Total Return Futures Frequently Asked Questions

AIR TRFs are Total Return Futures that have a built-in floating rate to accommodate the financing costs associated with funding the equity index exposure. These are the first of its kind to be initiated by CME Group.

The AIR TRF will be launched on the S&P 500 and will reference the total return version of the index (SPTR).

CME views the AIR Total Return Futures as complimentary to the currently listed S&P 500 Total Return Futures (TRI) which have traded 3.7K contracts per day ($556M notional) in 2020.

The current S&P 500 Total Return Futures use a “fixed rate”, unlike the AIR Total Return Futures which use a built-in floating rate.

For more information on S&P 500, Nasdaq-100, Dow, Russell 2000, and Russell 1000 Total Return Futures please visit this FAQ.

The Overnight Effective Federal Funds Rate (EFFR) published by the Federal Reserve Bank of New York will be the underlying reference rate used for financing.

CME plans to launch AIR Total Return Futures for trade date September 21, 2020, pending all regulatory approval.

The AIR TRFs consist of 3 components – an Equity Index component, an Accrued Financing component and a Financing Spread Adjustment component. The valuation of the AIR TRF is as follows:

AIR TRF = (Equity Index - Accrued Financing) + Financing Spread Adjustment

For greater detail on these please see the fact card and other resources on the AIR TRF homepage.

They will be traded via BTIC and the quoting notation will be in basis points, analogous with a total return swap spread.

The key element traded in AIR TRFs will be the Total Return Futures Spread (TRF Spread). This is the spread over or below the financing reference rate (EFFR) that market participants determine as the cost to fund the equity index exposure. This spread is expressed in basis points.

Once a TRF spread is consummated, it will be converted into an AIR TRF price by the exchange using the same business day’s official closing index price as part of the calculation. The resulting cleared price of the future is computational and occurs on a trade by trade basis and is calculated in index points.

Towards the beginning of September, CME Group will provide an online calculator as a tool that can be used to determine the cleared AIR TRF price in index points. This will be hosted on the product web page and will be made available before launch on Sep 21, 2020.

All the inputs required to trade the product will be published each day in a CSV file format. Both start of day and end of day files will be available, as follows:

• Prior to launch, sample files will be available in New Release and can be found here.
• Once the product is officially live for trading, the files will be found here.

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View the full contract specifications here.

Total Return futures can be traded as Basis Trade at Index Close (BTIC) contracts on CME Globex as well as via block trades on CME ClearPort. Please note, as is the case with current S&P 500 Total Return futures, the outright futures are not eligible for trading but can be used as part of an EFRP.

In any instance where the AIR Total Return Futures contract(s) are traded as the futures component of an EFRP transaction, the price of such futures contracts may be made either in Index Point terms outright or in BTIC terms.

The final settlement value for the expiring contract will be equal to the Special Opening Quotation (SOQ) on the expiry date less the total of the Accrued Financing and will be determined by the formula outlined below;

SPTR_T^SOQ - AF_T

Legend

SPTR_T^SOQ = Special Opening Quotation of S&P 500 Total Return Futures on day of expiration

AF_T = Sum of the daily financing values since the product’s launch on Sep 21, 2020 until the day of expiration.

Yes, the Accrued Financing (AF) value will be the same value across all maturities. For each contract the initial value for AF will be determined by the exchange and all the daily financing values will be added to this initial value.

The AF value can be found in the daily CSV files mentioned in Q10 in the background section above.

There are three fee buckets based on the difference (in months) between trade date and contract’s expiration date.

Full CME Fee Schedule

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While margin requirements are not finalized, CME Clearing expects the levels to be very similar to the currently listed S&P 500 Total Return Futures (TRI). TRI Futures margins are found here.

Similar to their Margins, the margin credits are based on current market conditions and will look very similar to the currently listed TRI Futures. Those credits can be found here and below.

Margin offsets as of 8/4/2020 and are subject to change.

Learn more about margins:

• Margins FAQ
• SPAN methodology

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