Trading at Settlement (TAS) for Metals Futures

  • 22 Mar 2019
  • By CME Group
  • Topics: Metals

LIQUID TAS MARKETS FOR METALS CONTRACTS

A Trading at Settlement (TAS) transaction is an order type which allows traders to enter an order to buy or sell an eligible futures contract during the trading day with the price of the trade executed at the current day’s settlement price, or at any valid price increment up to ten ticks higher or lower than the current day’s settlement price. Participants in the metals futures markets are frequently incorporating TAS transactions into their trading strategies. TAS can be executed for outright, spread and block trade transactions.

Recent Trends
TAS trading has been increasing consistently especially during the past year as the mechanism permits commercial and financial market participants to lock in a settlement price along the forward curve. TAS can also be utilized to hedge the average monthly price.

A daily average volume record of 3,362 contracts in Gold Futures TAS was reached in January 2019, nearly three times year over year. Silver TAS volume grew nearly 40% YoY.

Source: CME Group

Similarly, TAS volume in Copper Futures has increased over the past several years reaching a record daily average volume level of 2,438 contracts in 2018.

Source: CME Group

Metals Products Eligible for TAS Outright and Spread Trading

Each metals futures contract has a specific listing of TAS eligible contract months. A month becomes the spot (delivery) month on the second last business day of the month prior to the contract month. For example, the March 2019 contract month became the spot month on February 27, 2019. On this date, for Gold Futures, the April 2019, June 2019, August 2019 and December 2019 contract months were TAS eligible. On March 28, 2019, when April 2019 became the spot month, it was no longer TAS eligible. As of this date, the June 2019, August 2019, December 2019 and February 2020 contract months were TAS eligible. This same methodology is followed for all TAS listings for metals products. In addition to outright trading, TAS is also available for all combinations of spread transactions between TAS eligible contract months.

For Gold Futures, TAS transactions are permitted in the first, second, third and fourth active contract months. The active contract months are February, April, June, August and December.

Gold Futures TAS Eligible Contract Months Commodity Code: GCT

When this Gold contract month becomes the spot (delivery) month . . .

…these contract months are TAS-eligible

February

April, June, August, December

April

June, August, December, February

June

August, December, February, April

August

December, February, April, June

December

February, April, June, August

For E-micro Gold Futures, TAS transactions are permitted in the first, second and third active contract months. The active contract months are February, April, June, August and December.

E-micro Gold Futures TAS Eligible Contract Months Commodity Code: MGT

When this E-micro Gold contract month becomes the spot (delivery) month . . .

…these contract months are TAS-eligible

February

April, June, August

April

June, August, December

June

August, December, February

August

December, February, April

December

February, April, June

For Silver Futures, TAS transactions are permitted in the first, second, third and fourth active contract months. The active contract months March, May, July, September and December.

Silver Futures TAS Eligible Contract Months Commodity Code: SIT

When this E-micro Gold contract month becomes the spot (delivery) month...

…these contract months are TAS-eligible

February

April, June, August

April

June, August, December

June

August, December, February

August

December, February, April

December

February, April, June

For Platinum Futures, TAS transactions are permitted in the first and second active contract months. The active contract months are January, April, July, and October.

Platinum Futures TAS Eligible Contract Months (Commodity Code: PLT)

When this Platinum contract month becomes the spot (delivery) month . . .

…these contract months are TAS-eligible

January

April, July

April

July, October

July

October, January

October

January, April

For Palladium Futures, TAS transactions are permitted in the first contract month. The active contract months are March, June, September, and December.

Palladium Futures TAS Eligible Contract Months Commodity Code: PAT

When this Palladium contract month becomes the spot (delivery) month...

…these contract months are TAS-eligible

March

June

June

September

September

December

December

March

For Copper Futures, TAS transactions are permitted in the first, second, third and fourth active contract months. The active contract months are March, May, July, September and December.

Copper Futures TAS Eligible Contract Months Commodity Code: HGT

When this Copper contract month becomes the spot (delivery) month...

. . . these contract months are TAS-eligible

March

May, July, September, December

May

July, September, December, March

July

September, December, March, May

September

December, March, May, July

December

March, May, July, September

For Copper Futures, TAS is also eligible in the spot (delivery) month. TAS trades in the spot month are only permitted at the settlement price. This is known as TAS zero or TAS flat.

