Pilot
Program to Settle to CME Globex Activity Expanded to Rough Rice Futures
Effective
September 16, 2008, Rough Rice futures will be added to the pilot program presently operating in
Wheat futures whereby settlement prices are based on CME Globex activity. This Advisory Notice
updates the prior notice on settlement procedures to reflect the changes to the settlement
procedures for Rough Rice futures.
Settlement
Procedures for CBOT Agricultural Futures That Settle to Pit Activity
For CBOT
agricultural contracts that settle based on pit trading activity, the Pit Committee, in
consultation with exchange staff, will settle the lead month contract at the price within the
closing range that in its estimation is most representative of the price at which the preponderance
of the pit volume traded during the close.
Contract
months other than the lead month will settle based upon spread relationships established in the pit
during the closing period. To the extent that relevant spreads trade at multiple price levels
during the closing period, the Pit Committee, in consultation with exchange staff, will imply the
settlement price from the spread value which it estimates is most representative of the price at
which the preponderance of the spread volume traded in the pit during the closing period. For
contracts that close on a call, the Pit Committee will rely on spread prices established in the
period preceding the call close during which MOC spread orders are executed.
In the
absence of spread trading activity during the closing period, the exchange will rely on other
available market information to determine the appropriate settlement price.
Post Close
Session:
The range of
prices eligible to trade in the pit during the post close session includes the pit’s closing range,
the settlement price and any intervening prices.
Limit
Markets:
If the lead
month trades exclusively at its limit price or is locked limit during the closing period, the
contract will settle at the limit price. In this event, the most actively traded outright
contract that is not at limit will be used as the anchor price for determining the settlement
prices of the other contracts; however, no contract will settle through its price limit and any
contract that trades exclusively at its limit price or is locked limit during the closing period
will settle at its limit price. When price limits are lifted on a spot month contract and the
other months in that contract are locked limit, the spot month will settle based upon the outright
activity in the spot month rather than on spread relationships.
For
contracts that settle electronically, expanded price limits will be based on CME Globex activity
rather than on pit activity.
General:
If a
settlement price creates risk management concerns, CME Clearing reserves the right to calculate
settlement variation using an alternate price. The alternate price will be determined by CME
Clearing.
Electronic
Settlement Pilot Program in Wheat and Rough Rice Futures
Exchange
staff in the Globex Control Center (“GCC”) will settle the first five CBOT Wheat futures contracts
and all Rough Rice futures contracts based upon CME Globex activity rather than pit
activity.
The GCC will
settle the lead month Wheat and Rough Rice futures contracts at the volume weighted average price (“
VWAP”) of the outright trades executed in the lead month contract on CME Globex from 1:14:00 to
1:15:00 p.m. in Wheat and Rice, rounded to the nearest tick.
The expiring
contract (when it is not the lead month) or the first deferred contract (when the lead month is the
expiring contract) will be settled by GCC based upon the spread relationship with the lead
month. GCC will calculate the VWAP of the relevant spread traded on CME Globex during the
period from 1:14:00 to 1:15:00 p.m. and, provided a minimum of 50 spreads trade in Wheat or 5
spreads trade in Rice, will imply the settlement price from the lead month settlement and the
spread’s VWAP. If fewer than the designated minimum quantity of spreads trade during the
relevant period, GCC will use the midpoint of the bid/offer in the spread at 1:15:00 p.m. to imply
the settlement price.
The next
three contract months in Wheat and all subsequent contract months in Rough Rice will be settled in
chronological order based upon spread relationships with the contracts already settled. For
each contract, GCC will calculate the VWAP of the traded spreads involving that contract and any
previously settled contracts to determine implied prices and, provided that the minimum quantity of
spreads trade, will calculate the VWAP of those implied prices to establish the settlement price
for that contract month. If fewer than minimum quantity of spreads trade, GCC will use the
midpoint of the bid/offer in the relevant spreads at 1:15:00 p.m. to imply prices for the contract
and will settle the contract at the median implied price.
Contract
months beyond the fifth listed contract month in Wheat will be settled by the Pit Committee, in
consultation with Exchange staff, based upon spread relationships. In the absence of material
spread trading activity in the pit during the close, the exchange will rely on other available
market information to determine an appropriate settlement price.
Notwithstanding
the foregoing, in the event the aforementioned calculations cannot be made or if the GCC, in its
sole discretion, determines that anomalous activity yields results that are not representative of
the fair value of the contract, the GCC may determine an alternative settlement price.
Example:
Assume May 08 is the Expiring Month and July 08 is the Lead Month
Month
Settlement
Basis for
Settlement
July
08
8.67
Volume = 758, VWAP = 8.67
July is lead month – use outright VWAP
May
08
8.52¾ May/July
volume is 206; VWAP of spreads is -14¼
Spread volume > 50 – imply May settlement from VWAP
of spread
Sep
08
8.81½ May/Sep
volume is 15; VWAP is -28¾ ; Bid/Offer is -29 @ -28¼
July/Sep
volume is 25; VWAP is -14½; Bid/Offer is -14½ @ 14¼
Combined
spread volume < 50 – use median implied
from
Bid/Offers = 8.81½
Dec
08
8.99
May/Dec volume is 4; VWAP is -46; Bid/Offer is -46½ @ -45¾
July/Dec volume is 91; VWAP is -32; Bid/Offer is -32¼ @ -31¾
Sep/Dec volume is 5; VWAP is -17½ ; Bid/Offer is -18 @ -17½
Combined spread volume > 50 – use VWAP implied
from spreads = 8.99
Mar
09
9.13¾ May/Mar
volume is 0; Bid/Offer is -61¾ @ -60
July/Mar volume is 0; Bid/Offer is -47½ @ -46
Sep/Mar volume is 0; Bid/Offer is -33½ @ -32
Dec/Mar volume is 0; Bid/Offer is -15 @ -13¾
Combined spread volume < 50 – use median implied
from Bid/Offers = 9.13¾
Wheat and
Rough Rice Futures Settlement on Last Trading Day:
On the
expiring contract’s last trading day, the expiring contract will settle based on the VWAP of the
outright CME Globex trades in the expiring contract and the implied values from the expiring
month/lead month spreads executed on the CME Globex platform between 12:00:00 and 12:01:00
p.m.
In the
absence of outright or spread trades during this period, the settlement price will be the best bid
or best offer in the expiring contract at 12:00:50 p.m., whichever is closer to the last trade
price. If there is not a bid/offer pair in the expiring contract at that time, the settlement
price will be the best bid or offer implied by the bid/offer in the spread at 12:00:50 p.m.,
whichever is closer to the last outright trade price in the expiring contract.
Only bids
and offers that remain active through expiration at 12:01:00 p.m. will be considered in these
calculations. In the event there is insufficient activity to make the aforementioned
calculations, the exchange may rely on earlier data or other available market information to
determine an appropriate settlement price.
Questions
regarding this advisory may be directed to the following individuals:
Tom Lord,
Associate Director, Trading Floor Operations 312.338.2881
Brian Wolf,
Associate Director, Globex Control Center
312.715.6154
Dean Payton,
Managing Director, Market Regulation
312.435.3658
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