TBA Futures
Futures on 30-Year Uniform Mortgage-Backed Securities (UMBS) TBAs

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TBA Futures will complement the existing marketplace with unique features
Futures Contract Design

Benefits of TBA Futures• Adheres to well-established TBA market standards

Unique Market Structure• Deliverable contract ensures convergence with underlying•

CME Globex offers a transparent, all-to-all marketplacewith a broad mix of global participants•

Inter-Contract Spreads between Treasury Futures and
TBA Futures enable efficient liquidity formation• Utilizes MBSD delivery mechanism• Futures have off-balance-sheet exposure, like TBAs
Contract Specifications Summary
Deliverable Grade Issuers

UMBS (Fannie Mae and Freddie Mac)

Deliverable Mortgage Term

30-YearAvailable Coupons*

2%, 2.5%, 3%, 3.5%, 4%, 4.5%, 5%, 5.5%, 6%, 6.5%

Minimum Price Increment

Outright: 1/4 of 1/32nd ($7.8125 per contract)
Calendars: 1/8 of 1/32nd electronic, 1/16th blocks

Contract Size

$100,000

Last Trading Day (LTD)

3 days before SIFMA TBA Notification Day

Delivery Day

Business day following Last Trading Day

Listed Delivery Months

Nearest 3 calendar months at any given time

*additional coupons will be added as needed

Futures Clearing Efficiencies•

Multilateral netting via central counterparty (CCP)•

Margin offsets with Treasury Futures and Eris swap
futures•Potential to add offsets with OTC Swaps and otherRates F&O

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2

Bringing the benefits of exchange-traded futures to TBAs
Exchange Trading creates value and efficiency even in established fixed income markets. Benefits of futurization are especiallyapparent in fixed income markets as the Fed raises rates and winds down balance sheet✓ Globex Central Limit Order Book
- Open to all, anonymous, and transparent.
- Potentially enables superior liquidity formation✓ Central Counterparty Clearing- Multilateral netting creates more stable and more liquid market✓ Margin Offsets with Other Fixed Income Futures Products- Standardized margin requirements and efficient allocation of capital✓ $100,000 Contract Sizes- Allows for higher precision trades and hedges✓ Expanded Trading Access- Globex offers transparent market with extended trading hours

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3

Expiration of TBA Futures Results in a TBA Forward Cleared at MBSD
Deliverable grade of MBSD Cleared TBAs ensures alignment, convergence and ability of futures position
holders to exit TBAs as they do currently

To participate in TBA futures deliveries, an account holder at any Clearing Firm would need to meet the following
requirements:✓ Eligible Contract Participant, as defined in CEA✓ Must be capable of making or taking TBA delivery through a “Full” FICC MBSD Clearing Member that may be either
affiliated or unaffiliated with the Clearing Member✓ Firms that are “EPN Only” (Electronic Pool Notification) Only Clearing Members of MBSD are not considered
eligible to fulfill TBA futures deliveries either for itself or on behalf of other customers✓ Customers of Clearing Members without affiliated MBSD Clearing Member are permitted to use unaffiliatedMBSD Clearing Member to fulfill futures delivery of MBSD Cleared TBAs

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4Conversion from Futures to Forward happens just before 72-hour day
Hypothetical Example – Taking Delivery on a December 2022 position
Nov 10Account K buys 1000 TBA futures ($100m notional face value)
for December 2022 delivery of UMBS 30-Year 4.5% TBAs. Price = 103-16

Nov 10 to Dec 6

Futures subject to daily marks-to-market

Dec 6

Futures Last Trading Day

7

9

Final settlement price = 104-16. Cumulative P&L on Account K’s position = $ 1,000,000(equal to $31.25 per 1/32nd per contract x 32/32nds x 1000 contracts)

CME Clearing assigns Account K’s 1000 open long contracts to become TBA buyers from open shortcontracts assigned (by CME Clearing) to become TBA sellers. By 3pm CME Clearing notifies AccountK’s clearing member of accounts matched to become TBA sellers to Account K.
Dec 7

Futures Delivery Day.

