Settlement Change

Currently the exchange settles E-mini S&P 500 options utilizing futures settlement prices, a volatility skew, and an interest rate curve input. The exchange aims to improve the accuracy of E-mini S&P 500 options settlement by changing the interest rate curve used to one constructed from interest rates embedded in quotations of European Style E-mini S&P 500 options. This rate curve will be calculated based on options quotations throughout the trading day. Only E-mini S&P 500 options on futures are in scope for the upcoming change.

The SER announcement related to this change can be found here.

In preparation for the settlement change, the exchange will make a file available for a number of weeks prior to launch. Market participants will be able to view the current and new method settlement prices to evaluate any effects. This file will be in spreadsheet format and will show two settlements for every E-mini S&P 500 option instrument. This file will be accessible via a website and an FTP site.

FTP Site Access and Instructions

  • Sign up for an account here.
  • For issues with creating an account, please contact CME Enterprise Application & System Entitlements:
  • Once your account is enabled, proceed to the following web / FTP sites to access data.
  • A sample of the output from the website is displayed below. Files will be regularly updated with before / after settlement price and related interest rates outputs. Please note that in calculating settlement values for European options, the exchange uses the Black model, whereas when calculating settlement values for American options, the exchange uses the Whaley model.

Looking further into the future, and related to this initiative, the exchange also aims to list EW3 (European Week 3 Friday E-mini S&P 500 options) contracts on quarterly dates in Q1 2023. With this listing, which will have a 3:00 p.m. CT expiration time, EW3 contracts will then be available for 13 consecutive months. Currently, EW3 contracts are available for nine months, skipping the months in the March quarterly cycle (Mar, Jun, Sep, Dec). More details related to this initiative will be available in the coming weeks.

Market participants looking to trade the EW3 contract on these quarterly dates may need to undertake some tech changes to allow their systems to quote and trade two different option expiries in one trade date. With the listing of this EW3 contract on the quarterly dates in Q1 2023, traders will be able to trade both an ESH3 contract with an expiration time of 8:30 a.m. CT on March 17, 2023 (American style), as well as an EW3H3 contract with an expiration time of 3:00 p.m. CT on March 17, 2023 (European style). Configuring systems to allow trading of multiple expires on one date may require some tech lead time, so traders should begin preparations expecting these contracts to become available as early as January 2023 (launch date updates will be provided as it becomes available).

Should traders wish to test this functionality with a CME Group Equity Index futures option contract currently in production, this listing variety is available in the Nasdaq-100 options complex. Currently there is both an a.m. and a p.m. expiry for Nasdaq-100 for options expiring on December 16, 2022 (NQZ2, and QN3Z2).

Timeline recap:

November 2022: Exchange will begin disseminating before and after settlement on E-mini S&P 500 options via an Excel spreadsheet on FTP site. Only E-mini S&P 500 options are in scope at current time.

December 2022: Transition to new settlement methodology using interest rate curve derived from E-mini S&P 500 Euro options quotations.

Q1 2023: List EW3 (European Week 3 Friday E-mini S&P 500 options) contracts on third Fridays in the March quarterly cycle (Mar, June, Sep, Dec).

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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