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KCBT WHEAT OPTION STRIKE PRICE GENERATION RULES AND KCBT WHEAT FUTURES AND OPTIONS LISTING CYCLES
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- To
- Members, Member Firms and Market Users
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- From
- Research and Product Development
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- #
- SER-6724
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- Notice Date
- 19 June 2013
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- Effective Date
- 01 July 2013
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Pending CFTC review, the Exchange plans to harmonize KCBT Wheat option strike price generation rules with CBOT Wheat option strike price generation rules. Also pending CFTC review, the Exchange plans to harmonize KCBT Wheat futures and options listing cycles with CBOT Wheat futures and options listing cycles. These changes are planned for implementation on July 1, 2013.Strike Price GenerationKCBT Wheat options strike prices are generated daily to assure that there are 30 strikes above and below the at-the-money strike price in increments of $0.10 per bushel. CBOT Wheat options have a two-tiered strike generation rule. When standard options are listed for trade, strike prices are generated daily to assure that there are strike prices in increments of $0.10 per bushel within 50 percent above and below the at-the-money strike (e.g., for $6.00 per bushel at-the-money strike, all strikes in increments of $0.10 are included between $3.00 and $9.00 per bushel). Additionally, when CBOT Wheat standard options become the third listed option month and when serial options are listed, strike price generation changes to increments of $0.05 per bushel within 25 percent above and below the at-the-money strike.CBOT Rules also allow for new strike prices outside the generated range of strikes to be listed and traded dynamically on the trading floor with availability electronically on the next trading day. This allows for strike prices that have customer demand to be listed and traded on an as-needed basis, typically on days when the price of the underlying futures has moved significantly.This planned harmonization of CBOT and KCBT Wheat option strike generation rules will not result in the same strike prices across KCBT and CBOT Wheat options markets because normally there is a different at-the-money strike price in each market.Listing CyclesKCBT Wheat futures and options currently do not follow a standardized listing cycle and contract expirations are certified on an as-needed basis. CBOT Wheat futures and options, however, do follow standardized listing cycles; in CBOT Wheat futures the Exchange lists three July expirations and all preceding expirations and in CBOT Wheat options the Exchange lists at all times three consecutive expirations and six standard option expirations.With both markets trading on the same trading floor beginning July 1, 2013, the Exchange believes there will be less confusion and better coordination across the two markets if the same contract expirations are available.Questions may be directed to Fred Seamon in Research and Product Development (312-634-1587 or Fred.Seamon@CMEGroup.com).Rule changes pending CFTC review. Additions are underlined and bold; deletions are [
bracketed with strikethrough].CHAPTER 25OPTIONS ON CONTRACTS OF SALE ONHARD WINTER WHEAT FUTURES CONTRACTS2511.01 Strike Price Interval.[Trading shall be conducted for options with strike prices in interval multiples of ten cents (10¢) per bushel.]At the commencement of trading a new standard option month, the following strike prices shall be listed: the strike price closest to the previous day's settlement price of the underlying futures contract (the at-the-money strike), [the next thirty (30) higher and the next thirty (30) lower strike prices] and strikes in integral multiples of ten cents (10¢) per bushel in a range 50 percent above and below the at-the-money strike.[; provided, however, that no strike price shall be listed below the $1.00 strike price level.]At the commencement of trading serial month options and for standard option months the business day they become the third listed month, the following strike prices shall be listed: the strike price closest to the previous day’s settlement price of the underlying futures contract (the at-the-money strike), and strikes in integral multiples of five cents (5¢) per bushel in a range 25 percent above and below the at-the-money strike.If the previous day's settlement price is midway between two strike prices, the closest price shall be the larger of the two. (For example – if a new futures month contract closes at $3.75, the closest price is $3.80.) The Exchange may modify the procedures for the introduction of strikes as it deems appropriate in order to respond to market conditions.2511.02 New Options.