Account K’s clearing firm ensures that Account K makes and receives TBA Confirmations.
Account K becomes December 2022 TBA buyer, and short futures position holder(s) matched by CME
Clearing to Account K become(s) December 2022 TBA seller(s), of $100m face value of UMBS 30Year 4.5% MBS at 104-16.
Dec 8

MBSD Netting Day (72-Hour Day)

Dec 9

SIFMA TBA Notification Day (48-Hour Day)

Dec 13

SIFMA TBA Settlement Day

CME GROUP PUBLICTBA Future converted
to TBA Forward© 2022 CME Group. All rights reserved.

5Market Background for TBAs and MBS

Specified Pools

2022 ADV ($b)$15.9

% of total
7%

TBA GNMA

$44.1

18%

TBA UMBS 15yr

$18

7%

TBA UMBS 30yr

$162.167%

Total$240.1100%* Source: FINRA; assumes that 10% of TBA UMBS is 15yr.

Mortgage Rates and Treasury Yields
87

10-Year Treasury Yield

30-Year Mortgage Rate

6
5
4
3
2

1

Sample Volume Distribution ($billions) for TBA UMBS 30yr
by Coupon and Settlement date
Using trade date Jan-27-2023

Aug-23
Sep-23Oct-23
Total

<=3%
15.7
3.3
0.1
19.2

3.50%
5.1
1.0
0.1
6.2

4%
7.3
1.2
0.1
8.7

4.50%
12.0
1.9
0.3
14.2

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

5%
20.8
3.6
0.7
25.1

5.50%
29.8
5.3
2.1
37.2

6%
22.8
6.4
2.5
31.8

>6%
9.7
3.9
1.1
14.6

CME GROUP PUBLIC

Total
123.2
26.7
7.1
157.0

© 2022 CME Group. All rights reserved.

6

Example CME Direct Trading Grid for TBA Futures
To expedite your set-up on CME Direct, download a template grid from the website

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7

1/16th increment available for block spreads, reported as 2-level prices
Spread block trades executed at 1/16 of 1/32 (0.001953125) can be reported by splitting quantities 50/50 across price levels of 1/8

Participant trades Mar-Jun spread at 3/16th• Mar’21 side is booked at 100 at 3/8th (6/16th)• Jun’21 side is booked with quantity split across two pricelevels, 50 at 1/8th and 50 at 2/8th for an average of 3/16th).
Participants have 15 minutes to submit block trades

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8

CME provides 2 types of RFQ functionality for “on-demand” liquidity
Category

Globex RFQ (G-RFQ)

Directed RFQ (D-RFQ)

Visible to

All Market Participants,
sender is anonymous

1 or more specific recipients,
sender is identified

Initiated On

CME Direct, many ISVs, proprietary systems

CME Direct only*

Commonly
Used For

Indication of Interest
Enables others to improve CLOB liquidity

Current Usage~5,000 per day for Interest Rate Options

Availability

Initiating a Block Trade

Initial adoption by Energy and FX Options

All CME Group Futures & Options markets*dRFQ API access is in pipeline

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9TBA Codes & Expiry Calendar
Product

