Clearing House Advisory Notices
To | All Firms; Back Office Managers and Service Providers
From | Clearing House Department
Subject | Zero and Negative Trade, Settlement, and Strike Prices
Notice Date | 2006-04-18
Notice Number | 06-99
Effective Date | 2006-04-18
Please be advised that later this year, CME plans to list products with trade and/or settlement prices that can be positive, zero, or negative, as well as options products whose strike prices can be positive, zero, or negative. These capabilities will also be made available in the clearing system for CBOT products, of course. For example: CME cash-settled snowfall futures are an example of futures index products that can have a final settlement price that is positive or zero. In the event that there is no snowfall for a particular location for the duration of trading of that contract, then that contract's final settlement value is zero. CME's Non-Farm Payroll economic derivatives, traded as part of CME Auction Markets, is an example of a cash-settled, index-based product whose price may be positive, zero, or negative. The underlying statistic is defined as the change in Non-Farm Payrolls from month-to-month, and hence can be negative, zero or positive. Currently, the statistic is offset by adding a number to it, so that its value is always positive. Once negative prices are allowed, these offsets will no longer be needed, and the statistic will be represented as its true value. Option trade prices may reach zero, but they will never go negative. Option strike prices may be positive, zero, or negative for any number of reasons. They may represent either of the products listed above, where the strike price is based on an underlying index, or price differentials between contract months or even two different products. This Advisory is being sent now so that firms have ample notification that they will need the ability to process these trade, settlement, and strike prices. We expect that many systems and processes have already been programmed with non-positive trade, settlement, and strike prices in mind; this Advisory is a reminder to make sure that all areas of your business are covered. For the full text of this advisory...