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Based on the market state and trading activity, a Price Band Variation (PBV) will be applied above and below the instrument's reported reference price to establish the Price Band Variation Range (PBVR). The PBV is a static value that varies by product. It is symmetrically applied at both the upside (for bids) and downside (for offers) levels with each price change and enforced during the trading session.

If market conditions dictate a wider price band, for example, in a volatile market where prices are fluctuating rapidly, CME Group may elect to temporarily relax or suspend the price banding restriction. In addition to the PBVR, Daily Trading Limits may be in effect for certain products. Daily Trading Limits are always given priority over PBVR in rejecting orders with erroneous prices. PBVR are monitored throughout the day by the CME Global Command Center (GCC) and may be adjusted if necessary.

It is important to note that the Daily Trading Limits always take precedence over PBVR in rejecting orders with erroneous prices. Price bands are monitored throughout the day by the CME Global Command Center (GCC) and are adjusted when necessary.

Futures Banding

With each price change the PBVR is recalculated and the new range is applied. The CME Globex platform rejects all bids and offers outside the PBVR. Applying the PBV to a reference price determines the PBVR.

Image Added

The reference price used depends on the market state and trading activity:

  • The instrument's Settlement Price will serve as the PBVR reference price during the Pre-Open and the Pre-Open/No-Cancel period, until the Indicative Opening Price is calculated.
  • Once an Indicative Opening Price (IOP)  is established, the Indicative Opening Price becomes the PBVR reference price.
  • During the continuous trading, the CME Globex Last Price serves as the reference price for the PBVR.
  • If a instrument has transitioned to continuous trading with no Indicative Opening Price or CME Globex Last Price being established, then the Settlement Price will continue to serve as the PBVR reference price until a CME Globex Last Price is established.
  • In the event of a market emergency where a market is placed in a non-trading mode after continuous trading has begun, then the Indicative Opening Price will serve as the PBVR reference price during the non-regular Pre-Open and the Pre-Open/ No-Cancel Period. If no Indicative Opening Price is available, then the CME Globex Last Price will serve as the PBVR reference price.

The PBVR adjusts dynamically as the CME Globex Last Price changes for a given product.

Feature File

Expand the box below to view a Price Banding logical scenario.

Code Block
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titleBandingMultiplier.feature
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Feature: Price Banding during PCP Pre-Open

  Background: 
    Given the following:
        * Instrument Group Configurations:
           | groupName | clearingFormat |
           | 6B        | M1             |
        * Contracts:
           | symbol |
           | 6BM2   |
        
        * the following attributes are updated for contract(s) in real time:
           | securityDescription | settlementPrice | futureBandValue | bandSwitch |
           | 6BM2                | 2000.00         | 975             | true       |

  Scenario: future outside bands during pre-open when pre-open multiplier is set at group level with bandingMultiplier equals to 2
    When the following events occur:
        * these "new order" message(s) are sent to Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 1        | session     |
           | 6BM2                | 2000.0 | ask  | 1        | session     |
        * the group(s) "6B" is put in "preOpen" with reset statistics "off"
        * "bandingMultiplier" of group "6B" is changed to "2"
        * these "new order" message(s) are sent to the Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 20       | session     |
           | 6BM2                | 2000.0 | ask  | 20       | session     |
           | 6BM2                | 2025.0 | bid  | 20       | session     |
           | 6BM2                | 3975.0 | bid  | 1        | session     |
           | 6BM2                | 49.0   | ask  | 1        | session     |
    Then the following should happen:
        * expect execution message(s) with values:
           | messageType  | securityDescription | price  | side | orderQty |
           | order ack    | 6BM2                | 2000.0 | bid  | 1        |
           | order ack    | 6BM2                | 2000.0 | ask  | 1        |
           | order ack    | 6BM2                | 2000.0 | bid  | 20       |
           | order ack    | 6BM2                | 2000.0 | ask  | 20       |
           | order ack    | 6BM2                | 2025.0 | bid  | 20       |
           # expect rejects due to price outside of high and low bands
           | order reject | 6BM2                | 3975.0 | bid  | 1        |
           | order reject | 6BM2                | 49.0   | ask  | 1        |

  Scenario: future outside bands during PCP when reserve multiplier is set at group level with bandingMultiplier equals to 2
    When the following events occur:
        * these "new order" message(s) are sent to Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 1        | session     |
           | 6BM2                | 2000.0 | ask  | 1        | session     |
        * the instrument(s) "6BM2" is put in "reserve"
        * "bandingMultiplierForReservedState" of group "6B" is changed to "2"
        * these "new order" message(s) are sent to the Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 20       | session     |
           | 6BM2                | 2000.0 | ask  | 20       | session     |
           | 6BM2                | 2025.0 | bid  | 20       | session     |
           | 6BM2                | 3975.0 | bid  | 1        | session     |
           | 6BM2                | 49.0   | ask  | 1        | session     |
    Then the following should happen:
        * expect execution message(s) with values:
           | messageType  | securityDescription | price  | side | orderQty |
           | order ack    | 6BM2                | 2000.0 | bid  | 1        |
           | order ack    | 6BM2                | 2000.0 | ask  | 1        |
           | order ack    | 6BM2                | 2000.0 | bid  | 20       |
           | order ack    | 6BM2                | 2000.0 | ask  | 20       |
           | order ack    | 6BM2                | 2025.0 | bid  | 20       |
           # expect rejects due to price outside of high and low bands
           | order reject | 6BM2                | 3975.0 | bid  | 1        |
           | order reject | 6BM2                | 49.0   | ask  | 1        |

