The Board of Directors of the Tel Aviv Stock Exchange has given the go-ahead for the launch of a new investment instrument in Israel: options on Shahar bond futures.

It is the first product of its kind in Tel Aviv – an option on a future. The instrument grants its holder the right to buy (call) or sell (put) the future contract down the line, at the price predetermined at the time of the transaction (the exercise price).

"The launch of this sophisticated new instrument increases the range of investment instruments the TASE offers in the sphere of bonds. It brings the investment community an advanced, unique tool," commented Dror Shalit, Senior VP and manager of the TASE Trade and Clearing department.

Mr. Shalit added that introducing options on Shahar futures is part of a broad reform of government bonds and derivative products, which is being spearheaded by the Finance Ministry and the TASE.

These options are an effective tool for institutional investors and the Primary Dealers that the Finance Ministry appointed.

An option on a future is a kind of derivative, in which the future is also the derivative that serves as the underlying asset of the option.

Options series expire monthly, while futures will expire on a quarterly basis.

Options on bond futures were first introduced on the Chicago Board of Trade (CBOT) in 1982. Over time they have become highly popular. These derivatives now appear in some of the key derivatives exchanges in the world: the Eurex (options on various ranges of German bond futures), CBOT (options on the futures of 2-year, 5-year, 10-year and 30-year U.S. bonds), the TSE (options on futures of 5- and 10-year Japanese bonds), and the SFE (options on futures of 3- and 10-year Australian bonds).

The launch of the new product remains subject to the approval of the authorities, under the Securities Law.