Netherlands: Discussion On Indices After Euro Conversion Still Going Strong

The AEX-index is based on a basket of 25 Dutch shares. The prices of these shares, individually weighted, are reflected in the index. The AEX-index currently stands at approximately 900.

When the euro is launched, the shares will be listed in euros. This means that if the conversion rate is 2.20 (1 euro = Dfl 2.20) ABN AMRO shares, which form part of the AEX-basket and currently stand at around Dfl 40, will appear on the price board at E18.18.

Since all share prices will be divided by the conversion rate, it could be expected that the value of the index would also be divided by that rate. There are two possible ways of treating the index.

1. Keep the index at its current 900 points. This would mean adjusting the associated basket by the conversion rates. Indices would then continue to be listed at pre-euro levels. Currently, a one-point move in the index equals Dfl 100. If the level is to remain unchanged, this would become E100.

2. Mechanically adjusting the index by applying the conversion rate. At a conversion rate of 2.20 the index would drop to a level of about 410 points. The composition of the basket would remain unchanged. A move of one point in the index would again equal Euro.

Amsterdam Exchanges would prefer to maintain the index at its current level. This preference is partly inspired by decisions made internationally.

It is important to examine the consequences of this preference on options on the index. After all, maintaining the level of the index in the way Amsterdam Exchanges proposes means a substantial change in the underlying value. The value of the basket will have been multiplied by the conversion rate. At an index level of 900, a value of Dfl 90,000 would become E90,000. To preserve the rights of holders of long and short positions, the option's trading unit will have to be divided by the conversion rate. At a conversion rate of 2.20 a change of one index point will then equal E45.45. Amsterdam Exchanges would prefer to avoid a unit of trading of euro 45.45. Amsterdam Exchanges will therefore take the opportunity to adjust the size of options and futures contracts by splitting them and so increasing their tradeability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Raymond Salet, Amsterdam Exchanges AEX Amsterdam: 00 31 20 550 4433 or Paddy Manning, St James Corporate Communications London: 44 171 436 4101.