CME Group Customer Forum

Transcription

1 CME Group Customer Forum Fall 2016 London: Seoul: US Webinar: Tokyo: 1 Nov. 10 Nov. 10 Nov. 15 Nov.

2 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates. CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be consulted in all cases concerning contract specifications. Copyright

3 Agenda Market Regulation - Disruptive Trading Practices - Wash Trades - Regulatory Order Tag 50 and 1028 Product Updates E-Trading Updates Other Globex Updates CME Value Added Services Quiz & Q&A 3

4 Overview of Market Regulation US Designated Contract Markets (DCM) have to adhere to the Commodity Exchange Act (CEA) 23 Core Principles (incl, Record keeping requirements, public dissemination of data, rules regarding manipulation, competitive execution of trades etc) CME, CBOT, NYMEX and COMEX are each a Self-Regulatory Organization (SRO) FED CFTC DCM * * Include CME, CBOT, NYMEX and COMEX 4

5 Overview of Market Regulation Market Regulation works to protect market integrity, to enforce rules that protect all market participants, and to act proactively to mitigate risks to prevent damage to the marketplace. 5

6 Overview of Market Regulation Chief Regulatory Officer (1) Data Investigations (15) - Annual exams of Clearing Member s electronic records - Employing Trade reconstruction programs Enforcement (14) - Takes on cases referred by Data Investigations, Investigations or Market Surveillance - Resolves matters through settlement or contested hearings Investigations (60) - Uses proprietary systems to detect potential market violations - Investigates complaints received Market Surveillance (48) - Reviews Large Trader submissions, position limits and EFRPs Rules and Regulatory Outreach (4) Strategic and Systems (13) Administrative Staff (6) 6

7 Rule 575 Disruptive Practices Prohibited As a result of the Dodd Frank Act, on May 28, 2013, the Commodity Futures Trading Commission ( CFTC ) made effective its interpretive guidance and policy statement respecting subparagraph (5). Section 4c(a) of the Commodity Exchange Act as subparagraph (5) by Section 747 of the Dodd-Frank Act. Subparagraph (5) provides: (5) DISRUPTIVE PRACTICES It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that (A) violates bids or offers; (B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (C) is, is of the character of, or is commonly known to the trade as, spoofing (bidding or offering with the intent to cancel the bid or offer before execution). 7

8 Rule 575 Disruptive Practices Prohibited In Brief The Exchanges adopted Rule 575 in September 2014, in response to the CFTC modifying Section 4c(a) of the Commodity Exchange Act to incorporate Section 747 of the Dodd-Frank Act While the CFTC provided some guidance to the marketplace, market participants routinely told the Exchanges that additional clarification of what was prohibited under Exchange rules was needed In connection with adopting the new Rule, the Exchanges published a detailed Market Regulation Advisory Notice which includes a Frequently Asked Questions section and a section of examples of prohibited activity On October 9, 2015, the Exchanges issued a revised MRAN to address changes to the answers to two questions in the former MRAN - The entry of TAS & TAM orders, or partial orders, into CME Globex prior to receipt of the security status message indicating the market has transitioned to the pre-open is a violation of Rule With respect to test orders, we explain that CME Group now offers test products in the pre -open production environment to facilitate connectivity and messaging testing on CME Globex, and also codified that it is permissible to enter a bona fide order meant to be executed where the purpose of the order entry also serves to verify the flow of the transaction through the participant s infrastructure, including risk systems The marketplace has been broadly supportive of the additional guidance since the original MRAN was released 8

9 Rule 575 Disruptive Practices Prohibited Text of Rule All orders must be entered for the purpose of executing bona fide transactions. Additionally, all nonactionable messages must be entered in good faith for legitimate purposes. A. No person shall enter or cause to be entered an order with the intent, at the time of order entry, to cancel the order before execution or to modify the order to avoid execution; B. No Person shall enter or cause to be entered an actionable or non-actionable message or messages with intent to mislead other market participants; C. No Person shall enter or cause to be entered an actionable or non-actionable message or messages with intent to overload, delay, or disrupt the systems of the Exchange or other market participants; and D. No person shall enter or cause to be entered an actionable or non-actionable message with intent to disrupt, or with reckless disregard for the adverse impact on, the orderly conduct of trading or the fair execution of transactions. To the extent applicable, the provisions of this Rule apply to open outcry trading as well as electronic trading activity. Further, the provisions of this Rule apply to all market states, including the pre-opening period, the closing period and all trading sessions. 9

10 Rule 575 Disruptive Practices Prohibited Factors Examined Factors that Market Regulation may consider in assessing a potential violation of Rule 575: Market conditions Subject s pattern of activity: - Historical trading behavior; - Order entry & cancellation activity, including order duration; - Number of orders - Queue position; - Size of the orders relative to market conditions; - Ability to manage risk associated with orders; Subject s activity in related markets; Effect on other market participants Other circumstantial evidence demonstrating intent 10

11 Rule 575 Disruptive Practices Prohibited Factors Examined Factors demonstrating whether an act was done with the prohibited intent or reckless disregard of the consequences: Proof of intent is not limited to instances in which a market participant admits its state of mind. Where the conduct was such that it more likely than not was intended to produce a prohibited disruptive consequence without justification, intent may be found. Claims of ignorance, or lack of knowledge, are not acceptable defenses to intentional or reckless conduct. Recklessness has been commonly defined as conduct that departs so far from the standards of ordinary care that it is very difficult to believe the actor was not aware of what he or she was doing. See Drexel Burnham Lambert, Inc. v. CFTC, 850 F.2d 742, 748 (D.C. Cir. 1988). 11

