• Launch of Short-Dated New Crop Options on Kansas City Board of Trade Wheat Futures

      • To
      • Members, Member Firms and Market Users
      • From
      • Research and Product Development
      • #
      • SER-6764
      • Notice Date
      • 01 August 2013
      • Effective Date
      • 26 August 2013
    • On Monday, August 26, 2013, pending CFTC review, the Exchange will add Short-Dated New Crop Options to the current lineup of options on Kansas City Board of Trade (KCBT) Wheat futures.
       
      Since CBOT short-dated new crop options were launched in June 2012, market participants have utilized these options to hedge against highly volatile new crop prices. Through the end of July 2013, over one million contracts have traded. Open interest has increased to more than 240,000 contracts through 6/21/2013, the day on which the July contract expired.
       
      KCBT short-dated new crop Wheat options exercise into July Wheat futures contracts instead of nearby futures. They also expire earlier than standard July Wheat options. The lower time value will provide market participants a cost effective tool to hedge new crop Wheat positions. In addition, these options will give market participants increased hedging flexibility and additional trading opportunities such as the ability to trade high impact events that affect new crop markets in specific time frames; hedging positions in old crop/new crop Calendar Spread Options; and managing Greek sensitivity of an options book.
       
      At launch, the following KCBT short-dated new crop Wheat option contract months will be listed: December 2013 (Expires on 11/22/2013), March 2014 (Expires on 2/21/2014) and May 2014 (Expires on 4/25/2014). All of these contract months will exercise into the July 2014 KCBT Wheat futures contract.  A new listing cycle referencing the July 2015 KCBT Wheat futures contract will begin on the first business day following the expiration of September 2014 options.
       
      Other than different underlying futures and listing cycles, short-dated new crop options have the same contract specifications – American-style exercise; strike price ranges; strike price increments; minimum option premium increments; daily and final settlement – as standard KCBT Wheat options. More detailed contract specifications are shown in APPENDIX A.
       
      A detailed fee schedule is shown in APPENDIX B. APPENDIX C summarizes the KCBT rulebook changes that apply to incorporating the KCBT short-dated new crop options.
       
      If you require any additional information, please contact Randy Shao at 312-648-3795 or via e-mail at Renyuan.Shao@cmegroup.com; Fred Seamon at 312-634-1587 or via e-mail at Fred.Seamon@cmegroup.com; or Dave Lehman at 312-930-1875 or via e-mail at David.Lehman@cmegroup.com.
       
       
       
       
       
       
       
       
       
       
       
      APPENDIX A: CONTRACT SPECIFICATIONS
       
       

      Contract Name
      Short Dated Options on New Crop KCBT Hard Red Winter Wheat Futures
      Contract Unit
      One new crop KCBT Wheat futures contract (July) of 5,000 bushels
      Minimum Fluctuation
      1/8 of one cent per bushel ($6.25 per contract)
      Strike Price Intervals
      Trading shall be conducted for put and call options with strike prices in integral multiples of five (5) cents per bushel. More details on strike price intervals are outlined in KCBT Rule 2511.01.
      Contract Months
      On the first trading day following the expiration of September option, list 3 contract months: December (Z), March (H), and May (K). Each of these options will exercise into the July futures contract that is nearest to the expiration of the option. A new listing cycle will begin on the first trading day following the expiration of the next September option.
      Daily Price Limit
      Same as the daily price limit applied to standard and serial options. There shall be no price limits on the last trading day.
      Last Trade Date
      Same as the last trade date of existing December, March, and May standard options.
      Exercise
      American-style. The buyer of a futures option may exercise the option on any business day prior to expiration by giving notice to the Clearing House by 6:00 p.m. Chicago time. Option exercise results in an underlying futures market position. Options in-the-money on the last day of trading are automatically exercised.
      Expiration
      Unexercised Wheat futures options shall expire at 7:00 p.m. on the last day of trading.
      Hours
      (All Times are Chicago Time/CT)
      CME Clearport: 5:00 pm CT Sunday through 4:15 pm CT Friday, with a 45-minute break between 4:15 pm and 5:00 pm on Mondays through Thursdays.
      Open Outcry: 8:30 am - 1:15 pm CT, Monday - Friday
      Globex: 7:00 pm - 1:15 pm CT, Sunday - Friday with a 45-minute break each day between 7:45 am and 8:30 am
      Product Ticker Symbols
      Globex: KWE
      Open Outcry: KWO
      Rulebook Chapter
      Chapter 25
      Note: Please insert following link and open in a new window.
      http://www.kcbt.com/20130604_kcbt_rules_clean.pdf
      Exchange Rule
      These contracts are listed with, and subject to, the rules and regulations of KCBT.

