Notice:
  The views and information expressed in this document reflect the opinions and experience of the author Robert C. Pelletier.  Neither CSI nor the author undertake or intend to provide tax advice or trading advice in any market or endorse any outside individual or firm.  All recommendations are provided for their informational value only.  Readers should consult competent financial advisors or outside counsel before making any software purchase or investment decision.  CSI does not stand behind or endorse the products of any outside firms.

Copyright (c) 1998 Commodity Systems Inc. (CSI).  All rights are reserved.

OVERVIEW

   January 4, 1999 is "Conversion Day."  On that date, only two months away, the European Monetary Unit will be launched for selected European currencies and governments. The eleven countries that will be directly affected by the new EURO on January 4, 1999 include France (MATIF), Italy (MIF and SIA), Germany (DTB), Spain (MEFF), Austria (OTOB), Belgium (BELFOX), Finland (FOM), Ireland, Luxembourg, Netherlands (EOE and ATA), and Portugal (BDP). (Exchange acronyms are shown in parentheses.)

   The United Kingdom, Denmark, Greece, and Sweden will postpone participation in the European Monetary Union (EMU) until a later date to be announced. In addition, Switzerland and Norway do not plan to be parties to the EMU. Each of these countries will continue to control their respective economies with their own private national currencies.

   A table of fixed exchange rates between the participating countries was established and fixed on May 3, 1998, but the rates were developed in an environment that included both participating and non-participating countries. The new EURO will be based on the EMU rate on December 31, 1998, independent of the currencies of the non-participating countries. Therefore the final conversion rates, which will hold six decimal places of precision, will not be available until that time. Starting January 4, 1999, all currency transactions in the eleven participating countries will be carried out in EUROs, and all foreign exchange operations will be carried out with respect to the Euro and the non-participating European countries' national currencies.

   On January 1, 2002, E-Day, as in EURO day, circulation of EURO banknotes and coinage will begin. All national currencies will be completely replaced within six months of that date by the EURO. On July 1, 2002 the legal tender status of all national banknotes will expire and will become non-negotiable in commerce. The D. Mark, French Franc and all of the other participating country currencies will continue to exist until then. 

   For the time being, each country will continue to operate, on an internal country basis, in their own national currency and the EURO. So far as the rest of the world is concerned, goods and services quoted in EUROs will affect commerce in the EURO with respect to the rest of the world. Each national currency will hold its own value, but the table of conversion rates to the EURO provided on December 31, 1998 "is irrevocably fixed to the EURO" from that point forward until E-Day on January 1, 2002.

   Therefore the EURO and the respective national currency will play a dual role. Both the national currency and the new EURO currency will be negotiable in trade and commerce from January 4, 1999 until July 1, 2002. On July 1, 2002, only the EURO will be negotiable in future trade and the eleven countries' former national currencies will no longer be used in commerce.

   Cross-rate currency markets that involve participating countries with respect to non-participating currencies will not be affected until July 1, 2002. However, once the rates are fixed on December 31, 1998, the relationships between participating currencies will also be fixed. The rates between currencies of participating and non-participating countries will be free to fluctuate, just as the new EURO will be free to fluctuate with all non-participating world currencies.

   To give an idea of the EURO vs. the national currency exchange rate of the eleven participating countries that may be in effect on January 4, 1999, the following table, which was current as of September 30, 1998, is supplied. Please note that these are not the exchange rates that will be used for EMU conversion
 
 

   Using the above hypothetical conversion rates from the end of September, if a product available in Belgium for 1300 Belgium Francs were priced in EUROs, the product would be sold for 32.01 EUROs. If the above table were in effect on Conversion Day (January 4th 1999) it could be used to adjust past market data history for any given participating EMU country backward into the past. 

   The EMU Action Table is a summary by country of the commodities, their CSI numbers and the expected changes that will occur due to the EURO transition. Price fields for indices and commodities quoted in percent, will remain unchanged. Except where otherwise noted, historical volume and open interest reports can be adjusted by the national currency-to-EURO conversion rate. This means that the history for a given contract prior to Conversion Day will be divided by the exchange factor in effect for that country on Conversion Day. For example, if the above conversion rate table were representative of December 31, 1998, to determine equivalent EURO volume and open interest for the French Notionnel Bond (French Franc is the underlying currency), all past volume and open interest reports measured in French Francs would be divided by 6.601 to achieve equivalence for the new EURO.

   Testing of the numerous relationships on contract sizes, index multipliers, conversion factor changes and national-currency-to-EURO conversion rate changes will be done through CSI's Unfair Advantage product. Most testing will occur when a more complete set of information becomes available from the various European exchanges.
 

SUMMARY

   CSI plans to offer daily updates to the market data in the new EURO currency on an ongoing basis for affected markets beginning on January 4, 1999, "Conversion Day."  In most cases, there will be no change to the information supplied because of the units delivered or because of the form of the data as an index. 

   Unfair Advantage users should have little trouble in making the switch to EUROs because historical file adjustments will be made remotely and transmitted automatically on Conversion Day. All charts and files will be created with the new EURO information in place. Adjustments to cash prices, futures prices, volume and open interest will be implemented remotely through a file called CDBADJST.ADM. Changes in national currency, contract size and trading units, as well as stock index splits will also be handled remotely. These and other fact sheet statistics such as index multipliers, active delivery months, etc. are held in a file called CDBFACTS.ADM. Both files are located in UA's ARCHIVES directory.

   QuickTrieve users and commercial customers who receive mainframe-to-mainframe transmissions must manage these changes by either purchasing the necessary data from CSI or by making the necessary changes with their own software. Such users may be required to change multipliers for index markets to comply with contract size changes and contract price valuation in the new currency. Preliminary information is in the EMU Action Table. CSI has no plans to supply historical data converted to EUROs before January 4th, 1999, but a discounted data set with values converted by exchange rate or synonymously the national currency-to-EURO conversion rate will be available at that time. 
 

FOR YOU OWN INFORMATION

  There will be seven Euro notes and eight coins. Notes will be worth 5, 10, 20, 50, 100, 200 and 500 Euros. The coins will be worth 0.01, 0.02, 0.05, 0.10, 0.20, 0.50, 1 and 2 Euros. One side of the coins will be left open for a national symbol, while the use of all Euro coins and notes will be possible throughout the entire EMU.