CBOT Treasury Invoice Spreads
Operational and Onboarding Overview

Content• Product Overview- Invoice Spread Background- CBOT Treasury Invoice Swap Details- Enhancements and Updates *New

• Globex Execution- On-boarding Checklist- Risk Controls Overview- Trade Examples• Block Trading- On-boarding Checklist- Credit Controls Overview- Trade Submission Examples• Appendix- Drop Copy and CME STP- Risk Controls© 2016 CME Group. All rights reserved.

2

CBOT Listed Treasury Invoice Spreads
On December 15, 2014, CME Group launched CBOT Listed Treasury Invoice Spreads,
which provide the market with an additional method to trade Invoice Spreads*
CBOT listed Treasury Invoice Swaps are US dollar-denominated forward-starting Libor-referenced
IRS with standardized terms that match a specified CBOT Treasury Futures contract, including:•Effective date of the first (or last) delivery day of the futures contract•

Maturity date of the futures underlying "cheapest to deliver" (CTD) Treasury security.

CBOT listed Treasury Invoice Spreads are executed as an inter-commodity spread between a CBOT
listed Treasury Invoice Swap and a specified Treasury Futures contract•

The Treasury Invoice Swap is only eligible to be traded as part of the Treasury Invoice spread,which 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.

Benefits of Treasury Invoice Spreads•

Provide a leveraged, liquid alternative to spreading swaps vs. cash treasuries•

Offer unique margin offsets relative to Basel III capital requirements and Dodd-FrankAct margin
requirements via Portfolio Margining of Interest Rate Swaps and Futures*To date, invoice spreads involving CBOT’s Treasury Futures contracts have typically been executed as privately negotiated transactions
pursuant to CBOT’s Rule 538, which permits certain Exchange of Futures for Related Position (“EFRP”) transactions© 2016 CME Group. All rights reserved.

3

Treasury Invoice Swaps - Contract Specifications
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

Related CBOT Treasury Futures Contract

Approximate OTC IRS Tenor

Treasury Ultra Bond Invoice Swap

Long Term “Ultra” Treasury Bond (UB)

25 years

Treasury Bond Invoice Swap

Treasury Bond (US)20 years

10-Year Invoice Swap

10-Year Treasury Note (TY)

6 years 6 mos.

5-Year Invoice Swap

5-Year Treasury Note (FV)

4 years 3 mos

2-Year Invoice Swap

2-Year Treasury Note (TU)

1 year 9 mos

Either first (F) or last (L) delivery date for the related CBOT Treasury futures contract
First

Last

First business day of Mar, Jun, Sep or Dec

Last bus day of Mar, Jun, Sep or Dec

First business day of Mar, Jun, Sep or Dec

Mar: 3rd bus day of Apr
June: 3rd bus day of Jul
Sep: 3rd bus day of Oct
Dec: 3rd bus day of Jan

Treasury Ultra Bond Invoice Swap
Treasury Bond Invoice Swap

Effective Dates

10-Year Invoice Swap
5-Year Invoice Swap
2-Year Invoice Swap

Price Basis
Minimum Price Increment
Termination of Trading
Trading Hours

Commodity Codes

Swap spread, quoted in basis points per annum
1/10th of one basis point per annum, e.g. 11.8, 11.9, 12.0, 12.1••

Coincident with termination of trading in the related Treasury futures contract, if the related delivery date is the futures contract’s last delivery date.
Close of trading on second business day before first delivery date of the related Treasury futures contract, if the related delivery date is the futures contract’s firstdelivery date.

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.
Initial Contract Listing

Secondary Contract Listing

Tertiary Contract Listing

Treasury Ultra Bond Invoice Swap

U1A

U2A

U3A

Treasury Bond Invoice Swap

B1A

B2A

B3A

10-Year Invoice Swap

N1A

N2A

N3A

5-Year Invoice Swap

F1A

F2A

2-Year Invoice Swap

T1A

T2A

F3A
© 2016 CME Group. All rights reserved.

