SUBMISSION COVER SHEETIMPORTANT: Check box if Confidential Treatment is requested
Registered Entity Identifier Code (optional): 14-455 (1 of 5)
Organization: The Board of Trade of the City of Chicago, Inc. (“CBOT”)
Filing as a:

DCM

SEF

DCO

SDR

Please note - only ONE choice allowed.
Filing Date (mm/dd/yy): 10/27/14 Filing Description: Notification Regarding
Listing of Treasury Invoice Swaps
Please note only ONE choice allowed per Submission.
Organization Rules and Rule Amendments
Certification§ 40.6(a)Approval§ 40.5(a)Notification§ 40.6(d)Advance Notice of SIDCO Rule Change§ 40.10(a)SIDCO Emergency Rule Change§ 40.10(h)Rule Numbers:
New ProductPlease note only ONE product per Submission.

Certification§ 40.2(a)Certification Security Futures§ 41.23(a)Certification Swap Class§ 40.2(d)Approval§ 40.3(a)Approval Security Futures§ 41.23(b)Novel Derivative Product Notification§ 40.12(a)Swap Submission§ 39.5
Official Product Name: Two-Year Treasury Invoice Swap
Product Terms and Conditions (product related Rules and Rule Amendments)
Certification§ 40.6(a)Certification Made Available to Trade Determination§ 40.6(a)Certification Security Futures§ 41.24(a)Delisting (No Open Interest)§ 40.6(a)Approval§ 40.5(a)Approval Made Available to Trade Determination§ 40.5(a)Approval Security Futures§ 41.24(c)Approval Amendments to enumerated agricultural products § 40.4(a), § 40.5(a)“Non-Material Agricultural Rule Change”§ 40.4(b)(5)

Notification§ 40.6(d)Official Name(s) of Product(s) Affected:
Rule Numbers:

Christopher Bowen
Managing Director and Chief Regulatory Counsel
Legal Department

October 27, 2014
VIA ELECTRONIC PORTAL
Christopher J. Kirkpatrick
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
RE:

CFTC Regulation §40.2(a) Certification. Notification Regarding Listing of Treasury
Invoice Swaps
CBOT Submission No 14-455 (1 of 5)

Dear Mr. Kirkpatrick:
The Board of Trade of the City of Chicago, Inc. (“CBOT” or “Exchange”) hereby notifies the Commodity
Futures Trading Commission (“CFTC” or “Commission”) that it is self-certifying terms and conditions for
Treasury invoice swaps, a type of standardized, forward-starting Libor-reference interest rate swap(“IRS”), to be listed for trading on the CME Globex electronic trading platform (“CME Globex”) and forsubmission to the Exchange of privately negotiated block trades via CME ClearPort, for first trade date of
Monday, December 15, 2014.
CBOT is self-certifying certain Treasury invoice swap contracts described herein solely for the purpose ofoffering on its designated contract market (“DCM”) intercommodity spreads, comprising such swap
contracts and specified relevant CBOT Treasury Note or Bond Futures contracts (“CBOT Treasury
futures”), that will (1) provide additional optionality in terms of trading protocol for such spread exposuresand (2) enable market participants to continue to trade such spread exposures in a manner compliant
with all applicable laws and regulations as discussed in more detail below.
This submission is organized as follows:
Section 1 sets forth the legal and regulatory background relevant to the Exchange’s decision to list theTreasury invoice swap contracts certified herein as components of intercommodity spreads. Section 2
summarizes contract features and discusses contract structure and function. (Appendix 1, attachedhereto, presents the text of CBOT Rulebook Chapter 58, which sets forth contract terms and conditions.)
Section 3 describes requisite amendments to CBOT Rulebook Chapter 5 in regard to position
accountability standards. Section 4 indicates the non-reviewable ranges that will apply to trading in
CBOT Treasury invoice swap contracts on CME Globex.
Section 5 addresses standards that will apply to block trading in Treasury invoice swap contracts, withspecial attention to standards applicable to block trading in intercommodity spreads that entail Treasury
invoice swap contracts and related CBOT Treasury futures contracts.
Section 6 summarizes the CME Globex and CME Clearing fees that will apply to CBOT Treasury invoice
swap contracts.
Section 7 establishes compliance of the CBOT Rules and Rule amendments certified herein with thepertinent Core Principles (“Core Principles”) for DCMs set forth in the Commodity Exchange Act (“Act” or“CEA”).

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Section 1 – Background
CBOT is self-certifying certain Treasury invoice swap contracts described herein solely for the purpose ofoffering on its DCM intercommodity spreads, comprising such swap contracts and specified relevant
CBOT Treasury futures contracts, that will enable market participants to trade such spread exposures in amanner compliant with all applicable laws and regulations.
An invoice spread typically involves the simultaneous execution of (1) a CBOT Treasury futures contractand (2) a swap structure referenced herein as a Treasury invoice swap.1 In an invoice spreadtransaction, a fixed-rate payer (receiver) Treasury invoice swap is counterposed against a long (short)position in a specified relevant Treasury futures contract, such that the interest rate sensitivity of theTreasury invoice swap exposure is approximately equal in magnitude, and opposite in sign, to theaggregate interest rate sensitivity of the Treasury futures exposure.2
To date, invoice spreads involving CBOT’s Treasury Futures contracts generally have been executed as
privately negotiated, voice-based package transactions pursuant to CBOT’s Rule 538, which permits
certain Exchange of Futures for Related Position (“EFRP”) transactions. 3 Under CBOT Rule 538, an
EFRP transaction involves a privately negotiated off-exchange execution of an Exchange futures or
options contract and, on the opposite side of the market, the simultaneous execution of an equivalentquantity of the cash product, by product, related product, or OTC derivative instrument4 corresponding to
the asset underlying the Exchange contract.

1

A Treasury invoice swap is a US dollar denominated forward-starting Libor-reference IRS wherein:
The fixed interest rate is set with reference to a given Treasury delivery invoice yield, that is, the yield tomaturity associated with the delivery invoice price for a specified Treasury futures contract, fulfilled bydelivery of a specified deliverable-grade Treasury security, on a specified futures contract delivery date.
Fixed-rate interest payment dates, which occur semiannually, are scheduled so as to align with thecoupon payment dates for the specified deliverable-grade Treasury security (typically, but not always, theTreasury issue that is either cheapest to deliver (CTD), or a close contender for CTD status, in fulfillment of
the specified Treasury futures contract).
Floating-rate interest payment dates, which occur quarterly, also are scheduled so as to align with thecoupon payment schedule for the specified deliverable-grade Treasury security.
The Treasury invoice swap is priced, quoted, and dealt in terms of the swap spread, the spread between
the Treasury delivery invoice yield and the fixed interest rate for the Treasury invoice swap.

2

Market practitioners generally gauge such interest rate sensitivities in terms of the corresponding DV01s, where theDV01 is the (absolute) dollar value of a change of one basis point per annum, up or down, in the prevailing level ofmarket yields.

3

Treasury invoice swaps used in the trading of invoice spreads are subject to the clearing requirement of CEA
Section 2(h)(1), but are not currently subject to the trade execution requirement of CEA Section 2(h)(8) (“Made
Available To Trade Rule” or “MAT Rule”). Thus, while market participants clear these swaps through derivatives
clearing organizations (“DCO”), current trading practice is generally to establish the invoice spread exposuresthrough the privately-negotiated EFRP mechanism.

