Frequently Asked Questions: Adjusted Interest Rate (AIR) Total Return futures on Nasdaq-100, Russell 1000, Russell 2000, and DJIA

AIR TRFs are Total Return futures that have a built-in floating rate to accommodate the financing costs associated with funding the equity index exposure.

AIR TRFs were initially launched on the S&P 500 in September 2020, with additional contracts launched on the Russell 2000, Russell 1000, Nasdaq-100, and DJIA in July 2021.

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S&P 500, Russell 2000, Russell 1000, Nasdaq-100, and DJIA.

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CME Group views the AIR Total Return futures as complementary to the currently listed vanilla Total Return futures.

The current vanilla Total Return futures use a “fixed rate,” unlike the AIR Total Return futures which use a built-in floating rate. For more information on the S&P 500, Nasdaq-100, Dow, Russell 2000, and Russell 1000 Total Return futures, please visit this FAQ.

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The Overnight Effective Federal Funds Rate (EFFR) published by the Federal Reserve Bank of New York will be the underlying reference rate used for financing.

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The AIR TRFs consist of three components: an Equity Index component, an Accrued Financing component and a Financing Spread Adjustment component. The valuation of the AIR TRF is as follows:

AIR TRF = (Equity Index - Accrued Financing) + Financing Spread Adjustment

For greater detail on these components, please see the fact card and other resources on the AIR TRF homepage.

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All AIR TRFs  are traded via BTIC, and the quoting notation will be in basis points, analogous with a total return swap spread.

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The key element traded in AIR TRFs will be the Total Return futures spread (TRF spread). This is the spread over or below the financing reference rate (EFFR) that market participants determine as the cost to fund the equity index exposure. This spread is expressed in basis points.

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Once a TRF spread is executed, it will be converted into an AIR TRF price by the exchange using the same business day’s official closing index price as part of the calculation. The resulting cleared price of the futures contract is computational, occurs on a trade-by-trade basis, and is calculated in index points.

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The key element traded in AIR TRFs will be the Total Return futures spread (TRF spread). This is the spread over or below the financing reference rate (EFFR) that market participants determine as the cost to fund the equity index exposure. This spread is expressed in basis points.

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Accrued financing data for AIR Total Return futures on the additional US indexes will be published each business day at about 8:35-8:40 a.m. CT. There are multiple ways to get access starting July 26, 2021:

• QuikStrike calculator: The Accrued Financing number is populated within the calculator available here.
• AIR datafiles: View easy-to-use CSV-format datafiles (here’s complete documentation):
  • With any web browser at cmegroup.com/ftp/settle/air
  • Via anonymous FTP at ftp://ftp.cmegroup.com/pub/settle/air
  • Via the Firm FTP Server (SFTP), in the pub/settle/air directory
  • Via email: write us at ccs@cmegroup.com to sign up.
  • Via EREP:  see report IDs AIR_TOP and AIR_COMP
  • Via CME DataMine at datamine.cmegroup.com/#/datasets/cme.air
• RDAPI: Access data via Reference Data API (“RDAPI”). View details here.
• Settlements & Valuation Channel: Via the Data Insights: Settlements & Valuation Channel ID 251, part of CME Group’s Market Data Platform. View details here.

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Total Return futures can be traded as Basis Trade at Index Close (BTIC) contracts on CME Globex as well as via block trades on CME ClearPort. Please note, as is the case with current vanilla Total Return futures, the outright AIR TRF futures on US indices are not eligible for trading but can be used as part of an EFRP.

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In any instance where the AIR Total Return futures contract(s) are traded as the futures component of an EFRP transaction, the price of such futures contracts may be made either in Index Point terms outright or in BTIC terms. View Rule 538 in the MRAN to learn more.

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The final settlement value for the expiring contract will be equal to the Special Opening Quotation (SOQ) on the expiry date less the total of the Accrued Financing and will be determined by the formula outlined below;

Total Return Index_T^SOQ - AF_T

Legend

Total Return Index_T^SOQ = Special Opening Quotation of the Total Return Futures on day of expiration

AF_T = Sum of the daily financing values since the product’s launch on July 26, 2021 until the day of expiration.

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Yes, the Accrued Financing (AF) value will be the same value across all maturities. For each contract, the initial value for AF will be determined by the exchange and all the daily financing values will be added to this initial value.

The AF value can be found in the daily CSV files and other sources mentioned in Q11 in the background section above.

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There are three fee buckets based on the difference (in months) between trade date and contract’s expiration date.

Full CME and CBOT Fee Schedule

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Margin requirements are not finalized but will be available closer to the launch date. The currently listed vanilla Total Return futures margins are found here.

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As with their initial margins, the margin credits are based on current market conditions. Margin requirements are not finalized but will be available closer to the launch date.

Learn more about margins:

• Margins FAQ
• SPAN methodology

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