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Decay Variable Quantity Energy Products are instruments for which the size and cleared quantity decrease, day by day, during the month of expiration.

Prior to the start of the month corresponding to the contract expiration month, decay products behave like standard variable quantity energy products. During delivery month, instrument size and cleared quantity decay, or decrease, at the interval defined in the market data Security Definition message (tag 35-MsgType=d) for the instrument.

For Decay Variable Quantity Energy Products, client systems must be able to process the tags 5818-DecayQty and 5819-DecayStartDate present in the market data Security Definition (tag 35-MsgType=d) message. These tags are present only for decay products as indicated by repeating group tags 871-InstAttribType=24 (eligible) and 872-InstAttribValue=15 (decay).

Terminology

This list provides the key terms used in trading decay quantity products and the associated order entry and market data message tags in which the values are defined.

Term

Definition

Lot

The standard CME Globex trading unit. All iLink and market data quantity values are defined in lot terms, i.e. buy 10 = buy 10 lots.

Following is a sample list of tags which refer to lot size:

  • iLink - tag 38-OrderQty, tag 110-MinQty, tag 14-CumQty, tag 151-LeavesQty, tag 32-LastShares
  • MDP - tag 271-MDEntrySize, tag 562-MinTradeVol, tag 1140-MaxTradeVol

Unit

Tradable energy unit e.g. MWh or (megawatt hour).

Defined in tag 1231-MinLotSize and tag 996-UnitofMeasure in the market data Security Definition (tag 35-MsgType=d) message.

Decay Quantity

The quantity that a contract will decay on a daily basis, once the decay start date (or contract expiration month) is reached.

Defined in tag 5818-DecayQty in the market data Security Definition (tag 35-MsgType=d) message.

Decay Start Date

The date at which a decay contract will begin to decay (typically, the contract expiration month).

Defined in tag 5819- DecayStartDate in the market data Security Definition (tag 35-MsgType=d) message.

Original Contract Size

Original instrument quantity prior to decay date and contract multiplier being applied.

Defined in tag 5849-OriginalContractSize of the market data Security Definition (tag 35-MsgType=d) message.

Contract Multiplier

Number of deliverable units per instrument, e.g., number of peak days or calendar days in maturity month.

Defined in tag 231-ContractMultiplier and tag 1435-ContractMultiplierUnit in the market data Security Definition (tag 35-MsgType=d) message.

Minimum Lot Size

The minimum quantity accepted for order entry.

Defined in tag 1231-MinLotSize in the market data Security Definition (tag 35-MsgType=d) message where:

tag 1093-LotType=4 (variable quantity lot), the quantity in tag 1231-MinLotSize is understood in the unit of measure defined in tag 996-UnitOfMeasure, (e.g., megawatts).

Cleared Quantity Formula

Cleared Quantity for a decay product is calculated with the following formula:

<lot> * <OriginalContractSize> * <ContractMultiplier> - [<DecayQty> * <# of applicable decay days since the DecayStartDate>] for decay instruments in the spot month

Example: Decay Electricity Futures

For October 2012 expiration

All months prior to expiration month (October):

Lot2
DecayQty40
DecayStartDate10012012
OriginalContractSize920 (2.5 MWh * 16 peak hours * 23 peak days)
UnitofMeasureMWh
ContractMultiplier1
Cleared Quantity1840 MWh (2* 920 * 1)
MinLotSize2.5

Expiration month (October 2):

Lot2
DecayQty40
DecayStartDate10012012
OriginalContractSize880 (2.5 MWh * 16 peak hours * 22 peak days)
UnitofMeasureMWh
ContractMultiplier1
Cleared Quantity1760MWh

(2 * 920 * 1- (40*2)) 

MinLotSize2.5

Decay Calendar Example

The following calendar illustrates the degradation of a product where the contract size “decays” or “erodes” by 40 MWh each peak day within the expiration month and the Cleared Quantity decays by 80 MWh each peak day within the expiration month.

October 2012

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

23

 

24

Before contract month, trades at fixed size.

25

Orig Contract Size = 920 MWh

Cleared Qty = 1840 MWh

26

Orig Contract Size = 920 MWh

Cleared Qty = 1840 MWh

27

Orig Contract Size = 920 MWh

Cleared Qty = 1840 MWh

28

Orig Contract Size = 920 MWh

Cleared Qty = 1840 MWh

29

 

30

1

Orig Contract Size = 920 MWh

Cleared Qty =1840 MWh

2

880 MWh

1760 MWh

3

840 MWh

1680 MWh

4

800 MWh

1600 MWh

5

760 MWh

1520 MWh

6

7

 

8

720 MWh

1440 MWh

9

680 MWh

1360 MWh

10

640 MWh

1280 MWh

11

600 MWh

1200 MWh

12

560 MWh

1120 MWh

13

14

15

520 MWh

1040 MWh

16

480 MWh

960 MWh

17

440 MWh

880 MWh

18

400 MWh

800 MWh

19

360 MWh

720 MWh

20

21

22

320 MWh

640 MWh

23

280 MWh

560 MWh

24

240 MWh

480 MWh

 

25

200 MWh

400 MWh

26

160 MWh

340 MWh

27

28

29

120 MWh

260 MWh

30

80 MWh

180 MWh

Last Trade Date

31

 

 

 

 

 

 

 

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