4

A long-standing requirement of CBOT Rule 538 is that any swap used as the related position component of an
EFRP, among other requirements, must be an over-the-counter swap (the “OTC requirement”). In light of regulatorychanges affecting the swap market as a result of the Dodd-Frank Act and the Commission’s regulations implementing
the statute, CBOT clarified this requirement on 31 March 2014 in the FAQ component of its Rule 538 Market
Regulatory Advisory Notice (“MRAN”), which was deemed approved by the Commission under CFTC regulation 40.5
after an extended public comment period. Question and Answer 3 of that FAQ explain, specifically, that because of
the OTC requirement swaps executed on or subject to the rules of a SEF or a DCM cannot be used as the related
position components of EFRPs.

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Upon launch of the Treasury invoice swap contracts certified herein, a market participant will be able
execute an invoice spread via any of the following means:(1) an intercommodity spread competitively executed on the CBOT,(2) a privately negotiated intercommodity spread block transaction subject to CBOT Rule 526.5(3) a (legged) spread transaction in which the futures component is competitively executed on
the CBOT and the swap component is executed independently (but at approximately thesame time) on a swap execution facility (“SEF”) or another DCM,6 or(4) a privately negotiated EFRP transaction subject to CBOT Rule 538,
If, however, Treasury invoice swaps become subject to the trade execution requirements for swaps,
executing an invoice spread involving a CBOT Treasury futures contract via CBOT Rule 538 may nolonger be an option for many market participants. Specifically, in conjunction with the MAT
determinations earlier this year, DMO Staff commented that package trades where one or morecomponents are MAT swaps were not per se excluded from the trade execution requirements, andsubsequently issued no-action relief exempting packaged transactions that include a MAT swap from,inter alia, the trading protocols applicable to MAT swaps. Thus, if that no-action relief is not extended anda MAT determination for an invoice swap becomes effective, market participants that are required tocomply with this CFTC requirement would no longer be able to execute the swap leg of an invoice spread– and the invoice spread itself – via a privately negotiated OTC transaction pursuant to CBOT Rule 538.
We emphasize that even if Treasury invoice swaps as certified herein were to become subject to a MAT
determination, the applicable rules and regulations noted herein would not prohibit market participantsfrom executing invoice spreads that incorporate CBOT Treasury futures. What would change, however,is that the means by which such invoice spreads could be executed would be different for some market
participants. Notably, the EFRP mechanism would no longer be available for market participants that are
required to comply with the CFTC’s trade execution requirement, however, these participants would
continue to have access to the remaining three avenues of trade execution identified above.
Importantly, we note that CBOT is not seeking a MAT determination with respect to the Treasury invoice
swaps that it would list for trading pursuant to this filing. Therefore, absent a MAT filing by another venue
and the Commission’s agreement that such products should be subject to the trade execution
requirements, market participants can continue to execute invoice spread transactions involving a CBOT
listed futures contract as they do today—as a privately negotiated EFRP transaction compliant with the
CEA, CFTC regulations and CBOT Rule 538.
Finally, the CBOT futures leg of an invoice spread will be executed on CBOT’s DCM, which is required by
Section 4(a) of the CEA. CBOT’s invoice spread offering will, therefore, comply with all applicable swaps
and futures rules and regulations.
Section 2 – Treasury Invoice Swaps: Contract Specifications and Design

Tables 1 and 2 summarize Treasury invoice swap contract specifications. (All times of day referenced
there and elsewhere in this memorandum are Chicago time, unless otherwise noted.)
Table 1 – CBOT Treasury Invoice Swaps

5

Other invoice spread markets may exist or develop where a Treasury invoice swap is traded as a spread against
another DCM’s Treasury futures contract. Thus, the four CBOT options outlined above are not exhaustive.

6

Though this method introduces the potential for “price slippage,” spreading technology is widely used for trading
strategies that involve execution of two or more different instruments traded on different markets.
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Trading Unit

USD forward-starting Libor-reference interest rate swap, cleared by CME Clearing, traded on CME
Globex, and standardized with reference to: (a) a specified related CBOT Treasury futures contract; (b)coupon rate per annum and maturity date of a specified related Treasury security eligible for delivery into
related futures contract (a); and (c) a specified related delivery date allowable under the terms of related
futures contract (a).

Swap Tenors
UB IS
US IS
TY IS
FV IS
TU IS
Effective Dates

FV IS
TU IS

Minimum Price
Increment
Termination of
Trading

Approximate IRS Tenor
25 yrs
20 yrs
6 yrs 6 mos
4 yrs 3 mos
1 yr 9 mos

Either first (F) or last (L) delivery date for the related CBOT Treasury futures contract
UB IS
US IS
TY IS

Price Basis

Related CBOT Treasury Futures Contract
Long Term “Ultra” Treasury Bond (UB)
Treasury Bond (US)
10-Year Treasury Note (TY)
5-Year Treasury Note (FV)
2-Year Treasury Note (TU)

F

L

First bus day ofMar, Jun, Sep, or Dec

Last bus day ofMar, Jun, Sep, or Dec

First bus day ofMar, Jun, Sep, or Dec

Mar: 3 bus day of AprrdJun: 3 bus day of Julrd
Sep: 3 bus day of Oct
rd
Dec: 3 bus day of Janrd

Swap spread, quoted in basis points per annumth

1/10 of one basis point per annum, eg, 11.8, 11.9, 12.0, 12.1
Coincident with termination of trading in the related Treasury futures contract, if the related delivery dateis the futures contract’s last delivery date.
Close of trading on second business day before first delivery date of the related Treasury futurescontract, if the related delivery date is the futures contract’s first delivery date.

Swap Elections

See Table 2.

Trading Hours

CME Globex: 5pm to 4pm, Sun-Fri.
CME Globex Trade Match Algorithm: First In First Out (FIFO)CME ClearPort: 5pm to 4:15pm, Sun, Fri. For submission of block trades only.

Commodity Codes
UB IS
US IS
TY IS
FV IS
TU IS

InitialContract Listing
U1A
B1A
N1A
F1A
T1A

SecondaryContract Listing
U2A
B2A
N2A
F2A
T2A

Tertiary
Contract Listing
U3A
B3A
N3A
F3A
T3A

Table 2 – CME Clearing Elections for CBOT Treasury Invoice Swaps
Effective Date
Currency
Notional Amount

Either first delivery date or last delivery date allowable for a specified related
CBOT Treasury futures contract.
USD
Minimum increments of $0.01

Business Day(s)Business Day Convention
Termination Date

New York and London
Modified Following
Maturity date for a specified related Treasury security eligible for delivery into therelated CBOT Treasury futures contract

Fixed Rate Payment Dates

All semiannual period dates made with reference to Termination Date, within interval
starting with (and excluding) Effective Date and ending with (and including)Termination Date.
(Treasury futures contract delivery invoice yield)+ (Treasury invoice swap spread / 100).
30/360

Fixed Rate
Fixed Rate Day Count
Floating Rate Payment Dates

All quarterly period dates made with reference to Termination Date, within interval

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Floating Rate Option
Floating Rate Designated Maturity
Floating Rate Day Count
Floating Rate Spread
Compounding
Initial Floating Rate Payment

starting with (and excluding) Effective Date and ending with (and including)Termination Date.
USD-LIBOR-BBA
3-Month except for Initial Floating Rate Payment
Actual/360
None
None
(a) Set by linear interpolation, on the basis of actual/360 day count, with respect
to New York and London Business Days subject to Modified Following
Business Day Convention,(b)applied to two (2) USD-LIBOR-BBA values for notional settlement on Effective
Date,

(c)

where one such USD-LIBOR-BBA value is for the standardized DesignatedMaturity date next preceding the date of the Initial Floating Rate Payment, andthe other such USD-LIBOR-BBA value is for the standardized DesignatedMaturity date next following the date of the Initial Floating Rate Payment.

