underlying asset is not another derivative. 

Sourcing the data

In our understanding, OpenInterestSingleMonth is commonly available from data vendors, but some may not provide OpenInterestAllMonths explicitly. As with other data points, we do have some suggested mappings/ logics for these fields based on information other clients have provided (note, we don't actively source or review these suggestions). Please contact your Implementation Manager or Client Success Manager to discuss these.

If AllMonths data is not available, you could use OpenInterestSingleMonth as a proxy, but would lead to incorrect results, albeit in an overly conservative manner (the single month value will be less than or equal to the all months value).

One final thing to keep in mind is that the open interest rules are only a subset of Position Limits rules so you may get lucky: if you don't hold any contracts with open interest rules, you may not actually get any missing data alerts for omitting the data.