End of Month Settlement Procedures

Understanding the End of Month Settlement Procedures for U.S. Stock Index Futures

Special stock index settlement procedures are applied on an end of month basis. Specifically, on the last business day of the month, domestic stock index futures and options contracts are settled to a price per the following procedures consistent with Rule 813.

  • Month-end settlement prices will be the same value currently calculated as the daily 3:00 p.m. Chicago Time (CT) "Fixing Price" for U.S. equity index futures.
  • Fixing Prices are based on CME Globex trading activity in the respective contracts between 2:59:30 p.m. and 3:00:00 pm CT.
  • For products that have both a standard sized and E-mini contract futures contract, the E-mini futures contract will determine the Fixing Price for both products. For the Dow Jones Industrial Average Index futures, the E-mini ($5 multiplier) futures will determine the fixing price for all three futures contracts.
  • The Fixing Price methodology will consist of three tiers:
    • Tier 1: The Fixing Price will be equal to the Volume Weighted Average Price (VWAP) of the designated lead month futures contract. For the purposes of this calculation, the designated lead month is always the contract month closest to expiration until the Monday prior to expiration, when the designated lead month becomes the second contract month.
    • Tier 2: If no transactions occur from 2:59:30 to 3:00:00 p.m., the Fixing Price shall be the average of the midpoints of each bid/ask spread in the designated lead month futures contract during that thirty (30) second interval; however, bid/ask spread pairs wider than two (2) ticks, shall not be included in the calculation to determine the Reference Price.
    • Tier 3: If the Fixing Price cannot be determined pursuant to Tiers 1 and 2 above, the fixing price will be calculated by applying the net change of the underlying index to the prior day’s Fixing Price value.

The Exchanges make U.S. Stock Index futures fixing prices available shortly after 3:00 p.m. CT on its website: http://www.cmegroup.com/trading/fixing-price.html?tabs=20

Please note that futures prices utilized to calculate month-end settlement prices are based on Globex activity between 2:59:30 p.m. and 3:00:00 p.m., CT.
Trading in U.S. stock index products closes at 4:15 p.m. CT the last business day of the month — consistent with practices applied on normal trading days.

The following questions and answers relate to the Fair Value settlement process:

1 How are settlement prices determined on the last business day of each month?
2 What products are affected by this procedure?
3 Why has this procedure been implemented?
4 What are the trading hours on days when FV settlement procedures are applied?
5 How will options be settled on days when FV settlement procedures are applied?
6 How will Market-on-Close (MOC) orders be handled on days when FV settlement procedures are applied?
7 How will the post-close session be conducted on days when FV settlement procedures are applied?
Q1 How are U.S. Stock Index futures settlement prices determined on the last business day of each month?
A1

Settlement prices for domestic stock index futures and options are determined as follows:

Month-end settlement prices will be the same value currently calculated as the daily 3:00 p.m. CT  "Fixing Price" for U.S. equity index futures.

  • Fixing Prices are based on CME Globex trading activity in the respective contracts between 2:59:30 p.m. and 3:00:00 pm CT.
  • For products that have both a standard sized and E-mini contract futures contract, the E-mini futures contract will determine the Fixing Price for both products.  For the Dow Jones Industrial Average Index futures, the E-mini ($5 multiplier) futures will determine the fixing price for all three futures contracts.
  • The Fixing Price methodology will consist of three tiers:
    • Tier 1: The Fixing Price will be equal to the Volume Weighted Average Price (VWAP) of the designated lead month futures contract. For the purposes of this calculation, the designated lead month is always the contract month closest to expiration until the Monday prior to expiration, when the designated lead month becomes the second contract month.
    • Tier 2: If no transactions occur from 2:59:30 to 3:00:00 p.m., the Fixing Price shall be the average of the midpoints of each bid/ask spread in the designated lead month futures contract during that thirty (30) second interval; however, bid/ask spread pairs wider than two (2) ticks, shall not be included in the calculation to determine the Reference Price.
    • Tier 3: If the Fixing Price cannot be determined pursuant to Tiers 1 and 2 above, the fixing price will be calculated by applying the net change of the underlying index to the prior day’s Fixing Price value.

Regular daily settlement procedures will be observed on all other trading days apart from the last business day of each month.