12 Rule 575 Disruptive Practices Prohibited Additional Important Concepts Market participants should be cognizant of the market characteristics of the products they trade and ensure that their order entry activity does not result in market disruptions. Momentum ignition practices may be deemed to violate Rule 575 if the momentum igniting orders were intended to be canceled before execution, or if the orders were intended to mislead others, or if it is determined the intent was to disrupt the orderly conduct of trading or the fair execution of transactions, if the conduct was reckless, or if the conduct distorted the integrity of the determination of settlement prices. Aggressively turning the market after an order cancelation (described as flipping ) may be considered disruptive to the orderly conduct of trading or the fair execution of transactions. 12

13 Rule 575 Disruptive Practices Prohibited Examples A market participant enters one or more orders to generate selling or buying interest in a specific contract. By entering the orders, often in substantial size relative to the contracts overall pending order volume, the market participant creates a misleading and artificial appearance of buy- or sell-side pressure. The market participant places these large orders at or near the best bid and offer prevailing in the market at the time. The market participant benefits from the market s reaction by either receiving an execution on an already resting order on the opposite side of the book from the larger order(s) or by obtaining an execution by entering an opposing side order subsequent to the market s reaction. Once the smaller orders are filled, the market participant cancels the large orders that had been designed to create the false appearance of market activity. Placing a bona fide order on one side of the market while entering order(s) on the other side of the market without intention to trade those orders violates Rule

14 Rule 575 Disruptive Practices Prohibited Examples A market participant places large quantity orders at the beginning of the pre-opening period in an effort to artificially increase or decrease the IOP with the intent to attract other market participants. Once others join the market participant s bid or offer, the market participant cancels his orders shortly before the no-cancel period, which is a predetermined time before the trading session opens when orders can be entered but not cancelled or modified. Consequently, those other market participants did not have an opportunity to react to the cancelled bids or offers prior to the open when their orders became executable. The entry and cancellation of orders during the pre-opening period for the purpose of either manipulating the IOP is prohibited and may be deemed a violation of Rule 575 or other rules. 14

15 Rule 575 Disruptive Practices Prohibited Examples A market participant enters order(s) or other messages for the purpose of testing, such as to verify a connection to Globex or a data feed from Globex. The orders are non-bona fide in nature and the market participant has not intention to execute the transaction on market. CME Group offers test products in the pre-open production environment to facilitate connectivity and messaging testing on CME Globex. The entering of an order(s) in a non-test product without the intent to execute a bona fide transaction, including for the purpose of verifying connectivity or checking a data feed, is not permissible. 15

16 Rule Wash Trades Prohibited Wash trades are defined as a form of fictitious trade which gives the appearance that bona fide purchases and sales have been made, but where the trades have been entered into without the intent to take a bona fide market position or without the intent to execute a bona fide transaction subject to market risk or price competition. Wash trades requires: (1) the transactions produce a wash result; and (2) the parties intended to achieve a wash result. This includes accounts with Common Beneficial Ownership (<100%) 16

17 Rule Wash Trades Prohibited Intent is inferred from evidence of prearrangement or that the trades were structured, entered, or executed in a manner that the parties knew or reasonably should have known the trades would produce a wash result. - Automated orders initiated by ATSs operated or controlled by the same party may be deemed wash trades if they occur on more than an incidental basis - Exchange-sponsored volume incentive participants MUST take proactive steps to prevent transactions between accounts with common beneficial ownership - Market participants who receive simultaneous buy and sell orders for execution have an independent duty to inquire about the propriety of such orders Firms should monitor activity, and, where appropriate, employ automated functionality to minimize self matches (The MRAN recommends the use of the Self Match Prevention functionality in instances where self-matches are of concern) Firms should use the Self-Reporting function ( on the website to report any unintended self-matched trades 17

18 Wash Trades Prohibited Rule 534 Buy and sell orders for accounts with common beneficial ownership that are independently initiated for legitimate and separate business purposes by independent decision makers and which coincidentally cross with each other in the competitive market are not considered wash trades provided that the trade was not prearranged and neither party had knowledge of the other s order or otherwise intended for their order to trade against the other s order. Market participants should be aware, however, that trades between accounts with common beneficial ownership may draw additional regulatory scrutiny and should be prepared to demonstrate that such trades are bona fide. a) each party s decision to enter into the block trade is made by an independent decision-maker; and b) each party has a legal and independent bona fide business purpose for engaging in the block trade. 18

19 Wash Trades Prohibited Examples A trader provided the wrong account information to its broker, which resulted in the trade being erroneously credited into an account belonging to its Subsidiary A, instead of Subsidiary B. The trader subsequently enters a sell order using Subsidiary A s trading account and a buy order using Subsidiary B s trading account into the market, with the intention to transfer the position. Entering a Buy and Sell order using different accounts belonging to common beneficial owner, with the intention to transfer positions is a violation of the Wash Trading rules. Market participants should contact their Clearing Firm to instruct the transfer of positions, instead of executing them on Market. 19

20 TAG 50 Rule 576 requires that each Globex operator be identified to the exchanges by the submission of a unique operator ID With respect to omnibus accounts that are carried by a Clearing Member on an undisclosed basis, Clearing Members must be able to either obtain and provide the identity or require the omnibus account to obtain and provide the identity of the Individual or Team assigned to each Tag 50 ID within the undisclosed omnibus account immediately upon request by Market Regulation. Individual - Point and click trader - Person that is solely responsible for and monitors at all times the administration and operation of ATS - Each individual TAG 50 must represent a single person Team - ATSs administered, operated, and monitored over the course of multiple shifts - Entities may not bundle all their ATS operators under one Tag 50 ID if certain operators are primarily responsible for different ATSs or for the same ATS on different shifts 20

21 TAG 1028 Tag 1028 is a data field that is required on all order submissions to CME Globex to indicate whether a particular order is being submitted by manual or automated means Manual orders must be submitted with the value Y and automated orders must be submitted with the value N. Automated order entry refers to orders that are generated and/or routed without human intervention. This includes any order generated by a computer system as well as orders that are routed using functionality that manages order submission through automated means An individual who is trading manually but also uses automated spreading functionality that automates the entry of some orders, must ensure that his TAG 1028 is properly identified with the correct value, when he switches from one trading means to the other. 21