Interpolation typically will be applied to pairs of USD-LIBOR-BBA values for
Designated Maturities of two (2) months and three (3) months, or of one (1) monthand two (2) months, or of one (1) week and one (1) month.

Section 2.1 – Swap Structure

In light of the overview presented in Section (1), any CBOT Treasury invoice swap listed for trading on
CME Globex would be standardized in terms of: (a) a specified related CBOT Treasury futures contract,(b) the coupon rate per annum and maturity date of a specified related Treasury security eligible fordelivery in fulfillment of the related futures contract (a), and (c) a specified delivery date allowable under
the terms of the related futures contract (a).
Each such Treasury invoice swap would be designated by an alias that conveys these attributes.
Examples2-Year Treasury Invoice Swap: TUU4F015030JUN16
The swap is specified in terms of CBOT 2-Year Treasury Note futures for Sep 2014 delivery, on
the premise that the related Treasury note to be delivered in fulfillment of contract will be 1-1/2%
of 30 June 2016, and that the related futures delivery date (and swap effective date) will be thefutures contract’s first allowable delivery day, 2 September 2014. The swap tenor (from the swap
effective date, 2 September 2014, to the related Treasury security’s maturity date, 30 June 2016)
is approximately 1 year 10 months.
TUU4

Related Treasury futures contract:
CBOT 2-Year Treasury Note futures (TU) for delivery in September 2014 (U4).

F

Related futures delivery date = Swap effective date:
First (F) delivery date for TUU4 (Tue, 2 September 2014).

0150

Indicates that coupon rate per annum of related Treasury note is 1-1/2%.

30JUN16

Indicates that maturity date of related Treasury note is 30 June 2016.

16-Year Treasury Invoice Swap: USU4L062515MAY30
The swap is specified in terms of CBOT Treasury Bond futures for Sep 2014 delivery, on
presumption that the related Treasury bond to be delivered in fulfillment of contract will be 6-1/4%
of 15 May 2030, and that the related futures delivery date (and swap effective date) is the futurescontract’s last delivery day, 30 Sep 2014. The resultant swap tenor (from the swap effective date,
30 September 2014, to the related Treasury security’s maturity date, 15 May 2030) is
approximately 15 years 7-1/2 months.

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USU4

Related Treasury futures contract:
CBOT Treasury Bond futures (US) for delivery in September 2014 (U4).

L

Related futures delivery date = Swap effective date:
Last (L) delivery date for USU4 (Tue, 30 September 2014).

0625

Indicates that coupon rate per annum of related Treasury note is 6-1/4%.

15MAY30

Indicates that maturity date of related Treasury note is 15 May 2030.

Section 2.2 – Swap Fixed Interest Rates

The fixed interest rate for any Treasury invoice swap certified herein would be based on the invoice swap
rate, r, established through centralized and competitive trading of the corresponding invoice spread
package as follows:r = y + sr

Treasury invoice swap fixed rate per annum, accruing on 30/360 day count basis.

yforward starting yield to maturity of the related Treasury security, for forward start on therelated futures delivery date, with the yield based upon the CME Last (or “C-Last”) priceof the Treasury invoice swap’s related Treasury futures contract, as of the timestamp of
the Treasury invoice swap transaction.7sTreasury invoice swap spread

The Treasury invoice swap spread, s, is the price measure by which a Treasury invoice swap is quoted
and transacted. (Because the invoice swap spread is quoted in basis points per annum, s is the quoted
spread divided by 100.)
ExamplesOn an arbitrarily chosen date in February 2014, consider a hypothetical Treasury invoice swap
specified in terms of delivery of 3-5/8% of 15 Feb 2021 Treasury note, in fulfillment of March 2014
10-Year Treasury Note futures (TYH4), on 31 March 2014 (TYH4’s last delivery date). Assume
TYH4 is priced so that the forward-starting yield to maturity for the specified related Treasury note(based on the delivery invoice amount for the Treasury note implied by the futures contract’s
market price) is 2.2515 percent per annum (where the forward start date is the specified related
Treasury futures contract’s last delivery date, 31 March 2014). Assume the related invoice swap
spread is priced at 11.0 basis points (equal to 0.11 percent) per annum. The resultant Treasury
invoice swap is booked at a fixed rate of 2.3615 percent per annum, equal to the Treasury
delivery invoice yield of 2.2515 percent plus a swap spread of 0.1100 percent.

7

The C-Last price for a CBOT Treasury futures contract is the contract’s latest trade price, or actionable priceindication, or settlement price. Specifically, the C-Last price is the most recent of:(i) the contract’s latest CME Globex transaction price, or(ii) the CME Globex bid price that betters the bid side of the market, or(iii) the CME Globex asking price that betters the ask side of the market, or(iv) the contract’s latest daily settlement price.
In respect of items (ii) and (iii), a bid that betters the market is understood to be a bid to buy at a higher price than theincumbent C-Last price. Similarly, a better ask price is an offer to sell at a price below the preceding C-Last price.

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Similarly, consider a hypothetical Treasury invoice swap for which the specified related futurescontract is the same (TYH4), and the specified related delivery date is the same (TYH4’s lastdelivery date), but for which the specified related Treasury note is 2-5/8% of 15 Nov 2020.
Assume market conditions, including TYH4’s price, are such that the forward-starting yield tomaturity for the Treasury note (calculated, as before, on the basis of the delivery invoice amountfor the Treasury note, as implied by the market price of the futures contract) is 2.2080 percent per
annum. Assume as before that the price of the invoice spread is 11.0 bps per annum. The
Treasury invoice swap is booked at a fixed rate 2.3180 percent per annum, equal to the Treasury
delivery invoice yield of 2.2080 percent plus 0.1100 percent.
Section 2.3 – Trading Treasury Invoice Swaps