Examples:• 3.5s for Dec 2022 settle• CME: 35UZ2• Bloomberg: JYDZ2 Comdty•

4.0s for Jun 2023 settle• CME: 40UM3• Bloomberg: JYEM3 Comdty

CME Symbol

Bloomberg Ticker

30-Year UMBS TBA Futures - 2.0% Coupon

20U

JYAA Comdty

30-Year UMBS TBA Futures - 2.5% Coupon

25U

JYBA Comdty

30-Year UMBS TBA Futures - 3.0% Coupon

30U

JYCA Comdty

30-Year UMBS TBA Futures - 3.5% Coupon

35U

JYDA Comdty

30-Year UMBS TBA Futures - 4.0% Coupon

40U

JYEA Comdty

30-Year UMBS TBA Futures - 4.5% Coupon

45U

JYIA Comdty

30-Year UMBS TBA Futures - 5.0% Coupon

50U

JYPA Comdty

30-Year UMBS TBA Futures - 5.5% Coupon

55U

JYTA Comdty

30-Year UMBS TBA Futures - 6.0% Coupon

60U

JYWA Comdty

30-Year UMBS TBA Futures - 6.5% Coupon

65U

JYLA Comdty

Contract
Jun-23
Jul-23Aug-23
Sep-23TBA Futures
Last Trade Date Expiry / Delivery
6-Jun-23
6-Jul-23
7-Aug-23
7-Sep-23

7-Jun-23
7-Jul-23
8-Aug-23
8-Sep-23
CME GROUP PUBLICTBA Forward Dates (per SIFMA)
Notification Day
Settlement Day
9-Jun-23
11-Jul-23
10-Aug-23
12-Sep-23

13-Jun-23
13-Jul-23
14-Aug-23
14-Sep-23© 2022 CME Group. All rights reserved.

10

30-Year UMBS TBA Futures- Contract Specifications
Deliverable Grade Issuers

Fannie Mae and Freddie Mac

Deliverable Mortgage Term

30-Year

Deliverable Grade
Coupons

For a given Delivery Month, futures are listed by the Exchange for delivery of each of a small number of specified active(current-production) mortgage coupon rates. Each Coupon Rate will be listed as separate product with a unique product code.

Deliverable Grade and Size

$100K face value of MBSD-cleared 30-year UMBS TBA at a given coupon rate.

Price

Par is on basis of 100 points. Each point = $1,000 per contract.

Minimum Price Increment

1/4 of 1/32nd of one point ($7.8125 per contract).
1/8 of 1/32nd for intra-market calendar spreads ($3.90625 per calendar spread), with block trades eligible for 1/16 th of 1/32nd

Listed Delivery Months

Nearest 3 calendar months at any given time

Last Trading Day (LTD)For a given Delivery Month, 3 Exchange business days before SIFMA TBA Notification Day. Expiring contract ceases tradingat 12pm Chicago time (CT).

Delivery Day

Business day following Last Trading Day
Assignment of an expiring MBSD-cleared TBA for the contract-grade mortgage coupon rate. After termination of trading, CME
Clearing assigns open long futures positions as buyer, and open short positions as seller, of contract-grade TBA.

Settlement/Delivery

By 3pm CT on LTD, CME Clearing notifies clearing member firms carrying open positions in expiring futures of accounts
holding long positions in expiring contracts who are assigned to become TBA buyers from accounts holding short positions in
expiring contracts. CME Clearing makes delivery assignments directly to accounts of expiring long and short positions matchedduring futures delivery process.

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11

For More Info
1. Visit www.cmegroup.com/tba
2. Contact your representative from CME Client Development & Sales
3. Contact Ted Carey, Senior Director, Product Manager for Long-Term Rates Products
Ted.Carey@cmegroup.com
212-299-2020

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12Appendix
Details of TBA Futures delivery process

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TBA Background and CME Group TBA Futures
What is the TBA market, why is it important, and what is CME doing?

• Established in the 1970s, the To-Be-Announced (TBA) market facilitates forward trading of generic exposures in residential
mortgage-backed securities (MBS) issued by the GSEs (Fannie Mae (FNMA), Freddie Mac (FHLMC), and Ginnie Mae (GNMA)).
- The generic, forward-starting features of the TBA mechanism have contributed to development of deep liquidity- TBA market fosters standardization of MBS pools by stipulating standards for goodness of delivery in fulfillment of TBA agreements- Codification of TBA market practices is built upon “Good-Delivery Guidelines” promulgated and maintained by SIFMA- Since 2011 TBA trading accounts for more than 90% of all Agency MBS transaction volumes (TBA + MBS)• In November 2022, CME launched futures on TBA forwards.