22 Agenda Market Regulation Product Updates - Agriculture: EU Wheat, CME Palm Complex - Metals: Precious Metals Spot Spread, Precious Metals Ratio Contract - FX/IR: INR Incentive Program, FX Options, Ultra 10 T-Note Futures - Options: Overview, Index Options, S&P 500 Weekly Options - Asian Hour Liquidity on Globex E-Trading Updates Other Globex Updates CME Value Added Services Quiz & Q&A 22

23 Launch of EU Wheat Working with a broad cross section of industry participants, CME Group in September launched futures and options on EU Wheat The physically delivered, Euro-denominated EU Wheat futures contract is the natural complement to the Soft Red Winter (SRW) and Hard Red Winter (HRW) Wheat futures contracts listed at CBOT The foundation of the EU Wheat futures contract is its robust delivery mechanism, which features Rouen (France) as the reference pricing market with delivery points across key wheat production areas in France Trading hours are Monday Friday, 10:30 18:35 Paris Time Volume since launch has been robust, with Average Daily Volume of 1,372 futures contracts and Open Interest of 2,257 (Sept 23) Open Interest in futures stretches out to Dec

24 Q3 Palm Suite Performance Highlights Total of 6 contracts in the palm suite with the first contract being the Crude Palm Oil swap launched in June The CPO swap is now available as a future Palm Volume, Open Interest The CPO contracts reference the Global Benchmark Bursa Malaysia Derivatives FCPO Futures Contract, in US Dollars In addition there are 2 Palm Olein contracts, and also Options on CPO Last quarter is the third largest quarterly volume for the CPO contracts with a total of 24,692 contracts cleared, with 1,320 cleared in the futures contract Open Interest (O.I.) continues to grow with another new quarter end record of 22,492 contracts set (+16% increase) 9 months volume for 2016 is +128% compared to same period in 2015 Since launch, over 205,000 contracts (representing 5.12 million metric tons) have cleared, with 2.1 million metric tons cleared thus far in 2016 alone (representing close to 12% of total annual Malaysian CPO production) O.I. is spreading out further and further out on the curve till Mar Contracts are now available out till calendar

25 Palm Swaps Futurization Due to the success of the palm swaps, we listed the futures equivalents of the 2 palm swaps in July The swaps will remain listed The futures are exact contract lookalikes of the swaps Through futurization, these products will now become available through almost all our CME Clearing Member Firms for customers to clear In addition, options on CPO are also now available. These are US dollar denominated with a cash settlement to the same final settlement price of the futures Margin offsets are available with other CME Group products. E.g. A 45% margin offset is available for a CPO vs. Soybeanoil spread Swaps Futures + Options 25

26 Palm Swaps IDB List Starsupply James McKay Leonie van der Poel Ginga Global Markets Laren Tan Alex Sinclair Straits Financial Giel Teo Northstar Commodities Carol Fan com.sg Tropical-ACI Jason Lou

27 Precious metals ratio contracts (launch date October 23rd) Contracts Gold/Silver Ratio futures (GSR) Size $500 x Index(GC/SI) The ratio of the COMEX Gold and Silver futures price for each day of the contract month Gold/Platinum Spread futures (GPS) 100 troy ounces The difference between the COMEX Gold and NYMEX Platinum futures price for each business day of the contract month Platinum/Palladium Spread futures (PPS) 100 troy ounces The difference between the NYMEX Platinum and Palladium futures price for each business day of the contract month 27

28 FX Highlights CAD Tick Size Reduction to ½ ticks Reduction in tick size has decreased the cost to trade as the bid/ask spread has been reduced Top of book cost reduction of 32% in RTH 25 lot order: cost has decreased by approximately 16% in RTH 200 lot order: cost has decreased by approximately 23% in RTH INR New incentive program launched in August Open to members & non-members; no limit on number of participants Rewards participants with fee waivers & incentive pool-share based on volumes traded FX Options - American to European style Roll-off/Roll-on Starting Aug 7, expiring premium quoted American-style options (2pm Chicago expiry) on six major FX futures will be replaced by premium quoted European-style options (2pm Chicago expiry) By June 2017, all options will be European-style in these six currencies (EUR, GBP, JPY, AUD, CHF, CAD) - Volatility-Quoted FX Options Order submission in terms of volatility with an attached delta hedge into the underlying futures contract Launch date in Q for six pairs (AUD/USD, GBP/USD,EUR/USD, CAD/USD, JPY/USD & CHF/USD) Mirrors OTC convention and should attract interest from covered option traders CME FX EFP Rule Change Amendments to Rule 538 Change permits immediately offsetting EFPs in foreign currency futures Webinar to explain changes planned for October 13; should be available for viewing on CME website 28

29 Interest Rates Highlights Ultra 10 Futures Update Traded over 9.1M contracts by 300+ global participants by Sep since Jan 11 launch Options volumes picking up as well Regulatory approval received for trading by Taiwanese investors in Sep Liquidity is tight across all time zones Portfolio Margining to be expanded Effective October 3, CME clearing added Fed Fund futures & Ultra-10-Year futures to the products eligible for portfolio margining Focus on Invoice spreads Invoice Swap spreads using CBOT Treasury futures provide off-balance-sheet and capital efficient exposure to swap spreads Effective October 4, CME Group introduced changes to Rule 538 based on extensive feedback and evaluation, allowing a number of new invoice spread combinations (e.g. calendar rolls and tenor switched via EFRP) Market & FCM outreach has been targeted to leverage the benefit of the rule changes Holistic review of Treasury Futures Extensive market outreach is being conducted in September/October to obtain feedback regarding potential changes to our offering The CME Group conducts such holistic reviews from time to time and the last such review was in