T3A

4

Treasury Invoice Swaps - Contract Specifications (cont.)
Effective Date
Currency

Either first delivery date or last delivery date allowable for a specified related CBOT Treasury futurescontract
USD

Notional Amount

Minimum increments of $0.01

Business Day(s)New York and London

Business Day Convention
Termination Date
Fixed Rate Payment Dates
Fixed Rate
Fixed Rate Day Count
Floating Rate Payment Dates
Floating Rate Option
Floating Rate Designated Maturity
Floating Rate Day Count

Modified Following
Maturity date for a specified related Treasury security eligible for delivery into the related CBOT
Treasury futures contract
All semiannual period dates made with reference to Termination Date, within interval starting with (andexcluding) Effective Date and ending with (and including) Termination Date.
(Treasury futures contract delivery invoice yield) + (Treasury invoice swap spread / 100).
30/360
All quarterly period dates made with reference to Termination Date, within interval starting with (andexcluding) Effective Date and ending with (and including) Termination Date
USD-LIBOR-BBA
3-Month except for Initial Floating Rate Payment
Actual/360

Floating Rate Spread

None

Compounding

None

Initial Floating Rate Payment(a)Set by linear interpolation, on the basis of actual/360 day count, with respect to New York andLondon 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 Designated Maturity date next
preceding the date of the Initial Floating Rate Payment, and the other such USD-LIBOR-BBA value isfor the standardized Designated Maturity date next following the date of the Initial Floating Rate
Payment. Interpolation typically will be applied to pairs of USD-LIBOR-BBA values for DesignatedMaturities of two (2) months and three (3) months, or of one (1) month and two (2) months, or of one (1)week and one (1) month.

5

CBOT Invoice Swap Spread Update and Enhancements
On June 6, CME will offer new functionality for CBOT listed invoice spreads to facilitate package
execution of calendar rolls and tenor switches and further support relationship-based execution

Invoice Spreads are a highly capital efficient method of achieving swap spread exposureüü

Invoice Spreads between Treasury Futures and related, Forward-Starting Interest Rate Swaps are an active market, trading
approximately $5 billion notional per day.
Both the swap leg and the futures leg are off balance sheet, as opposed to swap spreads where the cash Treasury leg
consumes balance sheet and increases cost to trade as a result of related regulatory capital requirements.

üPortfolio margining between futures & CME cleared swaps provides up to 80% margin savings vs. separately cleared legs.

ü

Easy P&L tracking as forward start matched dates eliminate accruals and create similar roll-down in swap and CTD yields.

CBOT-listed Invoice Spreads provide an additional method of trading invoice spreadsüü

In addition to trading via EFRP, invoice spreads can be traded on the CBOT designated contract market as an intercommodity
spread between the Treasury Future and the Interest Rate Swap.
Product design retains historical trading conventions: swap effective/maturity dates match the CTD, swap notional maintains
approximate DV01 neutrality with Treasury Futures, and swap fixed rate is traded as a basis to the CTD forward yield.

New product extensions will expand spread types and access to the 10-year pointü

NEW Calendar Spreads between sequential months (e.g. Jun16 5-Yr Invoice Spread vs. Sep 16 5-Yr Invoice Spread)ü

NEW Tenor Switches between Treasury invoice spreads (e.g. Jun16 2-Yr Invoice Spread vs. Jun16 30-Yr Invoice Spread)ü

NEW Ultra 10-Year (TN) Invoice Spread enhances the existing suite by enabling more precise exposure to the 10-year point

Flexible new execution methods will expand support for relationship-based tradingüü

Block trades are permitted in CBOT invoice spreads, calendar rolls and tenor switches and the thresholds are aligned toswap block thresholds, providing market appropriate size levels for enabling block-based execution between counterparties.
NEW Committed Cross enables pre-execution discussions between two counterparties for any size transaction prior to entry
into Globex as a cross order, allowing market participants to pursue relationship-driven sources of liquidity for Globex trading.
© 2016 CME Group. All rights reserved.

