Basis Trade at Index Close (BTIC)

NOW AVAILABLE FOR COMMODITY INDEX FUTURES AND CLEARED SWAPS 

  • Bloomberg Commodity Index Futures & Cleared OTC Swaps
  • Bloomberg Roll Select Commodity Index Futures
  • S&P GSCI Commodity Index Futures
  • S&P GSCI Excess Return Index Futures & Swaps

Many investors benchmarked to commodity indices use OTC structures, for example, swaps, to gain their exposure.  Such transactions are priced using the official closing index level of the respective index and incorporate the cost of establishing the position for the desired term. As the scope of uncleared margin rules (UMR) now extends to more counterparties, the cost of using OTC structures has increased for both dealers and their customers. Substituting a CME commodity index futures or a cleared swap for the OTC structure and utilizing our Basis Trade at Index Close (BTIC) mechanism helps market participants maintain their exposure, reduce their costs and maintain analogous trading mechanics.

What is BTIC?

BTIC transactions enable market participants to execute a basis trade relative to the official close for the underlying index for more efficient cash management. A BTIC transaction is entered into via a basis expressed in discrete index points, where the executed trade price is the total number of index points to be applied to the official close price of the underlying index or settlement value index as published by the index provider.

The BTIC price will be transposed to a futures contract- or cleared swap- price generally, around 3:30 PM CT, where the corresponding position will be assigned a price equal to the official settlement value index closing value plus the basis.

Market Disruption Event Handling

Commodity index transactions often face market disruption events (MDE) which occur whenever an underlying futures component of the corresponding commodity index closes limit-up or limit-down. When such instances arise, the official index close for that particular day is unknown and will not be established until the price of the disrupted underlying futures contract is resolved.  MDEs may affect more than one underlying futures and may persist for multiple days.

To calculate the resultant price of a commodity index futures or cleared swap entered into via a BTIC transaction on a MDE day, CME Clearing will add the negotiated basis to the ˜unresolved” commodity index closing price (price established by the daily futures settlement prices of all non-disrupted futures and the lock-limit price(s) of the disrupted futures) and will notify market participants that it is a preliminary price. Upon resolution of the disrupted contracts, CME Clearing will apply a cash adjustment to the affected accounts.  Such adjustment would represent the difference between the unresolved price and the official settlement value index closing level once the disruption is resolved. In addition, CME Clearing will send a notification informing market participants of the end of the MDE along with the resolution and will provide Clearing Members holding open interest with a spreadsheet file illustrating the differential price, the preliminary unresolved commodity index value, the preliminary trade value, the final settlement index value and the final trade value.

BTIC benefits include:

  • Efficiency: Access the official index close with a single transaction in lieu of an OTC swap.
  • Flexibility: Manage index exposure before the spot market closes
  • Choice: Trade BTIC on (1) CME Globex or (2) as Blocks or (3) privately negotiate a BTIC transaction to establish the price of a cleared OTC swap.
  • Control: Ability to directly negotiate a block trade or OPNT (OTC Privately Negotiated Trade) transaction with a selected eligible counterparty.
  • Security: Risk management and safeguards provided by CME Clearing.

BTIC on Cleared OTC BCOM Swap Example*

Suppose that two eligible contract participants want to transact a BTIC on the Cleared OTC Bloomberg Commodity Index Swaps based on the closing index value, BCOMTL. After agreeing on maturity, size and basis they submit the following trade terms for clearing on CME Direct or Clearport:

  • Underlying BTIC Ticker: DGTH9 (BTIC on a March 2019 Cleared OTC BCOM Swap)
  • Basis/price:  0.5306 (Negotiated and traded in allowable tick increments)
  • Trade size: 100 contracts
  • Parties report the BTIC transaction to CME Direct or ClearPort as DGTH9 100x @ 0.5306.