  Scenario: future outside bands during pre-open when pre-open multiplier is set at group level with bandingMultiplier equals to 3
    When the following events occur:
        * these "new order" message(s) are sent to Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 1        | session     |
           | 6BM2                | 2000.0 | ask  | 1        | session     |
        * the group(s) "6B" is put in "preOpen" with reset statistics "off"
        * "bandingMultiplier" of group "6B" is changed to "3"
        * these "new order" message(s) are sent to the Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 20       | session     |
           | 6BM2                | 2000.0 | ask  | 20       | session     |
           | 6BM2                | 2025.0 | bid  | 20       | session     |
           | 6BM2                | 3975.0 | bid  | 1        | session     |
           | 6BM2                | 49.0   | ask  | 1        | session     |
    Then the following should happen:
        * expect execution message(s) with values:
           | messageType | securityDescription | price  | side | orderQty |
           | order ack   | 6BM2                | 2000.0 | bid  | 1        |
           | order ack   | 6BM2                | 2000.0 | ask  | 1        |
           | order ack   | 6BM2                | 2000.0 | bid  | 20       |
           | order ack   | 6BM2                | 2000.0 | ask  | 20       |
           | order ack   | 6BM2                | 2025.0 | bid  | 20       |
           | order ack   | 6BM2                | 3975.0 | bid  | 1        |
           | order ack   | 6BM2                | 49.0   | ask  | 1        |

  Scenario: future outside bands during PCP when reserve multiplier is set at group level with bandingMultiplier equals to 4
    When the following events occur:
        * these "new order" message(s) are sent to the Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 1        | session     |
           | 6BM2                | 2000.0 | ask  | 1        | session     |
        * the instrument(s) "6BM2" is put in "reserve"
        * "bandingMultiplierForReservedState" of group "6B" is changed to "4"
        * these "new order" message(s) are sent to the Globex:
           | securityDescription | price  | side | orderQty | timeInForce |
           | 6BM2                | 2000.0 | bid  | 20       | session     |
           | 6BM2                | 2000.0 | ask  | 20       | session     |
           | 6BM2                | 2025.0 | bid  | 20       | session     |
           | 6BM2                | 3975.0 | bid  | 1        | session     |
           | 6BM2                | 49.0   | ask  | 1        | session     |
           | 6BM2                | 5902.0 | bid  | 1        | session     |
    Then the following should happen:
        * expect execution message(s) with values:
           | messageType  | securityDescription | price  | side | orderQty |
           | order ack    | 6BM2                | 2000.0 | bid  | 1        |
           | order ack    | 6BM2                | 2000.0 | ask  | 1        |
           | order ack    | 6BM2                | 2000.0 | bid  | 20       |
           | order ack    | 6BM2                | 2000.0 | ask  | 20       |
           | order ack    | 6BM2                | 2025.0 | bid  | 20       |
           | order ack    | 6BM2                | 3975.0 | bid  | 1        |
           | order ack    | 6BM2                | 49.0   | ask  | 1        |
           # expect rejects due to price outside of bands
           | order reject | 6BM2                | 5902.0 | bid  | 1        |
Video

Click the icon below to view a video for Futures Price Banding:

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<p><a href="http://www.cmegroup.com/education/futures-price-banding.html" target="_blank" rel="nofollow"><img src=http://www.cmegroup.com/globex/images/eid-thumb.png alt="Futures Price Banding video"></a></p>

Options Banding

Price Banding for options is enforced in consideration of the following:

Although a series of options on a futures instrument may trade frequently, any single specific strike price option may not trade or be quoted regularly. The price of the underlying futures instrument may change substantially relative to the option's CME Last Price, causing the market value of a formerly out-of-the-money option to increase significantly while the PBVR is locked in place.

Options with different strikes require different price bandwidths. PBVRs for "out-of-the-money" options should be narrower than those for "in-the-money" options to reflect the differences in the extent to which bids and offers departing from their fair market value may be considered erroneous.

For these reasons, CME Group has instituted enhanced options price banding, a dynamic price banding system, for selected options and options spreads traded on the CME Globex platform.

Enhanced Options price banding is identical to futures price banding, with the following modifications:         

For Outright Options - based on market conditions, the reference price is set to either the:

  • Last Price of the option
  • Theoretical Options Price based on well-established options pricing algorithms
  • Last Price in combination with the Theoretical Options Price, if practical.

For Options Spreads (UDS) – the reference price is a theoretical value derived from the reference prices of the legs within the UDS. A change to the legs’ reference prices will result in an updated reference price of the UDS. The Last Price or Bid/Offer of the UDS will not update the reference price.  If a customer experiences issues entering orders due to price banding, contact the CME Global Command Center (GCC) to adjust price bands.

The width of the price bands is determined by the following:

  • A Fixed PBV for the entire option series which is identical to the price banding for futures
  • A Dynamic PBV based on the delta of the option, as estimated by the Theoretical Options Price calculation
  • A Dynamic PBV based on a percentage of the Theoretical Options Price, where the percentage is based on the delta of the option