6

Globex Execution
Trade Flow, Onboarding, Credit Limits, Risk Controls and Trade Examples

Trade Flow Example
Globex-Listed
Invoice Swap

1

Transact as
spread in bps

2

Treasury
Future Price isassigned aslast price

3

4

Treasury
Future Price isconverted into
a forward yield

Add the futures
yield + thetransacted
spread, whichequal the IRS
Fixed Rate thatis booked

2-Year Invoice Spread

1 Trade occurs at 19.6 bps
Treasury Future

Swap

Engine assigns 2
futures price at last
traded value (109’29)

Engine assigns swap rate

Globex message reports
invoice spread traded basis,and leg price for future

FCM Futures Account3

Futures price isconverted to on
forward yield, relative
to the CTD of theTreasury invoice Swap

4

Invoice Spread 0.196 % pts+ Futures Fwd. Yield 0.484 % pts= IRS Fixed Rate 0.680 % pts

In addition to fixed rate, all otherswap terms enriched for clearing
and available via STP
Effective Date = Last Delivery Date
Maturity Date = Maturity of CTD Security
Reference Rate = USD 3M LIBOROTC Swap Account© 2016 CME Group. All rights reserved.

8

CME Globex - On-boarding Checklist
Customer On-boarding:o Check with your front-end provider (ISV or proprietary) – ensuring it supports Invoice Swaps and swap
spreads on Globex
o Complete OTC Registration Form, if not already in placeo Contact your Clearing Firm:o Confirm account(s) meets prerequisites and is enabled for CME OTC IRS
o Ensure the appropriate limits and permissions are set within the trading / risk admin console offront-end system

Clearing Firms:
Enabling Existing Globex Trading FirmsooooVerify customer account is OTC registered
Enable customer account in CME Account Manager for Market Permission CME IRS (under ClearPort)
Ensure customer front-end trading system supports CME Invoice Swaps and swap spreads
Verify applicable risk limits are in place on front-end system

Enabling NEW Globex Executing Firms
o
o
o
o
o
o
o
o

Request new Globex Executing Firm from Customer Self-Service Center or ccs@cmegroup.com
Submit Schedule 6 to Global Account Manager – only required if NOT using the Self-Service Center
Request iLink Session ID from Global Account Manager
Verify customer account is OTC registered
Enable customer account in CME Account Manager for Market Permission CME IRS (under ClearPort)
Ensure customer front-end trading system supports CME Invoice Swaps
Verify applicable risk limits are in place on front-end system
Verify applicable limits are set in Globex Credit Controls (GC2)© 2016 CME Group. All rights reserved.

9

CME Globex – Risk Controls
CME Group Offers Multiple Levels of Risk Controls

FCM-managed Risk Controls
Required for Trading Access• CME Account Manager: Create/update account(s) and product permission(s) for trading accounts• Globex Credit Controls (GC2): Set executing firm level credit limits and clip sizes*Front end system (non-CME provided) risk limits must be set by FCM in respective application

Additional (optional) risk controls• FirmSoft: View order status and cancel open orders• Kill Switch: Deactivate an iLink session ID• RMI: Restrict accounts from actively trading
See appendix for detailed slides on risk control applications

Customer-managed Risk Controls
Additional (optional) risk controls• FirmSoft: View order status and cancel open orders• Kill Switch: Deactivate an iLink session ID© 2016 CME Group. All rights reserved.

10

Globex: View Invoice Swap Spread Products
To add Invoice Swaps products to your CME Direct Exchange Gird, right click in the grid window and select “Edit View.”

1

Select Invoice Swaps from the “Product Category” dropdown

2
Add invoice swap, rolls and tenor switch
instruments into the Selected Items panel andclick “OK”

© 2016 CME Group. All rights reserved.

11

Globex: Order Entry
On the CME Direct Exchange Grid, a user can right click on a price to aggress an order, lift an offer, hit a bit or add a cross.

