Settlement Procedures in CBOT Agricultural Futures

This advisory notice details a number of changes to the settlement procedures in CBOT agricultural futures contracts that will be implemented on December 1, 2009.  

1. The settlement methodologies currently in place for Wheat and Rough Rice, which rely primarily on CME Globex activity to inform settlement price determinations, will be employed for all contract months in each of these products and will also be used to determine settlement prices in Oats.  This settlement methodology will no longer be considered a pilot program.

2. The settlement methodology for Corn and Soybeans will be modified such that the lead month will settle based on the estimated volume-weighted average price established in the pit during the closing range. The first two months other than the lead month will settle to spread relationships established in the pit during the close.  The balance of the contract months will settle based upon spread relationships established on CME Globex at 1:15.

3. The lead month of Soybean Oil and Soybean Meal will close and settle based on the estimated volume-weighted average price established in the pit from 1:14 to 1:15. The first two months other than the lead month will settle to spread relationships established in the pit from 1:14 to 1:15. The balance of the contract months will settle based upon spread relationships established on CME Globex at 1:15.  There will continue to be a call rotation for the contract months other than the lead month after 1:15, but this activity will not impact settlement prices.

4. On option expiration days (including Crush option expiration days), when the lead month is not the expiring month, both the lead month and the expiring month in the pit-settled contracts will settle based on outright activity. On these days, in Soybean Oil and Soybean Meal, the expiring month, in addition to the lead month, will close and settle based on the estimated volume-weighted average price established in the pit from 1:14 to 1:15.

Settlement Procedures for Corn, Soybeans, Soybean Oil and Soybean Meal

First Three Contract Months

The Pit Committee, in consultation with exchange staff, will settle the lead (top step) month at the price within the closing period (1:14-1:15) that in its estimation represents the volume-weighted price of the pit volume traded during the closing period. The first two contract months other than the lead month will settle based on spread prices versus the lead month that are established in the pit during the closing period.  The Pit Committee, in consultation with exchange staff, will imply the settlement from the spread price that in its estimation represents the volume-weighted price of the relevant spread traded in the pit during the closing period. 

As noted above, the lead month in Soybean Oil and Soybean Meal will close from 1:14 to 1:15 rather than on the call rotation, and the spread prices used to imply settlements of the first two contract months other than the lead month will be based on spread prices established in the pit from 1:14 to 1:15.  Contract months other than the lead month will continue to close in the pit on a call rotation that begins after 1:15; however, this activity will not impact settlement prices.

Contract Months beyond the First Three

Exchange staff in the Globex Control Center (“GCC”) will settle the remaining contract months for each product in chronological order based upon the midpoint of the bid/offer in the relevant spreads on CME Globex at 1:15.  Each contract month will settle to the median price implied from the relevant spreads. If the median price is not a full tick, it will be rounded to the nearest full tick.  If the median is the midpoint between two ticks, the contract will settle to the tick closest to the previous day’s settlement.

Example:   Assume December 2009 is the Lead Month

Month               Settlement                                            Basis for Settlement                                         

Dec 09              3.410                Estimated volume-weighted average price of Dec outright volume 

                                                traded in the pit from 1:14 - 1:15.

Mar 10              3.540                Dec09/Mch10 traded 500 times at -13 and 200 times at -13¼ in the pit

                                                Estimated volume-weighted price of Dec09/Mch10 is -13

Mch10 settlement price implied from Dec is 3.54

May 10             3.630                Dec09/May10 traded 25 times at -22¼ in pit – implies May at 3.63¼

                                                Mch10/May10 traded 155 times at -9 in pit – implies May at 3.63

                                                Estimated volume-weighted price implied from spreads is 3.63.                                                              May10 settlement price implied from spreads is 3.63.

July 10              3.710                Dec09/Jul10 bid/offer midpoint on CME Globex at 1:15 is -30¼;

July implied price from Dec is 3.71¼.    

                                                Mch10/Jul10 bid/offer midpoint on CME Globex at 1:15 is -17;

July implied price from Mar is 3.71.

                                                May10/Jul10 bid/offer midpoint on CME Globex at 1:15 is -7½;

July implied price from May is 3.70½.

                                                Jul10 settles to median price of 3.71

The balance of the contract months would follow a similar procedure as that applied to the July contract.

Option Expiration Days

On option expiration days (including Crush option expiration days) when the lead futures month is not the expiring month, both the expiring month and the lead month will settle based on the estimated volume-weighted average of outright pit trades executed during the closing period. On these days, in Soybean Oil and Soybean Meal, the expiring month, in addition to the lead month, will close and settle based on the estimated volume-weighted average price established in the pit from 1:14 to 1:15.

Settlement Procedures for Wheat, Rough Rice and Oats

Exchange staff in the Globex Control Center (“GCC”) will settle all CBOT Wheat, Rough Rice and Oats futures contracts based upon CME Globex activity. 

The GCC will settle the lead month Wheat, Rough Rice and Oats 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 to 1:15, 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 to 1:15 and, provided the threshold quantity of spreads trade, 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 to imply the settlement price.

All subsequent contract months 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 the minimum quantity of spreads trade, GCC will use the midpoint of the bid/offer in the relevant spreads at 1:15 to imply prices for the contract and will settle the contract at the median implied price. 

In Wheat, the minimum quantity of spreads will be 50 for the first three months other than the month settled on the outright VWAP, 25 for the next three months and 10 for all subsequent months.  In Rice and Oats, the minimum quantity of spreads will be 5 for all months.

Wheat, Rough Rice and Oats 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 and 12:01. 

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, 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, 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 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.

GCC Authority Regarding CME Globex-Determined Settlement Prices

Notwithstanding the foregoing, in the event the aforementioned calculations cannot be made or if the GCC, in its sole discretion, determines that anomalous bid/offer or trade activity yields results that are not representative of the fair value of the contract, the GCC may determine an alternative settlement price.

Questions regarding this Advisory Notice may be directed to the following individuals:

Tom Lord, Director Settlements, 312.341.3116

Brian Wolf, Associate Director, Globex Control Center 312.715.6154

Robert Sniegowski, Associate Director, Market Regulation 312.341.5991

For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.