30 Equity Index Options on Futures Product Offering Exchange Options Product Maturity Exercise Style Block Eligible Weekly EOM Serial Quarterly American European CME E-mini S&P 500 CME E-mini S&P 500 EOM CME E-mini S&P 500 Weeklies CME E-mini S&P 500 Wednesday Weeklies CME S&P contracts CME S&P 500 EOM 250 contracts CME S&P 500 Weeklies 250 contracts CME S&P 500 Wednesday Weeklies 250 contracts CME S&P 500 Flex CME S&P 500 Flex Serial CME E-mini NASDAQ-100 CME E-mini NASDAQ-100 EOM CME E-mini NASDAQ-100 Weeklies CBOT E-mini Dow ($5) CBOT E-mini Dow ($5) EOM CBOT E-mini Dow ($5) Weeklies CME E-mini S&P MidCap 400 CME E-mini S&P MidCap 400 Serial CME E-mini S&P SmallCap 600 CME E-mini S&P SmallCap 600 Serial Wednesday Weekly Options on S&P 500 and E-mini S&P 500 futures launched on September 26,

31 CME Group Equity Index Options E-mini S&P 500 Futures on Options Weekly and Monthly Event-Driven Trading: On employment report days, generally coinciding with Week 1 expiration, the expiring and next E-mini S&P 500 weekly option often exceeds ADV by 100%. Liquidity: Weekly and EOM options show significant growth and screen liquidity through expiration, especially for the near-the-money strikes. Time or Calendar Spread Opportunities: Weekly and EOM options together may provide time spread or event driven opportunities with greater precision and lower premium. 31

32 CME Group Equity Index Options CME Group Equity Index options on futures suit a variety of trading strategies with around-theclock liquidity and market depth on the world s benchmark indices. 32

33 S&P 500 Trading Alternatives 2 choices NOTIONAL VALUES VENUES STYLES 1. S&P 500 options, with a $250 multiplier 2. E-mini S&P 500 options, with $50 multiplier 1. Open Outcry for Standard options, for high-touch clients seeking broker support for complex option spread trades 2. Electronic trading for E-mini options, for clients seeking electronic access and related trading anonymity, as well as those deploying algorithmic strategies. 1. American-Style options can be early-exercised at the strike price at any time up to the evening prior to expiration day. 2. European-Style options are exercised only on expiration day. In-the-money options will be automatically exercised while outof-the-money options will be abandoned on the day of expiration 33

34 Expiry About Equity Options Maturities Quarterly options are listed for the March Quarterly Cycle (Mar, Jun, Sep, Dec) and expire at 8:30 a.m. CT on the third Friday of the contract month. Serial options for E-mini S&P MidCap 400 and SmallCap 600 are listed for non-quarterly months and expire at 4:00 p.m. CT on the third Friday of the contract month. End-of-month options are listed for each month and expire to the 3:00 p.m. CT fixing price on the last trading day of the contract month. Weekly options for standard and E-mini S&P 500 are listed for Week 1, 2, 3, and 4 of each month and expire to the 3:00 p.m. CT ESF fixing price on the respective Friday of the contract week. Wednesday expirations were launched on September 26, 2016; these options expire to the 3:00 p.m. CT ESF fixing price on the respective Wednesday of the contract week. Weekly options for E-mini NASDAQ-100 and E-mini Dow ($5) are listed for Week 1, 2 and 4 of each month and expire to the 3:00 p.m. CT fixing price on the respective Friday of the contract week. About Options Expiration Styles American-Style options can be early-exercised at the strike price at any time up to the evening prior to expiration day. European-Style options are exercised only on expiration day. In-the-money options will be automatically exercised while out-of-the-money options will be abandoned on the day of expiration. Visit to view a full list of equity index special fixing prices for EOM, weekly and daily limit calculations. 34

35 Comparison Versus Options on SPX and SPY OPTIONS ON SPX CASH OPTIONS ON SPY ETF OPTIONS ON ES AND SP FUTURES What s the same between all three? Notionally-Adjusted Market Share (2016) All three products offer similar density of strikes (every 5 index points), tick sizes and granularity of expiries (59 per years all Fridays plus end of month) 60.0% 15.5% 24.5% Settlement Cash Physical delivery of ETF versus payment Physical delivery of underlying futures contract Style European American Quarterly Expiries (i.e. third Friday of month in March quarterly cycle): American. Weekly, EOM, and Wednesday Weeklies: European. Expiry Price Monthly expiries: SOQ Other: SPX Official Closing level ETF closing price Note: This is different from the ETF NAV Quarterly contracts: SOQ Weekly, EOM, and Wednesday Weeklies: Expire versus the Special Fixing Price (ESF) 1 (30-sec VWAP to 16:00 EST) Contract Notional (vs. S&P 500 at 2,000) $200,000 $20,000 Options on ES: $100,000; Options on SP: $500,000 Exchange Fees (for $10m trade) $44 $90 ES: $55; SP: $33 Trading Environment Hybrid Hybrid ES electronic; SP floor 1. Special Fixing Prices available on Bloomberg; e.g. ESF Index for ES / SP options. For more information see 35

36 Key Efficiencies of European-Style Options on Futures Expiring Weekly, End-of-Month, and Wednesday options offer a seamless delta transition into the next underlying physical futures contract. Additional trading or hedging is not required, as with SPX options, which settle to cash and possibly require a subsequent trade. SPY options behave similarly as E-mini options on futures, but without the liquidity and with less-friendly capital efficiency of securities margin vs. futures portfolio margin. CME futures options and futures are both cleared at CME, via single margin account. When used to hedge against an E-mini futures position, SPX cash options and SPY options will require both a CME and OCC margin accounts, which are not treated as one combined account. CME offers settlement price alignment between options and futures. The delta of an option on futures option position remains constant through expiry. In-the-money options convert into equivalent futures positions while out-of-themoney contracts expire to flat. Cash index options always expire to flat forcing investors to rebalance hedges and creating potential slippage risk. Futures options expire to a 30-sec VWAP of the underlying future a clean price completely contained within the futures complex1. Weekly, End-of-Month, and Wednesday Weekly options are exercised and assigned automatically providing greater certainty for investors by removing the risk of abandonment or contrarian exercise. 1 The only exceptions are quarterly options, which expire jointly with the futures at the cash index SOQ. 36