Note, cleared swaps are trade type OPNT

(OTC Privately Negotiated Trades); for a BTIC swap, TrdTyp=”22” and TrdSubTyp=”43”.

  • Suppose that the closing BCOMTL level is 82.8425. A position of DGTH9 100x @ 83.3731 (i.e. 82.8425 + 0.5306) will be created, and the original DGTH9 trade will be eliminated.

About BTIC on Commodity Index Block Trades

  • Timing: must be reported to the exchange within five (5) minutes of agreeing to terms of the transaction.
  • Reporting: can be handled just like regular Block trades and price reported and cleared via CME Direct or ClearPort.
  • Price Increment: must have a basis or price increment stated in standard size ticks (minimum price increments for basis) of the contract. Note, however, that the resultant futures price may not be in the contract specified tick increment. These positions will be created automatically by CME Clearing based on the reported BTIC Block trade basis price.

Cash adjustment example using the Bloomberg Commodity Index

non-MDE Day

MDE Day

Notes

BCOM (Unresolved Index)

82.8425

81.1285

BCOM (close) & BCOMTL are the same on non-MDE days;  on MDE days, BCOMTL is not published

BCOMTL (Settlement Value)

82.8425

----

Cleared OTC BCOM Swap price, DGSU8

83.3731

81.6591

BCOMTL + Basis; on MDE days, BCOM + Basis

Resolved price (BCOMTL)

----

83.1385

assume it's resolved T+1, but may take multiple days

Cash adjustment (credit or debit depending on original position)

----

$20,100

|Resolved Price - BCOM| * $100 per contract * 100 contracts

BTIC transactions have their own unique ticker codes. Use the tickers in the table on the next page when submitting BTIC Blocks, BTIC trades on CME Globex or a BTIC transaction on a cleared OTC swap.

Product Specification at a Glance

Product

Index Ticker (Bloomberg)

Settlement Value Index

BTIC

Underlying Product Globex Ticker

Underlying Product Clearing Ticker

Underlying Product Bloomberg Ticker

Bloomberg BTIC Ticker

Contract Multiplier

Tick (Index points)

BTIC Tick (Index points)

BTIC Block Threshold

Bloomberg Commodity Index Futures

BCOM

BCOMTL

AWT

AW

70

DNA

BIIA

$100

0.1000

     0.0100

              50

Bloomberg Commodity Index Cleared OTC Swap

BCOM BCOMTL

DGT

--

DGS

DGSA

n/a

$100

0.0001

     0.0001

n/a

Bloomberg Roll Select Commodity Index Futures

BCOMRS

BCOMRTL

DRT

DRS

DRS

DRCA

BDRA

$100

0.0100

     0.0100

              50

S&P GSCI Futures

-

-

GDT

GD

GI

GIA

BGDA

$250

0.0500

     0.0100

              50

S&P GSCI Excess Return Index Futures

SPGSCIP

SPGSCISP

GIT

GIE

GA

BBA

BGYA

$100

0.0010

     0.0010

              50

S&P GSCI Excess Return Cleared OTC Swap

SPGSCIP

SPGSCISP

 

SET

--

SES

SESA

n/a

$100

0.0001

     0.0001

 

About the Bloomberg Commodity Index

The Bloomberg Commodity Index (BCOM) is designed to be a highly liquid and diversified benchmark for commodity investments. BCOM provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the Index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.

About S&P GSCI

The S&P GSCI is the first major investable commodity index. It is one of the most widely recognized benchmarks that is broad-based and production weighted to represent the global commodity market beta. The index is designed to be investable by including the most liquid commodity futures, and provides diversification with low correlations to other asset classes.


[I] BTIC Block trades must comply with requirements in CME and CBOT Rule 526 (Block Trades), as applicable

[II] The resultant trade price, after adding the basis, in the allowed tick increment, to the official index close does not need to be in the contract specified tick increment and will not be rounded to the nearest tick.

* similarly applies to GSCI Roll Select

About CME Group

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