Any party entering an order for or executing a transaction in any Treasury invoice swap certified herein, orin any intercommodity spread that entails such Treasury invoice swap, shall be required to be either a
CME IRS Clearing Member or an IRS Participant registered with CME. Such Treasury invoice swaps
shall not be available for trading in open outcry.
Trading in Treasury invoice swaps shall be subject, moreover, to three provisional restrictions, codified asinterpretations and special notices to the contract terms and conditions. See Appendix 1.
First, Treasury invoice swap contracts shall be permitted to trade only as components of intercommodity
spreads with the corresponding related Treasury futures contracts, until such time as the Exchange may
decide, in light of the needs of market participants among other considerations, to enable outright tradingin Treasury invoice swaps. Specifically, any party entering such Treasury invoice swap as the payer of
fixed rate interest shall be required to be a purchaser of the related Treasury futures contract through anintercommodity spread, and conversely any party entering such Treasury invoice swap as the receiver of
fixed rate interest shall be required to be a seller of the related Treasury futures contract.
Second, the trading unit for any Treasury swap shall be prescribed by the Exchange from time to time sothat the order of magnitude of such swap’s notional principal amount is comparable to the order ofmagnitude of the unit of trade for the corresponding related Treasury futures contract. Without limitation,
the intent of this restriction is to enable the Exchange to establish a Treasury invoice swap’s unit of tradeso that the DV01 of the swap structure is approximately comparable to the DV01 of the related Treasury
futures contract exposure.
Third, the only admissible price basis for quoting or trading a Treasury invoice swap contract shall be thecorresponding Treasury invoice swap spread, as described and exemplified in Section (2.2) above. Any
Treasury invoice swap transacted at a given Treasury invoice swap spread shall be submitted to CME
Clearing for clearing and guarantee at fixed rate equal to the sum of (a) the swap spread (in percent per
annum terms) plus (b) the forward-starting yield to maturity of the related Treasury security, for forward
start on the related futures delivery date, where such yield to maturity shall be based upon the C-Last
price of the swap’s specified Treasury futures contract as of the timestamp of the Treasury invoice swap
transaction.

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Section 3 – Position Accountability Standards

CBOT Treasury invoice swaps shall not be subject to position limits. Any Treasury invoice swap
executed on the CBOT DCM shall be subject to a position accountability threshold of $1, expressed interms of the US dollar value of swap notional principal value as shown in Appendix 2 (attached under
separate cover).
Section 4 – Globex Non-Reviewable Trading Ranges

Non-reviewable ranges for trading in CBOT Treasury invoice swaps on CME Globex are set forth inAppendix 3.
Section 5 – Block Trade Standards

Intermarket spreads that combine CBOT Treasury invoice swaps and the corresponding relevant CBOT
Treasury futures will be eligible for execution as privately negotiated block trades, subject to the following
two conditions.
First, for any block transaction in an intercommodity spread comprising a CBOT Treasury invoice
swap and a related CBOT Treasury futures contract, the minimum size for each leg of such blocktransaction shall be no less than the minimum size threshold for block transactions in such CBOT
Treasury invoice swap (where minimum size shall be understood to apply to the aggregate ofcontract notional face value in the case of the CBOT Treasury futures component of suchintercommodity spread, and to the size of swap notional principal in the case of the CBOT
Treasury invoice swap component of such intercommodity spread).
Second, contingent trade in CME Cleared interest rate swaps, including CBOT Treasury invoice
swaps, is prohibited, irrespective of the trading venue in which such CME Cleared interest rate
swaps may be executed, for which the effect of such contingent trade would be to circumvent
minimum quantity requirements for block trades in outright CBOT Treasury futures.
Standards for block trades in such intermarket spreads are displayed in Table 3 and shall be certified with
the Commission under a separate submission that sets forth the requisite amendments to Section 12 of
CME & CBOT Market Regulation Advisory Notice RA 1406-3 for Block Trades, 3 October 2014.
Table 3 – Block Trade Standards for CBOT Treasury Invoice Swaps and Swap Spreads

Intercommodity Spread

Minimum Block Trade Threshold -Invoice Swap Notional Principal
8
Amount ($ mlns)

2-Year Invoice Spread
5-Year Invoice Spread
10-Year Invoice Spread
Treasury Bond Invoice Spread
Ultra Bond Invoice Spread

460
240
170
120
120

Minimum Block Trade Threshold –Treasury Futures
Contracts

2,300
2,400
1,700
1,200
1,200

8
See 17 CFR Part 43, Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility
Swaps and Block Trades, 31 May 2013, effective 30 July, 2013, available at
http://www.cftc.gov/LawRegulation/DoddFrankAct/Dodd-FrankFinalRules/ssLINK/2013-16938a

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Section 6 – Exchange Fees

The fees that will apply to trading and clearing CBOT Treasury invoice swaps are as summarized below –CME Globex execution fees
A CME Globex transaction fee of $0.10 per swap contract side shall be levied per $100,000 ofprincipal amount of any CBOT Treasury invoice swap that is transacted. This fee shall apply as aflat rate, irrespective of the CBOT membership category of any party to such transaction.
CME Clearing fees
Any CBOT Treasury invoice swap as certified herein shall be subject to such CME IRS Clearing
fees (ie, the High Turnover Schedule, the Standard Fee Schedule, or the Magellan Dealer
schedule) as may apply to any party to a transaction in such Treasury invoice swap. CME OTC
Cleared IRS Customer Fee Details that are in effect at any given time are available at
http://www.cmegroup.com/trading/interest-rates/files/CME-IRS-Customer-Fee.pdf or at
http://www.cmegroup.com/trading/interest-rates/cleared-otc-irs-customer-fees.html
Block trade surcharges
A surcharge of $0.25 per swap contract side shall be levied per trading unit of any CBOT
Treasury invoice swap made through a block transaction.
Any CBOT Treasury futures contract that is traded through an intercommodity spread with a CBOT
Treasury invoice swap shall be subject to such applicable CBOT transaction fees, surcharges, andclearing fees as are in effect at the time of transaction. The CBOT Transaction Fee Schedules for
Financial Products, and for Ex-Pit Surcharges, Non-Trades, and Clearing Fees that are in effect at any
given time are available at http://www.cmegroup.com/company/clearing-fees/
Section 7 – Compliance with Core Principles

The Exchange’s Research Department and Legal Department collectively reviewed the designatedcontract market core principles (“Core Principles”) as set forth in the Commodity Exchange Act (“CEA” or“Act”). During the review, we have determined that the new product terms and conditions certified herein
may bear upon the following Core Principles:Core Principle 2 – Compliance with Rules: Trading in the contracts certified herein shall be subject to
CBOT Rulebook Chapter 4, which includes prohibitions against fraudulent, noncompetitive, unfair, andabusive practices. Additionally, trading in these contracts shall be subject to the Exchange’s tradepractice rules, the majority of which are contained in Chapter 5 and Chapter 8 of the Rulebook. Trading
activity in these contracts shall be subject to monitoring and surveillance by CME Group’s Market
Regulation Department, which has the authority to exercise its investigatory and enforcement power
where potential rule violations are identified.
Core Principle 3 – Contracts Not Readily Subject to Manipulation: Each CBOT Treasury invoice swap
shall entail payment (receipt) of semiannual fixed interest amounts determined by reference to the swap
fixed rate (established by means of centralized and competitive trading on the CBOT DCM) in exchange
for receipt (payment) of quarterly floating interest amounts determined by reference to values of 3-month
US Dollar ICE LIBOR on each of such Treasury invoice swap’s quarterly floating interest rate reset dates.
See Appendix 1, Rule 58101.B.9 Please refer to Appendix 4 for a review of the administration, definition,
9

More precisely, for a given Treasury invoice swap the floating rate designated maturity shall be 3 months for all
floating rate interest intervals entailed in such swap, with the exception of the initial floating rate interest interval (or“stub” interval), which typically will be shorter than 3 months. Accordingly, the terms and conditions for CBOT
Treasury invoice swaps allow for the corresponding initial floating interest rate to be set:(a) by linear interpolation, on the basis of actual/360 day count, with respect to New York and London Business
Days subject to Modified Following Business Day Convention,