Example of TAS Transaction

For Gold Futures, the minimum price fluctuation or tick size is 10 cents per troy ounce. A trader can enter the following TAS order, relative to the current day’s as yet unknown Gold Futures settlement price:

  • At a price of 0 to trade at the Gold Futures settlement price
  • At a price between +1 to +10 to trade at the Gold Futures settlement price plus one to ten ticks, i.e., the settlement price plus $0.10 to $1.00 per troy ounce
  • At a price between -1 to -10 to trade at the Gold Futures settlement price minus one to ten ticks, i.e., the settlement price minus $0.10 to $1.00 per troy ounce

Note: For Silver Futures, the minimum price fluctuation is $0.001 per troy ounce.

CME Group Venues Supporting TAS Transactions

TAS transactions may be:

  • executed competitively on CME Globex; and
  • submitted for clearing via CME ClearPort as a block trade.

Note:  CME Direct is a front-end platform and can be used with both CME Globex and CME ClearPort.

Rule 5241 of the COMEX/NYMEX Rulebook permit the initiation of TAS orders into CME Globex at any time the applicable contract is available for TAS trading on CME Globex and during such TAS-eligible contract’s prescribed pre-open time period. The initiation of any TAS order on CME Globex outside of these time periods is prohibited.

For compliance and enforcement purposes, the start of a TAS pre-open period is defined by receipt of the security status message indicating that the group has transitioned to the pre-open state, and the end of a TAS trading session is defined by receipt of the security status message indicating the group is closed. TAS orders may not be entered into CME Globex from the end of a TAS trading session until receipt of the security status message indicating that the group has transitioned to the pre-open state. More information regarding TAS trading rules can be found here.

TAS Block Trades

The TAS-eligible futures contract months for metals futures may be privately negotiated and executed as a block trade and assigned the current day’s settlement price or any valid price increment ten ticks higher or lower than the settlement price.

Minimum Block Threshold for TAS (in contracts)

Gold

E-micro Gold

Silver

Platinum

Palladium

Copper

 

 

 

 

 

 

25

25

25

10

10

1st and 2nd active months: 20 3rd and 4th active months:
5 spot (delivery) month: 5 if the contract month was
previously TAS eligible

Note: If the spot month was not previously a TAS eligible
contract month, block trades are not permitted.

TAS block trades may be reported to the Exchange electronically via CME Direct/CME ClearPort, or by email to the CME Global Command Center (GCC) – ClearPort Facilitation Desk GCC@cmegroup.com.

When submitting a TAS block via CME Direct/CME ClearPort, the price information is entered as a price differential within the allowable range (i.e. plus or minus ten ticks) from the settlement price. For example, the price differential to be entered in CME Direct/CME ClearPort for a TAS Gold Futures block trade should be in the -$1.00 to +$1.00 per troy ounce range which represents +/- 10 ticks.

TAS Block Trades

TAS transactions can be used for many trading practices one of which would be to manage exposure to average settlement prices. The following provides an example of this type of strategy.

Example of Copper Producer Physical Sale

On March 15th, a copper producer has agreed to sell 500,000 lbs. (20 lots) of copper cathodes at the monthly average of the May Copper Futures (HG) settlement price, during the month of April (20 trading days).

Assumptions and Conditions

  • Cost of production all in:  $1.50 per pound
  • Current May HG Price:  $2.91 per pound
  • Flat Curve

The producer sells 20 lots of May HG futures at $2.91 per lb. to secure the profit of $1.41 per lb., creating a short position of 20 lots of May HG.

Beginning on April 1st, as the pricing for the contract begins, the producer buys 1 lot of May HG TAS every day during the month of April, to obtain the monthly settlement average.

This daily buy back reduces the short position until it reaches zero on the last trading day of April.

If the average settlement price of May HG remains unchanged throughout the month, the profit of $1.41 remains intact.

If the average settlement price of May HG rallies to $2.96 per lb., the futures hedge loses $.05 per lb., but the physical sale is $0.05 higher, which preserves the profit of $1.41 per lb.

If the average price of May HG sells off to $2.89 per lb., the physical sale is $0.02 per lb. lower, but the futures hedge nets $0.02 per lb. profit, so the original profit of $1.41 is preserved.

For ease of explanation, this example does not reference factors such as bid-offer spread, brokerage and exchange fees or margin requirements.