SUBMISSION COVER SHEET

Registered Entity Identifier Code (optional): 2020-P-03 Date: March 18, 2020

IMPORTANT: CHECK BOX IF CONFIDENTIAL TREATMENT IS REQUESTED. 

ORGANIZATION Bloomberg SEF LLC 

 FILING AS A: DCM SEF DCO SDR ECM/SPDC 

TYPE OF FILING

• Rules and Rule Amendments 

 Certification under § 40.6 (a) or § 41.24 (a)

 “Non-Material Agricultural Rule Change” under § 40.4 (b)(5)

 Notification under § 40.6 (d)

 Request for Approval under § 40.4 (a) or § 40.5 (a)

 Advance Notice of SIDCO Rule Change under § 40.10 (a)

• Products

 Certification under § 39.5(b), § 40.2 (a), or § 41.23 (a)

 Swap Class Certification under § 40.2 (d)

 Request for Approval under § 40.3 (a)

 Novel Derivative Product Notification under § 40.12 (a)

RULE NUMBERS

None applicable.

DESCRIPTION

CDS Index Contract – CDX North American High Yield (Ex-BB) Contract (“Contract”)
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Bloomberg SEF LLC

New Contract Submission 2020-P-03

March 18, 2020

1. The Contract’s terms and conditions are attached as Attachment A.

2. The intended listing date is March 20, 2020. 

3. Attached, please find a certification that, concurrent with this submission, Bloomberg 

SEF LLC (“BSEF”) posted on its website: (a) a notice of pending certification of this 

Contract with the Commission; and (b) a copy of this submission.

4. Capitalized terms used but not defined herein have the meaning ascribed to them in the 

Bloomberg SEF LLC (“BSEF”) Rulebook.

EXPLANATION AND ANALYSIS OF THE CONTRACT’S COMPLIANCE WITH

APPLICABLE CORE PRINCIPLES AND COMMISSION REGULATIONS

As required by Commission Regulation § 40.2(a), the following analysis demonstrates that the 

Contract is consistent with the requirements of the Act and the Commission regulations and 

policies thereunder (in particular, Appendix B to Part 37 and Appendix C to Part 38, 

respectively). 

Appendix B to Part 37—Demonstration of Compliance That a Contract Is Not Readily

Susceptible to Manipulation

Core Principle 3 of Section 5h of the Act—Swaps Not Readily Susceptible to Manipulation. 

The swap execution facility shall permit trading only in swaps that are not readily 

susceptible to manipulation.

(a) Guidance. 

(1) In general, a swap contract is an agreement to exchange a series of cash flows over a 

period of time based on some reference price, which could be a single price, such as an 

absolute level or a differential, or a price index calculated based on multiple observations. 

Moreover, such a reference price may be reported by the swap execution facility itself or by 

an independent third party. When listing a swap for trading, a swap execution facility shall 

ensure a swap’s compliance with Core Principle 3, paying special attention to the reference 

price used to determine the cash flow exchanges. Specifically, Core Principle 3 requires 

that the reference price used by a swap not be readily susceptible to manipulation. As a 

result, when identifying a reference price, a swap execution facility should either: Calculate 

its own reference price using suitable and well-established acceptable methods or carefully 

select a reliable third-party index.
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(2) The importance of the reference price’s suitability for a given swap is similar to that of 

the final settlement price for a cash-settled futures contract. If the final settlement price is 

manipulated, then the futures contract does not serve its intended price discovery and risk 

management functions. Similarly, inappropriate reference prices cause the cash flows 

between the buyer and seller to differ from the proper amounts, thus benefitting one party 

and disadvantaging the other. Thus, careful consideration should be given to the potential 

for manipulation or distortion of the reference price.

Reference Index: North American High Yield CDX (Ex-BB) Index

The reference index used to determine the exchange of cash flows for the Contract is IHS Markit 

Ltd’s (“Markit’s”) North American High Yield (ex-BB) CDX Index (the “Index”). The Index is 

composed of entities with an investment rating that is higher than BB that are constituents of

Markit’s North American High Yield CDX Index consisting of hundred (100) liquid North 

American entities with high yield credit ratings that trade in the CDS market. The Index is 

owned, managed, compiled and published by Markit (the “Administrator”).

The composition of the Index is determined by the Administrator in accordance with the rules 

and methodologies set forth in the Index Rules.