Example: “Addnew bid or Offer”
The swap spread prices
are in basis points* Calendar and Tenor Switch spreads are calculated (Far Leg Spread) minus (Near Leg Spread).
** The buyer and seller accounts must be different when submitting a invoice swap trade© 2016 CME Group. All rights reserved.

12

Globex: Committed Cross Trade Submission Example
To add a cross, right on the instrument from the exchange grid and click on ‘Add Cross’ or click on the ‘Cross’ button from the Deal Entry screen.

1
Input spread pricein basis points

2
Input Quantity* Calendar and Tenor Switch spreads are calculated (Far Leg Spread) minus (Near Leg Spread).
** The buyer and seller accounts must be different when submitting a invoice swap trade© 2016 CME Group. All rights reserved.

13

Block Trading
On-Boarding, Credit Controls and Trade Submission Examples

Block Trading – On-boarding Checklist
Customers:• Both trading firm and individual traders must complete the OTC Registration Form toregister for OTC Clearing, if not already in placeo OTC Registration Form
• Register at least one trader who can be named as the buyer or seller on the trade
For Asset Managers: if the firm is registered on the client account, traders registered under the AssetManager firm can be named on trades in place of those from the end trading firm

• Is your firm and are your counterparties registered on CME Direct or ClearPort? If not,please follow this link for onboarding instructions.
o Contact platformsolutions@cmegroup.com for more information• Are you interesting in submitting invoice swap products on the CME ClearPort API?
o Invoice Swap Spread CME ClearPort API Specifications

If you have further questions or want to know if you’re registered, contact CME EASE at
EASE_OTC_Request@cmegroup.com or US: +1 312 456 1560, Europe: +44 20 3379 3802 Asia Pacific: +65 6593 5536

© 2016 CME Group. All rights reserved.

15

Block Trading – On-boarding Checklist
Clearing Firms:• In order for blocks in Invoice Swaps (executed as part of Treasury Invoice Spreads) to becleared through CME ClearPort, Clearing Firms must permission a given account for“CME IRS (ClearPort)”, “CBOT IRS (ClearPort)” and “CBOT (ClearPort)” market types, topermission the Interest Rate Swaps (overall), Treasury Invoice Swaps and Treasury
futures products, respectively
CME Account Manager Market
Type Permissions

Invoice Swaps(Overall)OTC Treasury Invoice
Swap Leg

Treasury Futures Leg

Market Type:CME IRS (ClearPort)

CBOT IRS (ClearPort)

CBOT (ClearPort)© 2016 CME Group. All rights reserved.

16

Block Trading – ClearPort Credit Controls• Credit checks for each leg (treasury futures and OTC IRS) will be applied separately
upon entry- Treasury leg: Existing credit controls allow Clearing Firms to set limits through CMEAccountManager- IRS Leg: Account Manager allow for Explicit Claim or CME-hosted limits• A New Market Type has been created inAccount Manager to permission CBOT IRS products• The accounts must be permissioned to existing CME IRS market type to clear the IRS leg• Both the Treasury leg and OTC IRS leg will have a separate CME clearing firm-levelcheck- If one leg fails – CME Clearing Client Services will contact the involved parties according to rules
to void the remaining leg of the trade.
- Please contact CME Clearing Client Services at onboarding@cmegroup.com or 312 338 7112 withquestions

Limits for the IRS leg will be maintained by clearing firm risk admins, and only the treasury leg’s
margin usage will be applied against the CME ClearPort account’s CME Account Manager limit.

© 2016 CME Group. All rights reserved.

17

Block Trading: Trade Submission Example
To add a invoice swap block, right on the instrument from the exchange grid and click on ‘Add Deal.’ Alternatively you can search for the contract
on the OTC Trade Book screen by clicking on ‘Add Deal.'

User types in the Swap Spread product symbol (i.e. TYA).
CME Direct will populate the future and swap legs below.

1
2

Select ‘Term’

3

Input ‘Quantity’4
Buy (Receive Fixed) Jun2016 10-Year CBOT Treasury Future
Buy (Pay Fixed) Jun2016 10-Year CBOT Invoice Swap

Input future price and swap fixed rate

© 2016 CME Group. All rights reserved.