37 2016 Expiration Calendar SEP OCT S M T W T F S S M T W T F S * With the recent addition of Wednesday Weekly options, there are 19 concurrent options expirations available at one time. NOV DEC S M T W T F S S M T W T F S * Weekly option expiration Quarterly options expiration Wednesday Weekly option expiration* *available for S&P 500 and E-mini S&P 500 options only End-of-month options expiration 37

38 Options on Futures Take advantage of the deepest multi-asset class options suite across Asia 38

39 S&P 500 Options on Futures Growth ADV for Standard S&P 500 options is notionally-adjusted to E-mini equivalent ADV 39

40 Trading Surges During Non-U.S. Trading Hours Capitalize on liquidity whenever news happens with an average of 52,082 contracts traded daily outside of U.S. trading hours in 2016 (through Q3), a 33% increase vs (fullyear). Non-U.S. Trading Hours are 5:00 p.m. 7:00 a.m. CT. 40

41 Tremendous Growth in Weekly Options Between Jan 2012 and Sep 2016, the average daily volume (ADV) in E-mini S&P 500 Weekly Options increased nearly 15x, from 24K to 360K a CAGR of 78 percent. 41

42 Wednesday Weekly Options Where opportunity and precision meet halfway Wednesday Weekly Options on S&P 500 and E-mini S&P 500 futures (launched September 26, 2016) expire on the Wednesday each week, providing additional flexibility for participants to tailor their market exposure based on anticipated and potentially marketmoving events. Benefits European-style expiration, with two consecutive expirations listed at any time Structure trades more precisely, with at least two options expirations each week (Wednesday and Friday) Capitalize on nuances of information flow within a week Fine-tune Greek-letter exposure with more granularity Learn more at cmegroup.com/equityweeklies Product Highlights After the first week of trading ~10,000 contracts ADV ~40 unique accounts trading More than 10 market makers quoting 42

43 Weekly Options OPTION PRODUCT TICKER 2016 ADV (% CHANGE vs full-year) % PUTS E-mini S&P 500 Weeklies EW1, EW2, EW3, EW4 231,845 (+64%) 64% E-mini S&P 500 Wednesday Weeklies E1C, E2C, E3C, E4C, E5C 9,336 62% S&P 500 Weeklies EV1, EV2, EV3, EV4 19,838 (+276%) 60% S&P 500 Wednesday Weeklies S1C, S2C, S3C, S4C, S5C % E-mini NASDAQ-100 Weeklies QN1, QN2, QN4 2,521 (+161%) 49% Volume Drivers: Volatility in global markets Established CME Group market quality Continued participation by a diverse, global pool of market participants 1 Reflects all options in the complex, beyond those included in the table. 43

44 How Do Customers Use Options on Futures? Directional Trading Portfolio Hedging Contingent Portfolio Rebalancing Spreads for Collar Protection Tail Risk Management Income Generation Volatility Risk Management Trading/hedging of the Greeks QUARTERLY OPTIONS WEEKLY, EOM, and WEDNESDAY OPTIONS Who Uses Options on Futures? Active traders Arbitrage traders Asset managers Banks Hedge funds Insurance companies Pension funds Props Arbitrage Shorter-duration Trading Weekly Buy-Writes Gamma Trading Event-driven Trading 44

45 Short-term Equity Index Options Maximum precision and flexibility Short-term options deliver more opportunities around high impact economic events, and increased precision and flexibility in managing existing options positions. CME Group offers weekly options on E-mini S&P 500, S&P 500, E-mini NASDAQ-100 and E-mini Dow futures. Wednesday expirations were also launched to complement the traditional Friday weekly expirations for S&P 500 and E-mini S&P 500 options. Benefits include: European style with no pin risk; no contrarian assignment or abandonment Flexibility to manage volatility and gamma Precision timing to target specific market movements Shorter expirations to gain market exposure at a lower premium Event-Driven Trading Equity Index options provide a deep pool of liquidity for investors to express views on market-moving economic reports. On Employment report days, which generally coincide with a Week 1 option expiration, trading in the expiring weekly and the next weekly option often exceeds ADV by 100%. Traders use weekly options to hedge long-term positions, manage gamma and theta risk and initiate new positions to anticipate movement of the underlying equity market for the next 1 to 7 days. 45

46 Daily Equity Options Reports cmegroup.com/dailyequity Daily Trading Recap View the volume and mix of spread trades, including a volume breakdown by spread type, for CME Group E-mini S&P 500 options Daily Spread Activity View the volume and mix of spread trades, including a volume breakdown by spread type, for CME Group E-mini S&P 500 options. 46

47 Options Resource Center cmegroup.com/options Latest news and tools for CME Group options including Strategy papers and webinars Monthly Options Review and Electronic Options Spotlight QuikStrike Essentials Free Options Pricing and Analysis tool access 47

48 Contact the Equity Products Team Chicago New York Tom Boggs Tim McCourt Richard Co Giovanni Vicioso Tom Rafferty

49 Trading CME in Asia More Exciting Than Ever Price discovery on macro news increasingly taking place during Asian business hours Tight spreads and high liquidity 23 hours a day enable effective hedging of Global risks locally As a result we see an increasing number of CME benchmark trading significantly during Asian business hours 49

