Notice to Members
Notice No. 185
06/22/2001
Amendments to COMEX Futures and Option Settlement Procedures
Please be advised that amendments to certain COMEX settlement price rules will go into effect on Monday, June 25, 2001 for the COMEX Division.

Futures Settlement Procedures. With one exception, the Copper settlement procedures (for months other than the most active month) now will be used for other contracts as well. Basically, settlement prices for such other contract months will be determined based upon spread relationships with greater weight given to spreads executed later in the trading day in large volumes, and lesser weight given to spreads traded in lesser volumes, spread bids and offers actively represented later in the trading day, and spread transactions, bids and offers from earlier in the trading day.

Difference Between Copper and Non-Copper Futures Settlement Procedures: Unfilled Bids and Offers. However, the changes in settlement procedures being adopted for non-Copper futures contracts will not incorporate one feature of the Copper (and Aluminum) settlement procedures, i.e., protecting the best outright bid or offer for 20 contracts or more that was available and unfilled in the last 30 minutes of trading.

Options Settlement Procedures. The amendments to COMEX Rules 4.92 and 4.93 modify settlement procedures for COMEX options contracts. Currently, Aluminum and Copper options generally are settled based upon an options pricing model. The amendments incorporate three changes. First, the amendments extend use of such an option pricing model to both the Silver and Gold markets. Second, the amendments conform the rule to existing practice in using such a model for Aluminum and Copper. Finally, these amendments will make COMEX Division rules more consistent with those currently in use for the NYMEX Division option contracts.

AMENDMENTS TO COMEX RULES 4.91, 4.92 AND 4.93

(Bold indicates additions; Strikethrough indicates deletions)

Rule 4.91 – "Futures Settlement Prices"

(a) Active Month. The settlement price of the most active futures contract month shall be the average (rounded off to the nearest price tick) of the highest and lowest prices of the trades reported during the closing period, except as otherwise provided in this rule or in Rule 4.93 ("Use of Discretion to Establish Settlement Price").

(b) In All Other Delivery Months. The settlement prices shall be determined based upon spread relationships between and among contract months, which relationships shall be determined in the judgement of the Settlement Price Committee with: (a) greater weight given to spreads executed later in the trading day in large volumes, and (b) lesser weight given to (i) spreads traded in lesser volumes, (ii) spread bids and offers actively represented later in the trading day, and (iii) spread transactions, bids and offers from earlier in the trading day.

(b) All other Contract Months. Except otherwise provided, the settlement prices for all other futures contract months shall be prices that reflect price differentials consistent with normal price relationships determined by the spread differential between adjacent months, such differentials being directly or indirectly related to the active month. Such spread differentials for other months shall be determined by the (i) average of the highest and lowest spread differentials reported during the last fifteen (15) minutes of trading; or (ii) if there were no such spread transactions, by the average of the bids and offers for spreads during such period; or (iii) if there are no such bids and offers, at prices consistent with the differentials for other contract months which have been settled in accordance with this rule. If the subcommittee of the Quotations Committee calculates the spread differentials under subsection (iii) of this paragraph, the subcommittee shall record the contract month differentials which formed the basis of the price at which the contract was settled.

(c) Exception - Matched Order Price. The settlement price for the nearest copper futures delivery month (spot) shall be the matched order price established pursuant to Rule 4.42 ("Matched Orders"). If the only trades entered into during the closing period were effected through matching, the contract will be settled by the respective subcommittee of the Settlement Price Committee in accordance with sections (a) and (b) of this Rule 4.91.


4.92 – Option Settlement Prices

The settlement premiums for option series shall be determined upon the following procedures:

(A) With the exception of the day of expiration, option settlement premiums shall be determined in accordance with the following:

  1. For call (put) options whose strike price is greater (less) than or equal to the settlement price of the underlying futures contract and have traded during the closing range, the option settlement premium shall be based on, but not limited to, (i) the price traded, (ii) volume traded, (iii) the underlying futures price, (iv) the bid/offer spread on the underlying future, and (v) the length of time between trade and the close of trading.


  2. For call (put) options whose strike price is less (greater) than the settlement price of the underlying futures contract and have traded during the closing range, the option settlement premium will be determined consistent with the corresponding put (call) using an appropriate option pricing model.


  3. Bids and offers for twenty-five (25) lots or more that have been posted at least ten (10) minutes before the close and throughout the closing range shall be considered for settlement, unless the Settlement Price Committee ("Committee") determines that it is unreasonable to do so given spread relationships at the close of trading. Any member wishing to protect a bid or offer posted during that period must remain available to the Committee until settlements are final and provide appropriate documentation of the bid or offer if requested by the Committee.


  4. The Committee shall endeavor to use its best efforts to maintain appropriate price spread relationships between and within listed months using an appropriate options model.
(B) On the day of option expiration, the option settlement premium shall be determined in accordance with the following:

  1. For call (put) options whose strike price is greater (less) than or equal to the settlement price of the underlying futures contract the option settlement premium shall be zero.


  2. For call (put) options whose strike price is less (greater) than the settlement price of the underlying futures contract, the option settlement premium shall be determined on the basis of the absolute difference between the futures price and the strike price.
(C) If, using the procedures specified in Subsections (A) or (B) above, a settlement premium being considered for a particular option would not be consistent with (1) trades made during the closing range in other option series on the same underlying futures, (2) the settlement price of the underlying future, or (3) market information that is either known by Committee members or brought to their attention by Exchange officials, then the Committee may establish a settlement premium that is consistent with other trades, the settlement price of the underlying future, or market information. In all instances in which the Committee establishes a settlement premium pursuant to this Section (C), the Committee shall prepare a written record setting forth the basis for such settlement premium.

(D) After settlements for all contract months for a particular contract are completed by the Settlement Price Committee, there will be a ten minute period where members can object to a particular settlement. Following this ten minute period, members may no longer make objections to the settlement premiums.


4.92 – Option Settlement Price

The settlement prices for option series shall be computed using the following procedures:

(a) If one or more trades have been executed during the closing period, the settlement price shall be the average (rounded off to the nearest price tick) of the highest and lowest premiums for trades executed during the closing period; provided that the settlement price for any series of the in the money options on the last trading day for that series shall be the difference between the exercise price of such series and the settlement price of the underlying futures contract on such last trading day.

(b) If no trades have been executed during the closing period in an option series, the settlement price shall be the average of the last bid and offer made during the closing period.

(c) If both a bid and an offer have not been made during the closing period, the settlement price for that option series shall be set at the same time differential which such option series had to the next earlier option series at the same time, or of none the nearest, strike price (in the case where the option series is the spot month, the next later option series) using the previous day's settlement prices to determine said differential. (Rule 4.92 Amended 02/01/98).


4.93 – "Use of Discretion to Establish Settlement Price"

If a subcommittee of the Quotations Settlement Price Committee believes that any settlement price arrived at through the application of the formula specified in Rules 4.91 and 4.92 is inappropriate, it shall settle the futures contracts or option at a price it judges to be proper. Such price must be within the permissible trading limits for that day. For any price established by use of the subcommittee's discretion, the subcommittee shall prepare a written explanation of its reasons for deviating from the price which would have been established by application of Rules 4.91. or 4.92, as the case may be.
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