18

Block Trading: Tenor Switch Trade Submission Example

1

2

Select ‘Switch’ Strategy

Select instrument 2. CME Direct will populate the futureand swap legs for instrument 2.

3

Input ‘Quantity’ for instrument 2

4
Input future price and swap fixed rate for instrument 2© 2016 CME Group. All rights reserved.

19

Block Trading: Calendar Roll Trade Submission Example

1
2

Select ‘Roll’ Strategy

Select term 2. CME Direct will populate the future and swap legs for term 2.

3

Input ‘Quantity’ for term 2

4Input future price and swap fixed rate for term 2© 2016 CME Group. All rights reserved.

20

Contacts
The latest information can always be found at www.cmegroup.com/invoicespreads
For additional questions, please contact:
Product:
Ted Carey+1 312 930 8554

Ted.Carey@cmegroup.com

Mark Rogerson+44 203 379 3795

Mark.Rogerson@cmegroup.com

CME Clearing Client Services:
CME Clearing Services+1 312 338 7112

onboarding@cmegroup.com

CME Globex On-boarding, CME Risk Tools or ISVs:
GlobalAccount Management US: +1 312 634 8700
Europe: +44 20 3379 3754
Asia: +65 6593 5505

globalaccountmanagement@cmegroup.com© 2016 CME Group. All rights reserved.

21

Appendix

Drop Copy and CME STP

STP for CBOT Treasury Invoice Swaps Confirmationso The CME Straight Through Processing API (CME STP) is designed to allow trading
firm participants and asset managers to view their exchange trading and clearing
activity via subscription and query messaging.
o CME STP supports these major functions:o Cleared trade notifications and trade cancellationso Allocation offset and onset messages to the executing and claiming firms
o Clearing activities such as netting and coupon blendingo Queries using parameters such as Party (Trading Firm, Asset Manager), Trade
Date, Venue, Product and Exchangeo Messaging will not include Counterparty information (single-sided messaging).
o The API uses HTTPS polling to retrieve cleared trades in a secure fashion.
o For more information, please visit:
http://www.cmegroup.com/confluence/display/EPICSANDBOX/CME+STPo CME STP is supported for all listed products as well as OTC CDS, IRS and FX.
Certification is required to access Invoice Swap Spreads in CME STP. Please contact Certification
Support for Electronic Trading (CSET) in the U.S. at +1 312 930 2322, in Europe at +44 20 3379 3803
or in Asia at +65 6593 5593 with questions while testing in New Release.

© 2016 CME Group. All rights reserved.

24

Drop Copy Service•

The Drop Copy service allows customers to receive real-time copies of CME Globex Execution Reportand Acknowledgment messages as they are sent over iLink order entry system sessions on a separate,
dedicated path.
• Convenience Gateway(CGW) iLink sessions• Market Segment Gateway (MSGW) iLink sessions•

The Drop Copy service is available for iLink messages on orders submitted to the CME Globex platform
via iLink or CME Direct. Customers can choose to receive messages over Drop Copy configured to thefollowing three levels:• Trade Execution Reports including• Order Entry Acknowledgments including• All of the Above•

To initiate Drop Copy functionality, customers must submit the Schedule 12-Drop Copy Service form
specifying the name of the Drop Copy Group, how billing for Drop Copy is to be administered, which
message types are received over the Drop Copy session, individuals authorized by the Clearing Firm toadminister changes to the Source sessions configured for the Drop Copy group.

•

Once the approved request form is submitted, the Global Account Manager initiates scheduling andconfiguration.

U.S.: +1 312 634 8700
Europe: +44 20 3379 3754
Asia: +65 6593 5505
globalaccountmanagement@cmegroup.com© 2016 CME Group. All rights reserved.