50 Agenda Market Regulation Product Updates E-Trading Updates - Security Ecosystems - ilink Volatility Quoted Options & Triangulation - New Market Segment in FX - In-Line Credit Controls - Market by Order (MBO) - Trade Summary Order ID Change - New BitCoin Index Other Globex Updates CME Value Added Services Quiz & Q&A 50

51 CME Group Security Ecosystem Security Enhancements and Requirements End of Year 2016 To deliver the best security and customer experience, all certified customer-facing applications that support human-to-machine authentication to CME Group systems will be required to support strong passwords (standard guidelines from NIST and ISO) - Minimum 8 characters - Requires numbers, symbols, capital and lower-case letters - Additional best practices: Does not include a word or a combination of words from a dictionary Doesn t rely on obvious substitutions like replacing an o (oh) with a 0 (zero) Is unique isn t re-used for other applications or logons encryption of confidential and sensitive data, and two-factor authentication Required for both customer-facing services connected to CME Group and to their services exposed to clients 51

52 CME Group Security Ecosystem Security Enhancements and Requirements Targeting Mid 2017 Expand security on ilink and Drop Copy sessions - Aimed to prevent account spoofing and repudiation without requiring full encryption - Session authentication: a digitally-signed logon request replaces session password - Key requests through CME Customer Center - New logon procedure for CGW, MSGW, and Drop Copy sessions Applies to ilink 2 (FIX ASCII) and ilink 3 (FIXP Binary) - Digital signature using a hashed method authentication code (HMAC) replaces plain-text password Customer creates digital signature using secret key and access key provided by CME Group Keys can be invalidated through the CME Customer Center for forced rotation 52

53 ilink 3.0 Introduction to FIX Performance (FIXP) and SBE for order entry Improved Performance - Binary encoding of order entry business messages - New FIXP session layer to establish and maintain connectivity between customers and the exchange Risk Mitigation - Cancel on behalf Simplicity - Support lean messages - Include all spread and leg fill messages as part of a single fill message - Replace error text with error codes across the board in ilink 3.0 Specifications available end of year - New Release available Production launch Drop Copy will support both ilink 3 and ilink 2 source sessions - Drop Copy applications will be required to certify for and support ilink 3 source messages upon launch 53

54 ilink 3.0 Enhancements to order entry on CME Globex Application-level optimization More efficient messages, focused on critical information only Optimized business semantics Presentation level: encoding Simple Binary Encoding (SBE) for faster encoding/decoding Harmonize the order entry and market data presentation levels to simplify client architecture Session-level optimization FIXP for session protocol connectivity and session layer messages Allow multiple publishers to share a connection without coordination ilink 3 and ilink 2 will be available in parallel for both CGW and MSGW sessions ilink 2 will be decommissioned at the end of the parallel period 54

55 Volatility-Quoted Options & Triangulation Overview Volatility-Quoted Options Allow clients to trade an option in terms of implied volatility instead of price Reduce execution risk with auto-hedge into the corresponding underlying futures Participants exchange an option in premium and a delta hedge of underlying futures Initially available in six major FX options: EuroFX, British pound, Japanese yen, Canadian dollar, Swiss franc and Australian dollar Triangulation Link the Volatility-Quoted Options (VQO), Premium-Quoted Options (PQO) and futures books via implied options pricing calculations to find match opportunities between all three order books Extended access to combined option liquidity pools Initially launch in Australian dollar products Impacts all customers in Australian dollar futures, PQO, and VQO The VQO, PQO, and futures book will be moved to a single market segment before Triangulation launch 55

56 Volatility-Quoted Options & Triangulation cmegroup.com/vqo 56

57 Launch Schedule for VQO and Triangulation Available Now Nov 13, 2016 Volatility-Quoted Options in New Release Volatility-Quoted Options in Production Mock trading session: Saturday Nov 12 Q Triangulation in New Release Q Triangulation in Production 57

58 New Market Segment (MS) for FX Markets Consolidate the VQO, PQO, and Futures FX books on a single MS for Triangulation Customer Impacts: - Permission your firewalls and update your order routing config - Connect to new MSGW IPs to trade via MSGW sessions - Permission your firewalls New source IP for MDP3 channels - New MDP 3.0 and MSGW config.xml files will be published with all the info - GT orders for the impacted FX products will be cancelled - No changes to MDP 3.0 channels, functionality or messaging format MDP 3.0 Channel Market Segment ID New Market Segment ID New Release Launch CME Globex FX Options CME Globex FX Futures November 21 January December 12 February 5 Customer mock trading session: Saturday, January 21,

59 In-Line Credit Controls (ICC) New risk tool which will allow for daily quantity position limits, per product, at the Executing Firm + account level More granular limits than Globex Credit Controls (GC2) Long and short position\limits can be set on future and option products separately Account registration required Limit management via CME Account Manager No latency disadvantage All orders submitted to Globex will pass through ICC, regardless of whether the account is registered within the tool Functionality includes: Clearing Firm and Executing Firm Risk Admins may both register accounts Clearing and Executing Firm Risk Admins can set their own limits on the same account Most restrictive limits will apply Excel upload feature for bulk account registration and limit setting Configurable alerts & Risk Admin dashboard for monitoring New Release: Q Production Launch: Q CME Group. All rights reserved. 59

60 In-Line Credit Controls (ICC) Where Basis Level Scope ICC In-band Position- Based GC2 Out-of-band Net Dollar Value Firm +account +product +side Executing Firm Each product tracked separately CME Globexwide 2013 CME Group. All rights reserved. 60

61 2013 CME Group. All rights reserved. 61

62 Market By Order Market Data CME Globex Market By Order (MBO) will provide: Individual queue position; size of individual orders at a price Full depth of book Increased confidence in execution by improved transparency into detailed book composition Maintains anonymity MBO and Market By Price (MBP) Information on a Single Feed MBP remains unchanged Avoids the need to arbitrate between separate MBO and MBP feeds Customer impacts New schema and use of template appended extensions for new MBO fields Overall incremental feed bandwidth is expected to increase 30-40%. During peak times, the number of incremental feed packets per millisecond may increase up to 40-50%. Mandatory certification to use MBO data in production No certification required to continue to use MBP, however testing is recommended 62