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calculation and regulatory oversight of the 3-month US dollar ICE LIBOR in connection with this Core
Principle.
Core Principle 4 – Prevention of Market Disruption: Trading in the swap contracts certified herein shall be
subject to CBOT Rulebook Chapters 4 and 7, which include prohibitions on manipulation and pricedistortion. As with any new product listed for trading on a CME Group DCM, trading activity in the swap
contracts certified herein shall be subject to monitoring and surveillance by CME Group’s Market
Regulation Department.
Core Principle 5 – Position Limits or Accountability: CBOT Treasury invoice swaps as certified herein are
financially-settled contracts that are based on an excluded commodity. Accordingly, these swaps will not
be subject to Exchange-set position limits. Rather, any such Treasury invoice swap executed on the
CBOT DCM shall be subject to a position accountability threshold of $1, expressed in terms of the US
dollar value of swap notional principal value. See Section (3) above and Appendix 2, below.
Core Principle 7 – Availability of General Information: The Exchange shall publish on its website
information in regard to Treasury invoice swap contract specifications, terms, and conditions, as well as
daily trading volumes in such swaps, the outstanding notional principal amounts of such swaps, and priceinformation.
Core Principle 8 – Daily Publication of Trading Information: The Exchange shall publish daily informationin regard to daily trading volumes in such swaps, the outstanding notional principal amounts of suchswaps, and price information on its website and through quote vendors.
Core Principle 9 – Execution of Transactions: CBOT Treasury invoice swaps, as certified herein, shall belisted for trading on CME Globex as components of the intercommodity spreads discussed above. CME
Globex provides for competitive and open execution of transactions, and affords the benefits of reliability
and global connectivity. Block trades will be permitted as described above. CME Globex non-reviewable
trading ranges for the Treasury invoice swaps certified herein are set forth in Appendix 3, below.
Core Principle 10 – Trade Information: All requisite trade information shall be included in the audit trail for
the Market Regulation Department to monitor for market abuse.
Core Principle 11 – Financial Integrity of Transactions: Any CBOT Treasury invoice swap, as certified
herein, shall be cleared by CME Clearing as an IRS Product subject to the Clearing House financial
safeguards provided by the IRS Guaranty Fund. CME Clearing is registered with the Commodity Futures
Trading Commission as a Derivatives Clearing Organization and is subject to all CFTC regulations related
thereto.
Core Principle 12 – Protection of Markets and Market Participants: CBOT Rulebook Chapters 4 and 5 set
forth multiple strictures that preclude intermediaries from disadvantaging their customers. These Rules
apply to trading in all of the Exchange’s competitive trading venues and will apply to transactions in the
Treasury invoice swap contracts certified herein.
Core Principle 13 – Disciplinary Procedures: CBOT Rulebook Chapter 4 provides for the Exchange todiscipline, suspend, or expel members or market participants who violate the rules of the Exchange.
Trading in the Treasury invoice swap contracts certified herein will be subject to these provisions. The(b) applied to two (2) USD-LIBOR-BBA values for notional settlement on Effective Date,(c) where one such USD-LIBOR-BBA value is for the standardized Designated Maturity date next preceding thedate of the Initial Floating Rate Payment, and the other such USD-LIBOR-BBA value is for the standardized
Designated Maturity date next following the date of the Initial Floating Rate Payment.
Such interpolation typically will be applied to USD-LIBOR-BBA values for one of three pairs of Designated Maturities:
2 months and 3 months, 1 month and 2 months, or 1 week and 1 month.

1 North End Avenue New York, NY 10282

T 212 299 2200 F 212 299 2299

11

christopher.bowen@cmegroup.com cmegroup.com

Market Regulation Department has the authority to exercise its powers of enforcement, in the event thatrule violations in these products are identified.
Core Principle 14 – Dispute Resolution
Disputes with respect to the Treasury invoice swap contracts certified herein will be subject to thearbitration provisions set forth in CBOT Rulebook Chapter 6, which allow all nonmembers to submit
claims for financial losses resulting from transactions on the Exchange to arbitration. Pursuant to theseprovisions, any member named as a respondent in any such claim submitted by a nonmember is required
to participate in arbitration proceedings. Additionally, the Exchange requires members to resolve via
arbitration all disputes concerning transactions on the Exchange.
The Exchange certifies that the Treasury invoice swaps certified herein comply with the Act and rules
thereunder. There were no substantive opposing views to the proposed terms and conditions.
The Exchange certifies that this submission has been concurrently posted on the Exchange’s website at
http://www.cmegroup.com/market-regulation/rule-fillings.html.
If you require any additional information regarding this action, please do not hesitate to contact me(christopher.bowen@cmegroup.com, 212 299 2200) or my colleague Frederick Sturm(frederick.sturm@cmegroup.com, 312 930 1282).

Sincerely,/s/ Christopher Bowen
Managing Director and Chief Regulatory Counsel

Attachments:

Appendix 1–CBOT Rulebook Chapter 58
Appendix 2– Amendments to Interpretations Section of CBOT Rulebook Chapter 5:
Position Accountability Levels for Treasury Invoice Swaps (attached under separate
cover)
Appendix 3– Amendments to CBOT Rule 588.H. Globex Non-Reviewable Trading
RangesAppendix 4–Review of ICE LIBOR under Core Principle 3

1 North End Avenue New York, NY 10282

T 212 299 2200 F 212 299 2299

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christopher.bowen@cmegroup.com cmegroup.com

Appendix 1
CBOT Rulebook Chapter 58 – Treasury Invoice Swaps(additions underlined)

58100. SCOPE OF CHAPTER
This chapter is limited in application to trading of Treasury Invoice Interest Rate Swaps (“Treasury Invoice
Swaps”). Procedures for trading, clearing, settlement, and any other matters not specifically covered
herein, shall be governed by the general rules of the Exchange and of Chicago Mercantile Exchange(“CME”) Rulebook Chapters 8F, 8G, 900, and 901, as applicable (“Rules”).
Capitalized terms in this Chapter that are not otherwise defined in this Chapter shall have the meanings
given to such terms in other Chapters of the Rules. Except as noted, references in this Chapter to Rules
or Chapters shall be to the Rules of the CBOT or to the Chapters of the CBOT Rulebook. Capitalized
terms in this Chapter that are not otherwise defined in this Chapter or in the other Chapters of the Rules
shall have the meanings set forth in the ISDA Definitions (CME Rule 90002.N.).
Except as noted, all times referenced in this Chapter are Chicago times and are subject to change by the
Exchange.