25

Risk Controls

Whitelisting in CME Account Manager (RAV)
Permission or Remove Account Access to CME IRS for Invoice Swaps• New accounts automatically added daily at 4:30 CT• Can block intraday immediately via RMI upon listing if needed• Can Remove account from whitelisting in RAV by removing the CME IRS Market
Permission• GC2 Limits apply at the Globex Execution Firm level© 2014 CME Group. All rights reserved.

27

CME Globex Credit Controls
Set Credit Limits & Clip Sizes at the Executing Firm Level• Set Futures* andOptions Exposure
Limits by Exchange*

For GC2 calculations, the IRS leg iscalculated as part of the Futures
exposure limit.

• Set Clip Sizes using
Max Quantity Limits
for Buy and Sell
sides
• Create email
notifications when
limits hit thresholds• View Current
Positions and Limit
Usage© 2014 CME Group. All rights reserved.

28

Kill Switch
Remove or Reinstate Access to CME Globex Markets

Remove or Reinstate Access to Globex Markets by:• Executing Firm
• SenderComp© 2014 CME Group. All rights reserved.

29

Risk Management Interface (RMI)
Block Specific Accounts for a CME Globex Execution Firm

Block Activity by
Account and any
combination of:• Exchange• Derivative Type• Complex Type• Product• Side© 2014 CME Group. All rights reserved.

30

FirmSoft
Order Inquiry and Cancellation

View/Remove CME Globex Orders By:• Executing Firm
• Trader ID• SenderComp• Account• Tag 50
• Exchange© 2014 CME Group. All rights reserved.

31

Disclaimer“CME Group”, “CME Europe” and “CME Clearing Europe” are brands of CME Group Inc. and its subsidiaries, members of which include Chicago
Mercantile Exchange Inc., CME Europe Limited, CME Clearing Europe Limited and CME Marketing Europe Limited.
Exchange traded and Over-The-Counter (OTC) derivatives are not suitable for all investors, and involve the risk of loss. Exchange traded and OTC
derivatives are leveraged investments, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than theamount of money initially deposited for an exchange traded or OTC derivative position. Therefore, traders should only use funds that they canafford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect toprofit on every trade.
CME Group is the trademark of CME Group, Inc. The Globe logo, Globex® and CME® are trademarks of Chicago Mercantile Exchange, Inc.
CBOT® is the trademark of the Board of Trade of the City of Chicago Inc. NYMEX, New York Mercantile Exchange, and ClearPort are trademarksof 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 presentation has been compiled by CME Group for general purposes only. Although every attempt
has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors oromissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be
considered investment advice or necessarily the results of actual market experience. All data is sourced by CME Group unless otherwise stated.
All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX, CME Europe,
CME Clearing Europe and CME Group rules. Current rules should be consulted in all cases concerning contract specifications. This communication
does not constitute a Prospectus, nor is it a recommendation to buy, sell or retain any specific investment or to utilise or refrain from utilising any
particular service. This communication is for the exclusive use of Eligible Counterparties and Professional Clients only and must not be relied uponby Private Clients who should take independent financial advice. Circulation should be restricted accordingly.
CME Europe Limited is a Recognised Investment Exchange (RIE) recognised and supervised by the Financial Conduct Authority in the United
Kingdom. CME Clearing Europe Limited is a Recognised Clearing House (“RCH”) recognised and supervised by the Bank of England. CME
European Trade Repository is a business name of CME Trade Repository Limited, a registered trade repository under EMIR supervised by theEuropean Securities and Markets Authority. Globex Markets Limited is authorised and regulated by the Financial Conduct Authority.
Chicago Mercantile Exchange Inc. is a Recognised Overseas Clearing House (ROCH) recognised by the Bank of England. Chicago Mercantile
Exchange Inc., Board of Trade of the City of Chicago and the New York Mercantile Exchange are Recognised Overseas Investment Exchanges(ROIE’s) recognised by the Financial Conduct Authority.Issued by CME Marketing Europe Limited. CME Marketing Europe Limited (FRN: 220523)
is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

© 2016 CME Group. All rights reserved. 32