63 Market By Price vs. Market By Order CME Globex current MBP solution offers price, quantity at the price, and the number of orders in the quantity Market By Price Market By Order quantity quantity bids best 10 price levels MBO shows individual order sizes that make up the total quantity at a price, including their priority in the queue all price levels asks price price 63

64 Market By Order Market Data No change to Presentation (SBE), Session, Transport, or Network layers Sequencing by order priority - No book management instructions in the market data feed - Book is built on receipt by sorting by price and then order priority - No change in market data based on matching algorithm Action Order priority Quantity Security Name Order ID Price Side Add bid CLZ B Add bid CLZ B Add bid CLZ B Cancel CLZ B Modify CLZ B Implied Data - MBP order book updates continue to be the source of all implied prices which will be in line with MBO updates 64

65 MBO Implementation on CME Direct In CME Direct, in addition to the usual Bid and Quantity columns, there will be Order Priority (number of orders ahead of you) and Quantity Priority (number of contracts ahead of you). Displayed market depth will not change. 65

66 Market By Order Market Data Client Impact Document & New Release Available Now Phased Production Rollout by DCM in Q4 2016: Q CME Europe, NYMEX, COMEX and DME: December 4 January 22 Mock: November 12 CBOT and MGEX: March 26 April 9 Mock: March 11 CME: May 7 May 21 Mock: April 22 BMD/KRX: June 4 Mock: April 22 MBO historical data will be captured as products are enabled with MBO in production 66

67 Trade Summary OrderID Opt-in Update Globex To increase market transparency and simplify ilink messaging, beginning Dec 4, all tag 37- OrderID values will be published in the Market Data Incremental Refresh Trade Summary messages ilink will no longer support FIX tag 1091-PreTradeAnonymity. CME Globex will not send tag 1091 to client systems, even when submitted on the original ilink message MDP 3.0 currently supports an opt-in solution to allow order entry participants to determine if their OrderID would be published in the Trade Summary message With the introduction of MBO, OrderID will also be included for all orders in the book messaging 67

68 Bitcoin Pricing Data via Streamlined SBE CME Group and Crypto Facilities will launch two Bitcoin pricing products - A reliable reference rate price source for digital assets - CME CF Bitcoin Reference Rate (BRR) aggregates the trade flow of major Bitcoin spot exchanges during a specific calculation window and provides a final settlement price in U.S. dollars shortly after 4 p.m. London time on each trading day. - CME CF Bitcoin Real Time Index (BRTI) aggregates global demand to buy and sell Bitcoin into a consolidated order book and reflects the real time U.S. dollar price of Bitcoin disseminated once every second. Key Milestones - New Release October 3 - Available in AutoCert+ - October 24 - Production November 13 Customer Impacts - New Bitcoin Streamlined SBE market data feed - channel New exchange code to identify Bitcoin market CRYP - Certification not required for customer systems already certified for streamlined Equity SBE. 68

69 Agenda Market Regulation Product Updates E-Trading Updates Other Globex Updates - Referential Data API - Energy & Metals Enhancements - Global Partner Update - Global Backbone Upgrade Project: Asia - Customer Experience Improvements CME Value Added Services Quiz & Q&A 69

70 Referential Data API 4Q2016 Launch Real-time insight into product and instrument information to support - Simplified Cross-Exchange Risk Management - Product risk, audit and reconciliation applications All CMEGroup-cleared products included Cloud-hosted machine-readable Json RESTful Service with query support Specifications and Beta product service Q Coming in 2017: - Product relationships: Within Exchange: WTI (CL) WTI/Brent Spread (BK) Brent (BZ) External Exchange: CME:GBP = CME Europe: GBP Settlement and Statistical data Human-readable specifications for UI presentation E.g., Contract Termination: Trading in the current delivery month shall cease on the third business day prior to the twenty-fifth calendar day of the month preceding the delivery month. 3rd-party product codes Integration with Historical Data API 70

71 CME Globex Enhancements for Energy & Metals Products Related to NYMEX Floor Close October 2016 launch Expanded User-Defined option outright instruments (UDI) to meet any trader s needs Create a strike for a maturity up to 19 years out Create the first strike for a listed underlying futures instrument - Must follow Rulebook listing rules Later this year: Exchange-defined options strikes will be harmonized to reduce processing demands and encourage UDI support New strategy types for spread trading UDI functionality expanded to more markets - Currently restricted to NYMEX and COMEX markets - Will be expanded to all CME Globex options markets 71

72 Global Partner Updates Dubai Mercantile Exchange July 1 st successfully auctioned Oman Crude Oil with the first ever Middle East Spot Commodity Auction system September 18 th, launched Singapore vs. Middle East 180 & 380cst Fuel Oil spread futures to expand upon their May 16 th Fujairah Fuel Oil product listing Korea Exchange Listed additional longer month series of USD/KRX futures contracts effective Monday September 26 th. Bursa Malaysia The 10-yr Malaysian Government Security future (FMGA) was launched on Monday September 19 th to add to a suite of 3-yr and 5-yr Malaysian Government Security futures. Tin futures (FTIN) was successfully launched on Monday October 31 st High Volume Trader Incentive Program for HVT s. Please Contact: Suresh Maniam Tel: (603) Mobile: sureshmaniammookiah@bursamalaysia.com Andrew Tan Kah Loong Tel: (603) Mobile: tankahloong@bursamalaysia.com 72