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14

Agency MBS is the 2nd largest fixed income market, and has grown from 2017-2021
US Fixed Income Cash Markets: Agency MBS products aresecond only to US Treasuries, accounting for about 30% ofbond market volume (well ahead of Corporate Bonds, Munis)•

Agency MBS Volume: Fannie & Freddie TBAs account for 70%+

Source: FINRA Trace, NY Fed

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15

TBA Futures-Deliveries
Timetable for Deliveries

1. Clearing Members would be required to report details of open interest to the CME Clearing Delivery Teamby 8pm Central Time (CT) during the last three trading days in expiring futures, like the reporting process
for MAC Swap futures.
2. Last Trading Day (LTD), three exchange business days prior to SIFMA TBA Notification Date, CME
Clearing:oassigns open long futures positions as buyer, and open short positions as seller, of an expiringcontract-grade TBAomakes delivery assignments directly to accounts of expiring long and short positions matched during
futures delivery process
notifies each clearing member firm carrying open positions in expiring futures of accounts assigned to
become TBA buyers (sellers) versus short (long) positions in expiring contracts held in accounts
carried by the clearing member firmo

3. Delivery Day, business day following LTD, Clearing Member ensures that accounts participating in thedelivery process make and receive TBA confirmations

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16

TBA Futures-Deliveries
Delivery Process-Last Trading Day• Trading in expiring contract month ceases at 12pm CT• Clearing members are required to report intentions by 2pm CT• CME Clearing makes delivery assignment information available at 3pm CT• Delivery matching will occur in the following order:
1. Clearing members’ long and short positions
2. Pro-rata• Firm Notification Reports will be made available to Clearing Members following assignment.
Reports must include:
1. Clearing Member Firm (CMF)
2. Trade Member Firm (TMF)
3. Origin
4. Contract
5. Quantity

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17

TBA Futures-Deliveries
Delivery Process-Delivery Day• TBA buyers and sellers are required to provide confirmation of TBA transfer to the CME Clearing
Delivery Team• Final Confirmations-Clearing members are required to provide CME Clearing Delivery Team TBA
confirmation details by 2pm CT• Clearing members must report nonreceipt within one hour after the delivery deadline• Delivery margin removed at EOD (End of Day)
• Delivery process complete from Exchange perspective

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18

Confirmations of TBA Transactions
Contain the following information applicable to the securities being confirmed:- description of security, including settlement month, coupon rate, and product type;- confirming party’s name, address and telephone number;- identification of the “contra party”;- designation of “purchase from” or “sale to”;
- price and par amount;- trade date;- settlement date;- unless covered by a separate agreement, reference to material provisions of any applicable initial
margin or mark-to-market requirements; and- any other information needed to ensure that the parties agree on important details of thetransaction (e.g., specific certificate denominations, additional information for “new pools” dated thesame month as they are settled).

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19

Disclaimer
Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only beundertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity ExchangeAct. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it ispossible to lose more than the amount of money deposited for either a futures or 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
traders cannot expect to profit on every trade.
CME Group, the Globe Logo, CME, Globex, E-Mini, CME Direct, CME DataMine and Chicago Mercantile Exchange are trademarks ofChicago Mercantile Exchange Inc. CBOT is a trademark of the Board of Trade of the City of Chicago, Inc. NYMEX is a trademark of New
York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other trademarks are the property of theirrespective owners.

The information within this communication has been compiled by CME Group for general purposes only. CME Group assumes noresponsibility for any errors or omissions. Additionally, all examples in this communication 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 superseded by official CME, CBOT, NYMEX and COMEX rules. Current rules should be
consulted in all cases concerning contract specifications.
Copyright © 2022 CME Group Inc. All rights reserved.

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