1 If the Administrator determines that an event 

has had a material impact on the integrity of one or more Index-related transactions, including 

but not limited to trading interruptions, market instability and/or force majeure events, the 

Administrator, acting in an independent and reasonable manner, may determine that it is 

appropriate to depart from the methodologies, timelines and/or procedures set forth in the Rules 

to obtain a result that preserves the economic intent of such Index. As this Index is based on 

clear, widely-available, comprehensive and transparent rules, it is not readily susceptible to 

manipulation.

(3) For swaps that are settled by physical delivery or by cash settlement refer to the 

guidance in appendix C to part 38 of this chapter—Demonstration of Compliance That a 

Contract is not Readily Susceptible to Manipulation, section b(2) and section c(4), 

respectively. 

Appendix C to Part 38 - Demonstration of Compliance That a Contract Is Not Readily 

Susceptible to Manipulation

(c) Futures Contracts Settled by Cash Settlement. (1) Cash settlement is a method of 

settling certain futures or option contracts whereby, at contract expiration, the contract is 

settled by cash payment in lieu of physical delivery of the commodity or instrument 

underlying the contract. An acceptable specification of the cash settlement price for 

commodity futures and option contracts would include rules that fully describe the 

essential economic characteristics of the underlying commodity (e.g., grade, quality, weight, 

class, growth, issuer, maturity, source, rating, description of the underlying index and 

index’s calculation methodology, etc.), as well as how the final settlement price is 

calculated. In addition, the rules should clearly specify the trading months and hours of 

 1 Please see the “Markit CDX High Yield & Markit CDX Investment Grade Index Rules” available at

https://www.markit.com/Company/Files/DownloadFiles?CMSID=5017740a99b240419298bb9bbe8fcc04.
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trading, the last trading day, contract size, minimum price change (tick size) and any 

limitations on price movements (e.g., price limits or trading halts).

Terms of the Contract

Some terms of the Contract are fixed (i.e., currency, index, tenor, and clearing venue), while 

other terms are flexible and determined by the counterparties (i.e., effective date and maturity 

date). This combination of standard and flexible terms allows the Contract to have a basic 

consistent form, while allowing counterparties to tailor some aspects of the Contract to their 

economic needs. This structure follows industry convention; the terms of the Contract match the 

terms of credit default swaps that are commonly offered in the market.

Calculation of Cash Settlement Price

The cash settlement process for the Contract includes the following payments:

(a) Fixed Quarterly Cash Payments: These payments are reflected in basis points and paid 

by the protection buyer to the protection seller. 

(b) Upfront Fee Payment: This fee is a portion of the payments, which is expressed in 

percentage points of the notional. The fee is present valued and paid immediately to the 

seller.

(c) Contingent Payment: If there is a credit event (bankruptcy or failure to pay), payments 

related to credit event settlement will be determined pursuant to the 2009 ISDA Credit 

Derivatives Determination Committees and Auction Settlement Supplement, (i.e., the Big 

Bang Protocol), as published by the International Swaps and Derivatives Association, 

Inc.

This cash settlement method for credit default swaps is often used for credit default swaps, and 

thus widely accepted by market participants.

2) Cash settled contracts may be susceptible to manipulation or price distortion. In 

evaluating the susceptibility of a cash-settled contract to manipulation, a designated 

contract market should consider the size and liquidity of the cash market that underlies the 

listed contract in a manner that follows the determination of deliverable supply as noted 

above in (b)(1). In particular, situations susceptible to manipulation include those in which 

the volume of cash market transactions and/or the number of participants contacted in 

determining the cash-settlement price are very low. Cash-settled contracts may create an 

incentive to manipulate or artificially influence the data from which the cash-settlement 

price is derived or to exert undue influence on the cash-settlement price’s computation in 

order to profit on a futures position in that commodity. 

The utility of a cash-settled contract for risk management and price discovery would be 

significantly impaired if the cash settlement price is not a reliable or robust indicator of the 

value of the underlying commodity or instrument. Accordingly, careful consideration 
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should be given to the potential for manipulation or distortion of the cash settlement price, 

as well as the reliability of that price as an indicator of cash market values. Appropriate 

consideration also should be given to the commercial acceptability, public availability, and 

timeliness of the price series that is used to calculate the cash settlement price. 

Documentation demonstrating that the settlement price index is a reliable indicator of 

market values and conditions and is commonly used as a reference index by 

industry/market agents should be provided. Such documentation may take on various 

forms, including carefully documented interview results with knowledgeable agents.

