Market Data Advisory Notices
To | Market Data Distributors
From | Market Data Operations
Subject | Harmonizing CME Stock Index Price Limit Policies - Effective Tuesday, January 1, 2008
Notice Date | 2007-12-14
Notice Number | Q2007-307
Effective Date | 2008-01-01
Effective Tuesday, January 1, 2008 (trade date January 2, 2008), CME Group will apply 10%, 20% and 30% price limits rule to all domestic stock index products. This initiative is occasioned by the recent CME/CBOT combination and prompted by the fact that legacy CME price limits are somewhat at odds with practices prevailing on NYSE, NASDAQ, CBOT and CBOE. New Price Limit Policies The new daily price limit policies would comprehensively amend price limits associated with all domestic legacy CME stock index products. In particular, these amendments incorporate several principles as follows. · Eliminate the current 5%, 10%, 15%, 20% limits in favor of 10%, 20% and 30% “speed bumps” which are consistent with prevailing spot equity market practices. Note that we propose to retain references to the specific stock index that is the subject of the futures contract rather than tying these limits to movements in the DJIA. In particular, various indexes may be more or less volatile than the DJIA. · Eliminate “Second Day Limits” as currently enforced. Contingent upon being lock-limit at a 20% decline on a given day, less binding constraints are imposed upon 5%, 10%, 15% and 20% declines on the next business day. A less stringent enforcement of the limits may be warranted to the extent that if CME products were limited to a 20% movement while the equity market in general continued its descent, CME might need to play “catch-up” on the subsequent day. To the extent that we would be coordinated with the 10%, 20%, 30% framework, it becomes unnecessary to play catch-up. · Generally tie limits to movements in E-mini contracts as opposed to standard contracts. When the current system of price limits was introduced in 1998, the standard contracts represented the focal points of liquidity as opposed to the E-minis. This situation has subsequently reversed and should be recognized in our Rulebook. · Require an unconditional trading halt with respect to CME stock index products when the primary stock market is halted for trading, regardless of whether the CME product has hit a limit or not. · We propose to continue enforcement of the current 5% limit bid or offer policy during Electronic Trading Hours (ETH). However, due to operational considerations, if a market shall be limit bid or offered anytime after 8:28 a.m., a halt shall be declared. When the market reopens at the commencement of Regular Trading Hours (RTH) at 8:30 a.m., the 10% limit shall be in effect.