[A new option based on a futures month within the ordinary cycle will be introduced the day after trading has commenced in the underlying futures contract for that contract month, (for example — if on February 1, the December futures contract had traded for the first time, then on February 2, an option month for the December futures contract is listed, having strike prices as specified in Rule 2511.01). A new option based on a serial month (a month outside of the ordinary cycle) will automatically be introduced the day following the expiration of a serial month, so as to at all times have available for trading the number of serial months established by the Exchange for trading, (for example, if the Exchange has authorized the listing of three serial months, and those months currently traded are January, February and April, then the serial contract month of June will automatically be listed for trading the day following the expiration of the January contract month).]The number of months open for trading at a given time shall be determined by the Exchange.2511.03 New Strike Price.Any close which causes there to be less than the [number] range of strike prices prescribed by Rule 2511.01 will cause new strike prices to be added the next day in order to have at least the [number] range of strike prices pursuant to Rule 2511.01 available for trading. Upon demand and at the discretion of the Exchange, new out-of-current-range strike prices at regularly defined intervals may be added for trading on as soon as possible basis. The Exchange may modify the procedures for the introduction of strikes as it deems appropriate in order to respond to market conditions.2511.04 Horizontal Option Strike Price. Reserved.2511.05 Limit On New Strike Prices. Reserved.[No new strike prices may be introduced during the last six (6) trading days of the expiring option.]2511.06 Delisting.An option having a particular strike price outside the latest strike ranges prescribed by Rule 2511.01 and without open interest may [shall] be delisted. [if for ten (10) consecutive trading days no transaction is made, and there is no open position in such strike price; provided, however, that no option shall be delisted if it has a strike price which is required by Rules 2511.01, 2511.03, or 2511.04.]2511.07 Relisting.Any strike price which has been delisted under Rule 2511.06 shall thereafter be relisted at any time any such option has a strike price required by Rules 2511.01, 2511.03 or 2511.04.CHAPTER 20WHEATNOTE: TRADING MONTHSBy custom and usage, the delivery/trading months for grain futures are March, May, July, September, and December. The number of months open for trading at a given time shall be determined by the Exchange. [These have not been set by Board action or the By-laws insofar as existing records indicate. It is assumed that they could be changed by action of the Exchange. Also by custom, until recently the Permit Holders could trade in any distant month without any official Exchange approval or action to "open" such months. However, since late 1978, due to concern about changing freight rates and laws, the Exchange has adopted the policy of permitting trade only in specifically authorized months (generally one year ahead). This serves to focus the Exchange’s attention to such matters and also prevents trades in months in which contract terms could be changed, if required by changed conditions.]
Planned KCBT Wheat Futures Cycle GuideCOMMODITYJANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDECKCBT WHEATFUTURES3 Jul and all preceding ExpirationsMarMayJulSepDecMarMayJulSepDecMarMayJulMarMayJulSepDecMarMayJulSepDecMarMayJulMarMayJulSepDecMarMayJulSepDecMarMayJulMayJulSepDecMarMayJulSepDecMarMayJulMayJulSepDecMarMayJulSepDecMarMayJulJulSepDecMarMayJulSepDecMarMayJulJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulSepDecMarMayJulDecMarMayJulSepDecMarMayJulSepDecMarMayJulDecMarMayJulSepDecMarMayJulSepDecMarMayJulDecMarMayJulSepDecMarMayJulSepDecMarMayJulPlanned KCBT Wheat Options Cycle GuideCOMMODITYJANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDECKCBT WHEAT OPTIONSFirst 3 consecutive months andFirst 6 standard option contractsFebMarAPRMayJulSepDecMarMar AprMayJulSepDecMarAprMayJUNJulSepDecMarMayMay JunJulSepDecMarMayJunJulAUGSepDecMarMayJulJul AugSepDecMarMayJulAugSepOCTDecMarMayJulSepSep OctNOVDecMarMayJulSepOct NovDecMarMayJulSepDecNovDecJANMarMayJulSepDecDec JanFEBMarMayJulSepDecJan FebMarMayJulSepDecMarThe column headings represent the first day of the month. The cells show the contract months authorized for trading as of the first day of the month. The bold and underlined contract months indicate futures or options contracts that have been added to the list of contracts authorized for trading in the prior month. New contracts are authorized for trading the day after a spot futures contract has expired.For the options cycle guide, months listed in Small Caps indicate reduced strike price intervals, from $0.10/bu. to $0.05/bu.
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