The Contract is not readily susceptible to manipulation for a number of reasons. First, the 

underlying market for the Contract has depth and liquidity, making manipulation very difficult to 

achieve. Second, the management and calculation of the reference price is based on clear and 

comprehensive rules. Third, as noted above, the method for calculating the cash settlement price 

– involving upfront fee payments, fixed quarterly cash payments, and (in the case of a credit

event) a contingent payment – is widely used and generally accepted by market participants. 

And last, BSEF has a market surveillance program that is designed to surveil this market, detect 

uncommon activity, and investigate any such activity for signs of manipulation. 

(3) Where an independent, private-sector third party calculates the cash settlement price 

series, a designated contract market should consider the need for a licensing agreement 

that will ensure the designated contract market’s rights to the use of the price series to 

settle the listed contract.

(i) Where an independent, private-sector third party calculates the cash settlement price 

series, the designated contract market should verify that the third party utilizes business 

practices that minimize the opportunity or incentive to manipulate the cash-settlement 

price series. Such safeguards may include lock-downs, prohibitions against derivatives 

trading by employees, or public dissemination of the names of sources and the price quotes 

they provide. Because a cash-settled contract may create an incentive to manipulate or 

artificially influence the underlying market from which the cash-settlement price is derived 

or to exert undue influence on the cash-settlement computation in order to profit on a 

futures position in that commodity, a designated contract market should, whenever 

practicable, enter into an information-sharing agreement with the third-party provider 

which would enable the designated contract market to better detect and prevent 

manipulative behavior.

Please see above regarding the calculation of the cash settlement price. 

(ii) Where a designated contract market itself generates the cash settlement price series, the 

designated contract market should establish calculation procedures that safeguard against 

potential attempts to artificially influence the price. For example, if the cash settlement 

price is derived by the designated contract market based on a survey of cash market 

sources, the designated contract market should maintain a list of such entities which all 

should be reputable sources with knowledge of the cash market. In addition, the sample of 

sources polled should be representative of the cash market, and the poll should be 

conducted at a time when trading in the cash market is active.
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Please see above regarding the calculation of the cash settlement price. 

(iii) The cash-settlement calculation should involve computational procedures that 

eliminate or reduce the impact of potentially unrepresentative data.

(iv) The cash settlement price should be an accurate and reliable indicator of prices in the 

underlying cash market. The cash settlement price also should be acceptable to commercial 

users of the commodity contract. The registered entity should fully document that the 

settlement price is accurate, reliable, highly regarded by industry/market agents, and fully 

reflects the economic and commercial conditions of the relevant designated contract 

market.

Please see above regarding the availability, reliability and widespread acceptance of the method 

used to generate the cash settlement price.

(v) To the extent possible, the cash settlement price should be based on cash price series 

that are publicly available and available on a timely basis for purposes of calculating the 

cash settlement price at the expiration of a commodity contract. A designated contract 

market should make the final cash settlement price and any other supporting information 

that is appropriate for release to the public, available to the public when cash settlement is 

accomplished by the derivatives clearing organization. If the cash settlement price is based 

on cash prices that are obtained from non-public sources (e.g., cash market surveys 

conducted by the designated contract market or by third parties on behalf of the 

designated contract market), a designated contract market should make available to the 

public as soon as possible after a contract month’s expiration the final cash settlement price 

as well as any other supporting information that is appropriate or feasible to make 

available to the public.

Information on the Index is available on Markit.com. 

(4) Contract terms and conditions requirements for futures contracts settled by cash 

settlement.

(i) An acceptable specification of the terms and conditions of a cash-settled commodity 

contract will also set forth the trading months, last trading day, contract size, minimum 

price change (tick size) and daily price limits, if any.

Also as noted in the attached, the counterparties will begin calculating accrued obligations from 

the effective date to the maturity date (i.e., “last trading day”) of each contract – dates which are 

set by the counterparties. The minimum size is determined by the counterparties, as is customary 

for contracts of this type.

(A) Commodity Characteristics: The terms and conditions of a commodity contract should 

describe the commodity underlying the contract.
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The terms and conditions of the Contract note that the Contract is based on a basket of high yield 

North American entities with credit ratings higher than BB. 

(B) Contract Size and Trading Unit: An acceptable specification of the trading unit would 

be a contract size that is consistent with customary transactions in the cash market. A 

designated contract market may opt to set the contract size smaller than that of standard 

cash market transactions.

The size of the Contract, which is determined by the counterparties, is consistent with customary 

transactions in the market.