58101. CONTRACT SPECIFICATIONS
58101.A. Definitions
1. CBOT Treasury Futures Contract
Short-Term U.S. Treasury Note (2-Year) futures (Chapter 21), Medium-Term U.S. Treasury Note (5-Year)futures (Chapter 20), Long-Term U.S. Treasury Note (6 ½ to 10-Year) futures (Chapter 19), U.S. Treasury
Bond futures (Chapter 18), or Long-Term U.S. Treasury Bond futures (Chapter 40) listed for trading on
the CBOT.
2. Related Futures Contract
For a given Treasury Invoice Swap made under these rules, a given CBOT Treasury Futures Contract(Rule 58101.A.1.) for a given delivery month as specified in the Swap Elections for such Treasury Invoice
Swap, including but not limited to the Effective Date (Rule 58101.B.1.), Fixed Rate Payment Dates (Rule58101.B.7.), Floating Rate Payment Dates (Rule 58101.B.10.), and Initial Floating Rate Payment (Rule58101.B.16.).
3. Related Treasury CUSIP
A given Treasury security designated by the Exchange as eligible for delivery in fulfillment of the Related
Futures Contract (Rule 58101.A.2.).
4. Related Futures Delivery Date
A given date allowable for delivery of Treasury securities in fulfillment of the Related Futures Contract(Rule 58101.A.2.). Without limitation to the foregoing, such Related Futures Delivery Date typically shallbe either the first delivery date or the last delivery date allowable under the terms of such Related Futures
Contract.
58101.B. Swap Elections
Any contract made under these Rules shall be an Interest Rate Swap Contract (“IRS Contract” per CME
Rule 90002.J.) that is accepted for clearing by the Clearing House subject to CME Rulebook Chapters
8F, 8G, 900, and 901, and that is subject to the following Contract Elections (CME Rule 90002.F.):1. Effective Date:
A specified Related Futures Delivery Date (Rule 58101.A.4.) for a specified
Related Futures Contract (Rule 58101.A.2.).
2. Currency:

US dollars (CME Rule 90102.B.).

3. Notional Amount:

Any integer multiple of $0.01.

4. Business Day(s):New York and London.

5. Business Day Convention:

Modified Following.

6. Termination Date:

Maturity date of a given Related Treasury CUSIP (Rule 58101.A.3.).

7. Fixed Rate Payment Dates: All semiannual period dates, made with reference to a given Termination
Date (Rule 58101.B.6.), in the interval beginning with and not including the Effective Date (Rule58101.B.1.) and ending with and including such Termination Date.
8. Fixed Rate: See Rule 58102.C.
9. Fixed Rate Day Count:

30/360.

10. Float Rate Payment Dates: All quarterly period dates, made with reference to a given Termination
Date (Rule 58101.B.6.), in the interval beginning with and not including the Effective Date (Rule58101.B.1.) and ending with and including such Termination Date.
11. Floating Rate Option:

USD-LIBOR-BBA (CME Rule 90102.E.1.).

12. Designated Maturity:Three (3) months, subject to Rule 58101.B.16.

13. Floating Rate Day Count:

Actual/360.

14. Spread:None.

15. Compounding:None.

16. Initial Float Rate Payment: The floating rate for determination of the Initial Floating Rate Payment
shall be set:(a) by linear interpolation, on the basis of Actual/360 Floating Rate Day
Count (Rule 58101.B.13.) with respect to New York and London
Business Days (Rule 58101.B.4.) subject to the Modified Following
Business Day Convention (Rule 58101.B.5.),(b) applied to two (2) USD-LIBOR-BBA values for notional settlement on
the Effective Date (Rule 58101.B.1.),(c) where one such USD-LIBOR-BBA value is for the standardized
Designated Maturity date next preceding the date of such Initial
Floating Rate Payment, and the second such USD-LIBOR-BBA
value is for the standardized Designated Maturity date next following
the date of such Initial Floating Rate Payment.
Without limitation to the foregoing, such interpolation typically will be applied to pairs of USD-LIBOR-BBA
values for Designated Maturities of two (2) months and three (3) months, or of one(1) months and two (2)months, or of one (1) week and one (1 ) month.

58102. TRADING SPECIFICATIONSFor Treasury Invoice Swap contracts made under these Rules, the number of Effective Dates (Rule58101.B.1.) and Termination Dates (Rule 58101.B.6.) open for trading at a given time shall be determinedby the Exchange.
Trading in any Treasury Invoice Swap contract made under these Rules shall be subject to theInterpretations & Special Notices Relating to Chapter 58.
58102.A. Trading Schedule
The hours of trading shall be determined by the Exchange.
58102.B. Trading Unit
The contract quantity shall be an integer multiple of $0.01 of Notional Amount (Rule 58101.B.3.), subject
to the Interpretations & Special Notices Relating to Chapter 58.
58102.C. Price BasisAny price quoted or made in connection with creation of a Treasury Invoice Swap contract under theseRules shall be in terms of the Fixed Rate for such swap (Rule 58101.B.8.), subject to the Interpretations &Special Notices Relating to Chapter 58.
58102.D. Position Limits and Position Accountability
The applicable position limits and/or accountability levels are set forth in the Position Limit and Position
Accountability Table in the Interpretations & Special Notices Section of Chapter 5.
A person seeking an exemption from position limits for bona fide commercial purposes shall apply to theMarket Regulation Department on forms provided by the Exchange, and the Market Regulation
Department may grant qualified exemptions in its sole discretion.
Refer to Rule 559 for requirements concerning the aggregation of positions and allowable exemptions
from the specified position limits.
58102.E. Termination of Trading
Trading on CBOT in any Treasury Invoice Swap made under these Rules shall terminate with terminationof trading in the Related Futures Contract (Rule 58101.A.2.) corresponding to such Treasury Invoice
Swap.

58103. CLEARING GUARANTEE
58103.A. Requirements for Market Participation
Any party entering an order for, or executing a transaction in, any Treasury Invoice Swap made underthese Rules shall be either an IRS Clearing Member (CME Rule 90002.I) or an IRS Participant registeredwith CME pursuant to CME Rule 90005.A or CME Rule 90005.B , respectively.
58103.B. IRS Product Account Registration
Any order for, or transaction in, a Treasury Invoice Swap made under these Rules must be identified withan IRS Product account number that identifies the holder of such IRS Product account, and that specifies
whether such IRS Product account is either (1) a proprietary account of an IRS Clearing Member or (2)held by a customer registered with CME by an IRS Clearing Member as an IRS Participant (CME Rule
8F009. and CME Rule 90005.B.). Such IRS Clearing Member shall guarantee and assume complete
responsibility for the financial obligations of the party on whose behalf such order or trade is entered.
58103.C. Clearing House Financial Safeguards
Any Treasury Invoice Swap made under these Rules shall be an IRS Product subject to the Clearing
House financial safeguards provided by the IRS Guaranty Fund.

INTERPRETATIONS & SPECIAL NOTICES RELATING TO CHAPTER 58
1. Trading Specifications
Until such time as the Exchange shall enable outright trading in Treasury Invoice Swap contracts madeunder these Rules, trading in any such Treasury Invoice Swap contract shall be permitted only wheresuch Treasury Invoice Swap contract is traded as a component of an intercommodity combination withthe corresponding Related Futures Contract (Rule 58101.A.2.) in which (a) any party entering such
Treasury Invoice Swap as the payer of Fixed Rate interest (Rule 58101.B.8.) shall be a purchaser of such
Related Futures Contract, and (b) any party entering such Treasury Invoice Swap as the receiver of Fixed
Rate interest shall be a seller of such Related Futures Contract.