       
       
       
       
       
       
       
       
       
       
      APPENDIX B: FEE SCHEDULE
       
      CBOT Member Firms and Individuals – KC Wheat SDNC Options – Exchange Fees

      Level
      CBOT Account Owner 2
      Execution Type
      Platform
      Exchange Fee
      Individual Member
      1
      Individual Members
      Member Trading
      Own Account
      Open Auction
      $0.00
      Electronic
      $0.14
      Individual Delegates
      Delegate Trading Own Account
      Open Auction
      $0.00
      Electronic
      $0.29
      Equity Members (Individual Equity members, Clearing Firms and Equity Firms)
      2
      Equity Members 1
      Member or Delegate
      Open Auction
      $0.00
      Electronic
      $0.14
      Equity Members 1
      Non Member
      Electronic
      $0.45
      (Exception) Rule 106.S. Family of Funds Equity Member Firms
      Member, Delegate or Non Member
      Open Auction
      $0.00
      Electronic
      $0.45

      1 - Clearing Closely Held Corporate Members & Sole Proprietors, Rule 106.J. Equity Closely Held Corporate Members & Rule 106.I. Affiliate Equity Member Firms, Individual Equity Members (other member/delegate executing), Clearing FCMs, Rule 106.J. Equity FCMs, Clearing Corporate Members, Rule 106.J. Equity Corporate Members & Rule 106.I. Affiliate Equity Member Firm (Affiliate of Clearing FCM, Clearing Corporate Member or Rule 106.J Equity FCM or Equity Corporate Member), Rule 106.I. Affiliate Membership Umbrella - Qualified Affiliate - Unlimited Number of Affiliates
       

      Level
      CBOT Account Owner 2
      Platform
      Exchange Fee
      Trading Members (Individual Non-Equity Members and Non-Equity Member Firms)
      3
      Individual Non-Equity Members (other member/delegate executing); Rule 106.H. Corporate Trading Firms; Rule 106.H. Trading FCMs; & Rule 106.I. Affiliate Trading Member Firms
      Open Auction
      $0.00
      Electronic
      $0.75
      Individual Delegates (Other Member or Delegate executing the trade) & Rule 106.I. Affiliate Trading Member Firms
      Open Auction
      $0.00
      Electronic
      $0.90
      Rule 106.S. Family of Funds Equity Member Firms
      Open Auction
      $0.00
      Electronic
      $0.75
      Electronic Corporate Member Firms
      4
      Electronic Corporate Members
      Electronic
      $0.90

       
      2– Product--Seat Division Eligibility
      KC Wheat SDNC Options – Account Owners noted above must hold or lease a CBOT FULL, AM, or COM seat to be eligible for these reduced rates.

      Current Fee Programs Eligibility
      (Inclusion/Exclusion)
      Grain & Oilseed KCBT Wheat Options
      Inclusion

      CME Member Firms and Individuals - KC Wheat SDNC Options – Exchange Fees
       

      Level
      CME Account Owners 1
      Execution Type
      Platform
      Exchange Fee
      Individual Member
      1
      Individual Members
      Member Trading
      Own Account
      Open Auction
      $0.00
      Electronic
      $0.14
      Individual Delegates
      (Rule 106.D Lessees / Rule 106.F Employees)
      Delegate Trading Own Account
      Open Auction
      $0.00
      Electronic
      $0.29
      Clearing and Equity Firms
      2
      Clearing Member Firms,/ Rule 106.J Equity Member Firms/Rule 106.I Members/
      106.S Family of Hedge Funds
      Member or Delegate
      Open Auction
      $0.00
      Electronic
      $0.14
      Non Member
      Electronic
      $0.45

       
       

      Level
      CME Account Owners 1
      Platform
      Exchange Fee
      Individual Members - Not Trading For Own Account (Execution not a Factor)
      3
      Individual Members 
      Open Auction
      $0.00
      Electronic
      $0.75
      Individual Delegates
      (Rule 106.D Lessees / Rule 106.F Employees)
      Open Auction
      $0.00
      Electronic
      $0.90

      1 – Product--Seat Division Eligibility
      HRW Options – Account Owners noted above must hold or lease a CME, IMM, or IOM seat to be eligible for these reduced rates.
       
       
      CME& CBOT Member Firms and Individuals - KC Wheat SDNC Options Clearing, EFR Surcharge and Non Trade Processing Fees  
       

      Other CBOT Processing Fees
      Rate
      Clearing Fee 1
      $0.06
      Ex-Pit Surcharge (EFR)
      $0.50
      Exchange Fees for Non Trades  
      (Exercise, Assignment, Delivery, Future from Exercise and Future from Assignment)
       $0.05 Member
       $0.20 Delegate
      Exchange Fees for Expired Options
      $0.05
      Brokerage (With or Without Discretion)
      $0.002

      1         Clearing Fee includes Pit Trades, Pit Spreads, Give Ups, Electronic Trades, Electronic Spreads, Exercise, Assignment and Delivery transaction types
      2         Brokerage Fees to be waived at this time for CBOT and CME Members.
       