73 80,000 70,000 All BMD Products Monthly ADV from Jan 12 until Aug 16 FKLI FCPO Other Products Exchange Total 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Historical Record Achieved in 2015 Single Day Volume: 133,192 (25 August 2015) Total Volume : 14,060,527 (2014: 12,460,886) FCPO Volume : 10,984,549 (2014: 10,156,101) 2015 trading volume up 12.8% (57,157 ADV) YoY with Crude Palm Oil Futures recording ADV of 44,653 Historical High: FCPO : 91,149 Daily Volume on 05/02/2015 FKLI : 53,968 Daily Volume on 26/08/ CME Group. All rights reserved. 73

74 Total US Client Volume POST FBOT (BMD was granted FBOT approval on 22 Jan 2015) 1,200,000 Volume Volume increment month-on-month 2015 vs > 176% 1,000,000 1,019, , , , , , ( Feb-Dec) 2016 (Jan-Aug 31st) Volume 2013 CME Group. All rights reserved. 74

75 Global Backbone Upgrade Project - Asia EOY 2016 Target Completion CME Global Backbone - Focus is on Asia - Ensure performance of the CME environment continues to run at optimal level - Supply increased confidence in execution by improved transparency into the availability of detailed order quantity composition with rollout of MBO Network Capacity Upgrade CME Asia Hubs - Increase CME Asia global backbone bandwidth in Hong Kong, Seoul, Tokyo and Singapore data centers to a minimum of 1Gb - Upgrade CME network interfaces for faster implementation of future bandwidth increases Project Status - New circuits have been delivered and are pending activation - Installation of additional hardware is scheduled to begin in early November - Circuit testing and traffic migrations are expected to be complete by year end 75

76 Invested in improving your experience Understanding your business needs and providing value in every interaction Making it easier to do business with CME Group Becoming more responsive to your needs Adopted user-centered design, a process to gather customer input on tools and technology, to ensure what we build meets your needs Launched a suite of self-service tools to make it easier and faster to complete administrative trading functions ilink Session Management create and manage ilink session IDs Globex Firm IDs request new GFIDs and manage CF relationship mapping Drop Copy create and manage Drop Copy groups User Administration manage user access and entitlements for CMEG applications Clearview access to clearing reports and delivery schedules Increased transparency and readability of our fee schedule; built tools to speed access to non-member fee information Enhanced Corporate Membership process by instituting a concierge team to provide clarity and speed to the application process Improved access to information on cmegroup.com leveraging Google search capabilities, redesigning content, and added translation in nine additional languages 76

77 What s next Deliver clearing member firm back office fee reconciliation process efficiency through the Duco Fee Data Control and Reconciliation Service - Duco Cube allows non-it users to load data sets and perform comparisons to quickly and easily find discrepancies between exchange and back office system data - Available January Contact Clearing Client Services for more information ccs@cmegroup.com Chicago (312) London (44) Singapore (65) Launch new self-service capabilities in 2017: - Incentive program management View your firm s active program suite and perform online renewals - Streamlined registration for: Tag 50s Clearport CME Direct OTC Counterparties Extend User Administration capabilities to more CME Group applications - Risk Management Tools - Banking and Asset Management Enhance the Customer Center user interface for improved usability 77

78 Agenda Market Regulation Product Updates E-Trading Updates Other Globex Updates CME Value Added Services - DataMine - CME Direct - QuikStrike for Options Analysis - Markets by Mobile - STP - Trade View - ClearPort Tiered Credit Quiz & Q&A 78

79 What is CME DataMine? Overview CME DataMine is the official source of the most comprehensive price information available for CME Group markets. CME DataMine caters to a broad customer base that includes: Banks Hedge Funds Prop Shops Academics Asset Management Currently offering 5 datasets that reflect our capital markets: Market Depth End of Day Time and Sales Top of Book Block Trades The Newly Launched CME DataMine Platform Powered by TickSmith CME Group s new self-service cloud solution for historical data Providing access to new data content and services Leverages cloud technology for improved data delivery Streamlined payment and licensing for quicker access to data Vastly improved customer experience CME GROUP INTERNAL 79

80 CME Direct: Futures, Options, OTC Markets on a Single Platform Real-time streaming quotes with market depth Multiple order types, order duration and order protection functions Integrated option analytics resources through QuikStrike, providing historical volatilities, heatmaps and scanning Globex RFQs, option strategy creation, including covered and multi-leg Real-time option volatility surfaces and option Greek calculations Straight Through Process (STP) to your risk system 80

81 QuikStrike Essentials cmegroup.com/quikstrike Option pricing and analysis, exclusively for CME Group customers: View settlement reports, open interest and most active strikes. Plot and compare volatility in a single chart. Access options education through QS.Edu. 81

82 QuikStrike Options Analytics Tools cmegroup.com/quikstrike 82

83 Moving Markets by Mobile (Sneak Peak) 83

84 Benefits of CME STP Capture your Cleared Trades Data directly into your risk system Direct Feed, as no cost, from Exchange to customers Customers do not have to rely on FCM for data, one source for all exchange transactions STP for all cleared trades regardless of venue, exchange, front end Single Sign on with CME Group Login -manage multiple subscriptions Shift error checking to the Front Office trader has ability to review STP trades in real time Available in FIX or FIXML format Reduces the time, cost, and risk associated with manually entry Coming soon: - User Interface for trade view and reconciliation 84

85 CME Trade View Coming Soon Allows a firm to view its Globex, ClearPort, broker bilateral and cleared elsewhere trades 85

86 CME ClearPort Tiered Credit Non-member Broker Intermediary account structure provided non-clearing FCMs the ability to establish trading accounts for their individual customers and manage risk on the individual customer level, while preserving customer anonymity from their clearing FCM Clearing Firms create a master account to maintain overall risk administration Non-member broker intermediary creates sub-accounts and risk parameters on the sub-account level for customers Individual customers of non-member broker intermediary will not be required to register with CME unless they want to take advantage of CME services such as CME STP 86