2. Trading Unit
Subject to Special Notice 1. for Trading Specifications of these Interpretations & Special Notices, theTrading Unit for any Treasury Invoice Swap contract made under these Rules shall be as prescribed by
the Exchange from time to time.
Without limitation to the foregoing, the Exchange typically shall prescribe the Trading Unit for such
Treasury Invoice Swap contract so that the order of magnitude of the corresponding Notional Amount(Rule 58101.B.3.) shall be comparable to the order of magnitude of the Trading Unit for the corresponding
Related Futures Contract. (See CBOT Rule 21102.B. where such Related Futures Contract is ShortTerm U.S. Treasury Note (2-Year) futures, CBOT Rule 20102.B. where such Related Futures Contract is
Medium-Term U.S. Treasury Note (5-Year) futures, CBOT Rule 19102.B. where such Related Futures
Contract is Long-Term U.S. Treasury Note (6 ½ to 10-Year) futures, CBOT Rule 18102.B. where such
Related Futures Contract is U.S. Treasury Bond futures, or CBOT Rule 40102.B. where such Related
Futures Contract is Long-Term U.S. Treasury Bond futures.)3. Price Basis
Subject to Special Notice 1. for Trading Specifications of these Interpretations & Special Notices, thePrice Basis for any Treasury Invoice Swap contract under these Rules shall be the corresponding Swap
Spread. Such Swap Spread shall be quoted and made as an integer multiple of one tenth (1/10) of one
interest rate basis point per annum (1/100th of one percent per annum), on the basis of 30/360 day count(Rule 58101.B.9.), with semiannual compounding of interest (Rule 58101.B.7.). Any such Swap Spreadshall be quoted in a minimum increment of one tenth (1/10) of one basis point per annum (eg, 10.9, 11.0,
11.1, or 11.2 basis points per annum).
Where a Treasury Invoice Swap contract is made at a given Swap Spread:
3.a. The Fixed Rate of interest (Rule 58101.B.8.) for such Treasury Invoice Swap contract shall be thesum of such Swap Spread, re-expressed in terms of interest rate per annum, plus the corresponding
Treasury Delivery Invoice Yield.
Example: Assume that a given CBOT Treasury Invoice Swap trades at a price equal to 11.2 basis points
per annum or, equivalently, 0.112 percent per annum. Assume moreover that for the corresponding
Related Futures Contract, Related Treasury CUSIP, and Related Futures Delivery Date, the Treasury
Delivery Invoice Yield is equal to 2.550 percent per annum. Then such Treasury Invoice Swap shall be
submitted to CME Clearing for centralized clearing and guarantee at a Fixed Rate of 2.662 percent per
annum, equal to 2.550 percent plus 0.112 percent.
3.b. Such corresponding Treasury Delivery Invoice Yield shall be defined as the yield to maturity that
corresponds to the delivery invoice amount implied by the market price of the corresponding Related
Futures Contract (Rule 58101.A.2.), to be fulfilled by delivery of the corresponding Related Treasury
CUSIP (Rule 58101.A.3.) for settlement on the corresponding Related Futures Delivery Date (Rule58101.A.4.).

3.c. Such market price of the corresponding Related Futures Contract shall be defined as the CME
Last price of such Related Futures Contract, as indicated on the CME Globex electronic trading platform
at the time of transaction of such Treasury Invoice Swap contract. Without limitation to the foregoing, fora given Related Futures Contract the CME Last price shall be the most recent of:(i) such Related Futures Contract’s latest CME Globex transaction price, or(ii) the CME Globex bid price that betters the bid side of the market, or(iii) the CME Globex asking price that betters the ask side of the market, or(iv) such Related Futures Contract’s latest daily settlement price.

Appendix 2
Amendments to Interpretations Section of CBOT Rulebook Chapter 5:
Position Accountability Levels for Treasury Invoice Swaps
Attached under separate cover with additions underlined.

Appendix 3
Amendments to CBOT Rule 588.H. Globex Non-Reviewable Trading Ranges(additions underlined)

Interest Rate Swaps

Instrument

GlobexSymbolGlobex
Non-Reviewable
Ranges (NRR)

NRR:
Globex Format

NRR:
Ticks

…

…

…

…

…

Two-Year Treasury Invoice Swap

T1A, T2A, T3A

2 1/2 basis points

2.50

25

Five-Year Treasury Invoice Swap

F1A, F2A, F3A

2 1/2 basis points

2.50

25

Ten-Year Treasury Invoice Swap

N1A, N2A, N3A

2 1/2 basis points

2.50

25

Treasury Bond Invoice Swap

B1A, B2A, B3A

2 1/2 basis points

2.50

25

Long-Term Treasury Bond Invoice Swap

U1A, U2A, U3A

2 1/2 basis points

2.50

25

…

…

…

…

Appendix 4
Review of ICE LIBOR under Core Principle 3
Administration and Oversight of LIBOR
Since mid-2012, the US Commodity Futures Trading Commission, the UK Financial Conduct Authority(FCA) and its predecessor, the UK Financial Services Authority (FSA), and other financial regulators havebrought enforcement actions against several commercial banks and interbank brokerage firms inconnection with misconduct in respect of Libor and other short-term interest rate benchmarks. To date,such enforcement actions undertaken by the FSA, and latterly the FCA, and the corresponding financial
penalties, are as follows10 -Jun 2012
Dec 2012
Feb 2013
Sep 2013
Oct 2013
May 2014
Jul 2014

Barclays Bank plc
UBS AGRoyal Bank of Scotland plc
ICAP Europe Ltd
Rabobank BA
Martin Brokers (UK) Ltd
Lloyds Bank plc/Bank of Scotland plc£59.5 mln
£160.0 mln£87.5 mln
£14.0 mln
£105.0 mln£630,000£105.0 mln

The FCA continue “to take enforcement action in relation to benchmark misconduct.”11
In July 2012, the Chancellor of the Exchequer commissioned the Wheatley Review of Libor to perform an
independent review of the setting and use of Libor.12 Among the Wheatley Review’s recommendations
was that a legislative framework should be enacted for regulation of financial market benchmarks, suchas Libor. The elements of the recommended framework included the creation of two new regulated
activities: (i) administering a specified benchmark; and (ii) providing information in relation to a specified
benchmark. The recommended regulatory regime became law through amendments to Financial
Services and Markets Act of 2000 (via passage of the Financial Services Act of 2012) and to theassociated Regulated Activities Order. In consequence, the laws of England now require that firms thateither contribute to or administer any ‘specified benchmark’ named by HM Government in secondary
legislation must be authorized by the FCA. Moreover, any firm so authorized may face sanctions,
including financial penalties, suspensions, and censures, if it breaches any of the FCA’s rules andprinciples. The Financial Services Act of 2012 identified Libor as a ‘specified benchmark.’
Another of the principal recommendations of the Wheatley Review of Libor was that the incumbent Liboradministrator, BBA Libor Ltd, should cede responsibility for management of Libor to a newly appointed
administrator. For this purpose, on 25 February 2013 HM Government empaneled the independent Hogg
10

See http://www.fca.org.uk/firms/being-regulated/enforcement/fines/2013,

http://www.fca.org.uk/firms/being-regulated/enforcement/fines,
UK Financial Services Authority, Enforcement Annual Performance Account 2012/13, 1 July 2013, available athttps://www.google.com/url?q=http://www.fca.org.uk/static/documents/annual-report/fsa-enforcement-performanceaccount-2012-13.pdf&sa=U&ei=mHotVOurIsK3yATxiYCQAQ&ved=0CA0QFjAE&client=internal-udscse&usg=AFQjCNH3ZJEBsYE16FyZirJ2aQQ0uU2Y-Q, and
UK Financial Conduct Authority, Enforcement Annual Performance Account, 1 July 2014, available athttps://www.google.com/url?q=http://www.fca.org.uk/static/documents/corporate/enforcement-annual-performanceaccount-13-14.pdf&sa=U&ei=mHotVOurIsK3yATxiYCQAQ&ved=0CAwQFjAD&client=internal-udscse&usg=AFQjCNHHQccs4QLbS6ivYWohUd7mlo1fCw
11See, eg, UK Financial Conduct Authority, Enforcement Annual Performance Account, 1 July 2014, ibid.