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Q2 What products are affected by this procedure?
A2

All domestic stock index futures and options are affected by this procedure.
This includes the following:

  1. Standard and Poor's  500 Stock Price Index Futures (CME Rulebook Chapter 351)
  2. E-mini Standard and Poor's Stock Price Index Futures (CME Rulebook Chapter 358)
  3. Standard and Poor's MidCap 400 Stock Price Index Futures (CME Rulebook Chapter 353)
  4. E-mini Standard and Poor's MidCap 400 Stock Price Index Futures (CME Rulebook Chapter 362)
  5. S&P SmallCap 600 Index Futures (CME Rulebook Chapter 380)
  6. E-mini S&P SmallCap 600 Index Futures (CME Rulebook Chapter 368)
  7. S&P 500/Value Index Futures (CME Rulebook Chapter 356)
  8. S&P 500/Growth Index Futures  (CME Rulebook Chapter 355)
  9. S&P Master Limited Partnership Futures (CME Rulebook Chapter 375)
  10. NASDAQ 100 Index Futures (CME Rulebook Chapter 357)
  11. E-mini NASDAQ 100 Index Futures (CME Rulebook Chapter 359)
  12. E-mini NASDAQ Composite Index Futures (CME Rulebook Chapter 377)
  13. E-mini NASDAQ Biotechnology Index Futures (CME Rulebook Chapter 360 )
  14. CBOT E-mini Dow Jones Industrial Average Index Futures (CBOT Rulebook Chapter 27)
  15. CBOT Dow Jones Industrial Average Index ($10) Futures (CBOT Rulebook Chapter 26)
  16. CBOT Dow Jones Industrial Average Index ($25) Futures (CBOT Rulebook Chapter 28)
  17. CBOT Dow Jones U.S. Real Estate Index Futures (CBOT Rulebook Chapter 30)
  18. E-mini Consumer Discretionary Select Sector Futures (CME Rulebook Chapter 369)
  19. E-mini Consumer Staples Select Sector Futures (CME Rulebook Chapter 369)
  20. E-mini Energy Select Sector Futures (CME Rulebook Chapter 369)
  21. E-mini Financial Select Sector Futures (CME Rulebook Chapter 369)
  22. E-mini Health Care Select Sector Futures (CME Rulebook Chapter 369)
  23. E-mini Industrials Select Sector Futures (CME Rulebook Chapter 369)
  24. E-mini Materials Select Sector Futures (CME Rulebook Chapter 369)
  25. E-mini Technology Select Sector Futures (CME Rulebook Chapter 369)
  26. E-mini Utilities Select Sector Futures (CME Rulebook Chapter 369)
Nikkei Stock Average and Ibovespa markets will not be settled using this procedure.
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Q3 Why has this procedure been implemented?
A3

Stock index products on the Exchange normally close and settle fifteen minutes after the daily close of trading in cash equities. The cash/futures basis may be affected to the extent that futures may fluctuate – sometimes sharply – during those final fifteen minutes. As such, this may become a difficulty for institutional traders practicing coordinated cash/futures strategies. Still, the opportunity to lay off equity market exposure during those fifteen minutes subsequent to the cash close has proven quite beneficial.

The use of 3:00 p.m. "Fixing Price" settlement procedures at month end is intended to address this so-called "tracking error" while still permitting trade to continue past the 3:00 p.m. cash close. Conceptually, the 3:00 p.m. settlement is determined at the same time as the cash market close at 3:00 p.m., since any new information following 3:00 p.m. will not affect the closing price of the stocks or the futures 3:00 p.m. Fixing Price. However, information or events subsequent to the cash market close may still impact futures prices. Market participants should be aware of the possibility that futures may trade at prices apart from the 3:00 p.m. Fixing Price based settlement prices between 3;00 p.m. and the close of the futures market at 4:15 p.m. on days on which end of month settlement procedures are applied.
   
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Q4 What are the trading hours on days when end of month Price settlement procedures are applied?
A4 Consistent with normal practices, Regular Trading Hours (RTH) for stock index futures and options shall be conducted from 8:30 a.m. to 4:15 p.m., with a trading halt between 3:15 p.m. and 3:30 p.m. (Chicago time) on the last day of each month – unless notified otherwise because of a holiday. As such, this procedure will permit trading to continue after the normal 3:00 p.m. (Chicago time) cash close while ensuring that settlements will be tied closely to cash values.
   
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Q5 How will options be settled on days when end of month settlement procedures are applied?
A5 Options on futures end of month settlement values shall be established on the basis of the end of month futures Fixing Price settlements on days when Fixing Price settlement procedures are employed.

   
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Q6 How will Market-on-Close (MOC) orders be handled on days when end of month settlement procedures are applied?
A6 Market-on-Close (MOC) orders shall be handled in the typical fashion on days when end of month settlement procedures are applied. In other words, an MOC order becomes a market order to be filled at prevailing prices during the last thirty seconds of the trading session, i.e., between 3:14:30 and 3:15:00. The filled price may or may not resemble the settlement price.
   
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Q7 How will the post-close session be conducted on days when end of month settlement procedures are applied?
A7 Trading shall be permitted during the post-close session on days when end of month settlement procedures are applied at prices within the 3:14:30-3:15:00 closing range – per normal practices. Note that these prices may depart from the end of month settlement price.
   
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