       
       
      KCBT Permit Holders - KC Wheat SDNC Options
      Exchange Fees
      Account Type
      Platform
      Wheat Options Exchange Fee
      Individual Permit Holder
      Open Auction
      $0.00
      Electronic
      $0.15
      Other Permit Holder
      Open Auction
      $0.00
      Electronic
      $0.50
      Non-Permit Holder
      Open Auction
      $0.55
      Electronic
      $1.70
      Clearing Fees
       
       
      Account Type
      Platform
      Wheat Options Exchange Fee
      Permit Holder
      Open Auction
      $0.00
      Electronic
      $0.00
      Non-Permit Holder
      Open Auction
      $0.10
      Electronic
      $0.10
       
       
       
       
      Surcharges
      Trade Types
      Open Auction
      Exchange For Risk
      All Trades
      $0.50
      Delegate Permit Holder
      CTI Type 1
      $0.20
      CTI Type 2,3&4
      $0.10
        
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
      APPENDIX C: RULEBOOK CHANGES
       
       
      The recommended rule book changes are attached with additions bold and underlined and deletions [bracketed with strikethrough].
       
       
       
      KCBT Rulebook
      CHAPTER 25
      OPTIONS ON CONTRACTS OF SALE ON
      HARD WINTER WHEAT FUTURES CONTRACTS
       
       
      2507.00 Option Trading Months.
       
      Options shall be listed for trading in the following months:
      a. For options months in the ordinary cycle of the underlying futures contract (i.e., July,
      September, December, March and May), the number of months listed shall be the same as the underlying futures contract, provided, however, that a new option contract based on the ordinary cycle will be introduced the day after trading has commenced in the underlying futures pursuant to Rule 2511.02.
       
      b. For options months outside the ordinary cycle (i.e., August, October, November, January,      
      February, April and June, hereinafter referred to as "serial" months), the number of   months listed shall be established by the Exchange. However, no serial months shall be listed outside of the months listed pursuant to subsection (a) above.
       
      c. Weekly options expire on every Friday, except for those Fridays on which standard or serial options are scheduled to expire.  A new weekly option will automatically be introduced the business day following the expiration of a weekly option so that three weekly options are always listed concurrently.
       
      d. For short-dated new crop options, on the first trading day following the expiration of the September option, list at least 3 contract months: December, March, and May.    A new listing cycle will begin on the first trading day following the expiration of the next September option.
       
       
      2507.01 Underlying Futures Contract.
       
      For options that expire in the ordinary cycle (i.e., July, September, December, March and May), the underlying futures contract is the futures contract corresponding to the option expiration month. For serial options (options outside the ordinary cycle), the underlying futures contract is the next futures contract in the ordinary cycle nearest the option expiration month. For example, the underlying futures contract for an option contract expiring in October or November is the December futures contract. For weekly options, the underlying futures contract is the nearby futures contract. However, if the nearby futures are still trading but the standard option on that futures has expired, then weekly options expire into the second-listed futures contract. For short-dated new crop options, the underlying futures contract is the July futures contract that is nearest to the expiration of the options.
       
       
      2511.01 Strike Price Interval.
       
      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), and strikes in integral multiples of ten cents (10¢) per bushel in a range 50 percent above and below the at-the-money strike.
       
      At the commencement of trading serial month options, weekly options and short-dated new crop 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). A new weekly option will automatically be introduced the business day following the expiration of a weekly option so that three weekly options are always listed concurrently. Weekly options expire on every Friday, except for those Fridays on which standard or serial options are scheduled to expire.  On the business day following the expiration of standard or serial options, no new weekly option will be introduced. For short-dated new crop options, on the first trading day following expiration of the September option, list at least 3 contract months: December, March, and May.
       
       
      2514.00 Last Day Of Trading And Expiration.
      a. For options months in the ordinary cycle; no trades in options expiring in the current month
      shall be made after 1:15 p.m. on the last Friday which precedes by at least two (2) business days, the first notice day for the corresponding futures contract.
      b. For serial options months (months outside the ordinary cycle); no trades shall be made after 1:15 p.m. on the Friday which precedes by at least two (2) business days, the last business day of the calendar month immediately preceding the option serial month, (for example, for November serial options contracts, the last trading day is the Friday which precedes by at least two (2) business days, the last business day in October). If such Friday is not a business day, the last day of trading shall be the business day prior to such Friday. The option shall expire at 10:00 a.m. on the first Saturday following the option's last day of trading.
      c. For weekly options; no trades in weekly options shall be made after 1:15 p.m. on the Friday such a weekly option expires. If such Friday is not a business day, the last day of trading shall be the business day prior to such Friday. The option shall expire at 10:00 a.m. on the first Saturday following the option's last day of trading.
      d. For short-dated new crop options, the last day of trading in any option for expiry in a given month shall be the last Friday which precedes by at least two business days the last business day of the calendar month preceding such option’s named expiry month. If such Friday is not a business day, then the last day of trading in such option shall be the business day prior to such Friday. On their last day of trading, short-dated new crop options shall cease trading at the same time that its corresponding futures contract ceases trading. The option shall expire at 10:00 a.m. on the first Saturday following the option's last day of trading.
       

       

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