12

Wheatley, Martin, et al. The Wheatley Review of Libor: Final Report, 28 September 2012, available athttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalr
eport_280912.pdf

Tendering Advisory Committee for Libor (Committee), which was mandated by HM Treasury and the FSA
to oversee selection of a new Libor administrator and to recommend its selection to the British Bankers’
Association (BBA) as a replacement for BBA Libor Ltd.
On 17 April 2013, the Committee published an Invitation to Tender (ITT). After assessing the bid
responses in light of the criteria in the ITT, the Committee concluded that NYSE Euronext Rate
Administration Ltd was best placed among them to achieve an orderly transition to an effective new
regime for management of Libor and to restore Libor’s credibility. On 9 July 2013 it was announced thatthe BBA, which supported the appointment of the Committee and the tender process, had accepted theCommittee's recommendation that NYSE Euronext Rate Administration Ltd should be the new Liboradministrator.
NYSE Euronext Rate Administration Ltd was subsequently reorganized as ICE Benchmark Administration
Ltd, following the acquisition of NYSE Euronext by the Intercontinental Exchange (ICE) on 13 November
2013. On 17 January 2014 the UK Financial Conduct Authority (FCA) confirmed formal authorization for
ICE Benchmark Administration Limited to succeed BBA Libor Ltd as the administrator of Libor. On 1
February 2014, ICE Benchmark Administration Limited, a UK-based company regulated in the UK by the
FCA, commenced operating as the administrator of Libor.
ICE LIBOR and Floating Rate Resets for CBOT Treasury Invoice Swaps
Despite past misdeeds having cast doubt upon Libor’s integrity, ICE LIBOR remains the primary gauge ofthe prevailing rate at which a leading bank can obtain unsecured funding in the London interbank
market.13
For daily settings of US dollar Libor, ICE Benchmark Administration Limited relies upon a Contributor
Panel of 18 Contributor Banks. Since 1 December 2011, these Contributor Banks are:
Bank of America
Bank of Tokyo-Mitsubishi UFJ Ltd
Barclays Bank plc
BNP Paribas
Citibank NA
Credit Agricole CIB
Credit Suisse
Deutsche Bank AG
HSBC

JP Morgan Chase
Lloyds Banking Group
Norinchukin Bank
Rabobank
Royal Bank of Canada
Royal Bank of Scotland Group
Société Générale
Sumitomo Mitsui Banking Corporation
UBS AGICE LIBOR Defined
The ICE LIBOR Code of Conduct defines ICE LIBOR for any given term to maturity as the rate at which aContributor Bank could borrow funds at that term to maturity, were it to do so by asking for and thenaccepting interbank offers in reasonable market size just prior to 11 am London time. (See Section 3.1 of
ICE LIBOR Code of Conduct at https://www.theice.com/publicdocs/IBA_Code_of_Conduct.pdf .) Thisdefinition is legally required to undergo regular review by an Oversight Committee, which ICE Benchmark
Administration Limited is legally required to empanel and to regularly convene. (See Chapter 8 of FCA
Market Conduct Sourcebook at http://fshandbook.info/FS/html/handbook/MAR/8 .) Since 1 February
2014, the Oversight Committee includes a representative of CME Group.
The methodological framework and standards that LIBOR Contributor Banks are legally required to
uphold is set forth in the Submission Methodology Annex of the ICE LIBOR Code of Conduct. (See pp12-13 and pp 24-27 of ICE LIBOR Code of Conduct, available athttps://www.theice.com/publicdocs/IBA_Code_of_Conduct.pdf .)13

For a recent and definitive survey of the extent of US dollar Libor’s use, and of the breadth of purpose to whichmarket practitioners apply it, see Duffie, Darrell, et al. Market Participants Group on Reforming Interest Rate
Benchmarks – Final Report, Chapters 1 and 2, Financial Stability Board, March 2014, available at
http://www.financialstabilityboard.org/publications/r_140722b.htm

Calculation of ICE LIBOR
Data submitted by Contributor Banks are received and processed by Thomson Reuters, which remains
the designated calculation agent for ICE LIBOR, and are used to calculate ICE LIBOR according to
guidelines set forth in the ICE LIBOR Code of Conduct.
A Thomson Reuters communication software application is installed at each Contributor Bank, enabling it
to make its rate submissions confidentially. Each morning, during a submission interval between
11:00am and 11:10am London time, a Benchmark Manager responsible for the Contributor Bank’s
formulation of its rate submissions transmits them via the application to a rate-setting team at Thomson
Reuters.
Under the regulations enforced by the FCA, the role of Benchmark Manager is recognized as a Controlled
Function (CF40). Accordingly, the Benchmark Manager must be a natural person approved by the FCA
to exercise the controlled function relating to the oversight of the respective Contributor Bank’s
compliance with Section 8.2 of the FCA Market Conduct Sourcebook (MAR), as required by MAR Section
8.2.3R. (See ICE LIBOR Code of Conduct, especially Section 1 and Section 2. See also FCA Market
Conduct Sourcebook, Chapter 8, at http://fshandbook.info/FS/html/handbook/MAR/8 .)No Contributor Bank can see other Contributor Bank rate submissions during the submission interval.
Before sending a Contributor Bank’s rate submissions for calculation, Thomson Reuters perform a batteryof automated and manual diagnostic tests to identify data points requiring scrutiny. These tests include
filters to detect the following potential anomalies:
Any rate submission (for a given currency denomination and tenor) that moves more than 4 basis
points per annum from the previous corresponding rate submission.
Any rate submission that "crosses the quote," ie, a rate submission that is below the preliminary
ICE LIBOR value for today, but for which the previous corresponding rate submission was above
the previous day’s ICE LIBOR value (or vice versa).
Any rate submission that signifies a spike up or down relative to a linear interpolation of adjacentpoints on the term structure of the Contributor Bank’s set of rate submissions for a given currency
denomination.
Thomson Reuters analysts are instructed to confirm with the pertinent Contributor Bank any data pointthat these filters identify as unusual or anomalous.
With the primary data having been thus filtered and checked, each Libor value is calculated as aninterquartile mean. That is, for any given interest rate tenor and currency denomination, Thomson
Reuters rank the corresponding submitted values in descending order, then trim out approximately thehighest and lowest quartiles. For US dollar Libor the trimming process is as follows:
Number of Contributor Banks: 18
Trimming Methodology: Exclude 4 highest rates, and exclude 4 lowest rates.
Number of Contributor Banks on which US Dollar ICE LIBOR is based: 10
Remaining Contributor Bank rate submissions – approximately those within the interquartile range – arearithmetically averaged to create that day’s Libor value.
At the conclusion of the process, results are published via Thomson Reuters and other licensed data
vendors, generally around 11:45am London time.