(C) Cash Settlement Procedure: The cash settlement price should be reliable, acceptable, 

publicly available, and reported in a timely manner as described in paragraphs (c)(3)(iv) 

and (c)(3)(v) of this appendix C.

The cash settlement procedure and an explanation of how it is reliable, acceptable, publicly 

available, and reported in a timely manner appears above.

(D) Pricing Basis and Minimum Price Fluctuation (Minimum Tick): The minimum price 

increment (tick) should be set a level that is equal to, or less than, the minimum price 

increment commonly observed in cash market transactions for the underlying commodity. 

Specifying a futures’ minimum tick that is greater than the minimum price increment in 

the cash market can undermine the risk management utility of the futures contract by 

preventing hedgers from efficiently establishing and liquidating futures positions that are 

used to hedge anticipated cash market transactions or cash market positions.

As noted above, the quoting convention of the Contract and minimum increment are as 

determined by the counterparties. 

(E) Maximum Price Fluctuation Limits: Designated contract markets may adopt price 

limits to: (1) Reduce or constrain price movements in a trading day that may not be 

reflective of true market conditions but might be caused by traders overreacting to news; 

(2) Allow additional time for the collection of margins in times of large price movements; 

and (3) Provide a “cooling-off” period for futures market participants to respond to bona 

fide changes in market supply and demand fundamentals that would lead to large cash and 

futures price changes. If price-limit provisions are adopted, the limits should be set at levels 

that are not overly restrictive in relation to price movements in the cash market for the 

commodity underlying the futures contract. For broad-based stock index futures contracts, 

rules should be adopted that coordinate with New York Stock Exchange (“NYSE”) 

declared Circuit Breaker Trading Halts (or other market coordinated Circuit Breaker 

mechanism) and would recommence trading in the futures contract only after trading in 

the majority of the stocks underlying the index has recommenced.

As agreed between the counterparties.
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(F) Last Trading Day: Specification of the last trading day for expiring contracts should be 

established such that it occurs before publication of the underlying third-party price index 

or determination of the final settlement price. If the designated contract market chooses to 

allow trading to occur through the determination of the final settlement price, then the 

designated contract market should show that futures trading would not distort the final 

settlement price calculation.

The last trading day is the maturity date of the contract, which is set by the counterparties. 

(G) Trading Months: Trading months should be established based on the risk management 

needs of commercial entities as well as the availability of price and other data needed to 

calculate the cash settlement price in the specified months. Specification of the last trading 

day should take into consideration whether the volume of transactions underlying the cash 

settlement price would be unduly limited by occurrence of holidays or traditional holiday 

periods in the cash market. Moreover, a contract should not be listed past the date for 

which the designated contract market has access to use a proprietary price index for cash 

settlement.

If there is no credit event, the protection buyer will pay the protection seller fixed quarterly cash 

payments. 

(H) Speculative Limits: Specific rules and policies for speculative position limits are set 

forth in part 150 and/or part 151, as applicable, of the Commission’s regulations.

BSEF will comply with Parts 150 and 151 of the Commission’s regulations.

(I) Reportable Levels: Refer to § 15.03 of the Commission’s regulations.

BSEF will adhere to the applicable reporting levels set forth in § 15.03 of the Commission’s 

regulations.

(J) Trading Hours: Should be set by the designated contract market to delineate each 

trading day. 

The Contract is traded twenty-four hours a day (00:01 – 24:00) (EST), Sunday to Friday. 

Attachment A

Terms and Conditions

CDS Index Contract – CDX North American High Yield (Ex-BB) Index Contract

Contract Overview An agreement to buy or sell protection on a basket of high yield North American 

entities with credit ratings higher than BB.

Ticker CDX HYEXBB CDSI [series number] [tenor]

Index CDX.NA.HY.EXBB: All series.

Currency USD

Quoting Convention

and

Minimum Increment

As agreed by the counterparties

Minimum Size As agreed by the counterparties

Trading Conventions Buy = Buy Protection, the buyer of protection pays a premium to the seller in case of a 

credit event occurring. 

Sell = Sell Protection, the seller of protection receives the premium payments from the 

protection buyer. The seller owns the credit risk of the instrument.

Swap Conventions Traded on price

Fixed coupon payments are calculated at a spread of 500 bps and exchanged on a 

quarterly basis.

Swap Tenor Any 

Effective Date The date on which parties begin calculating accrued obligations such as fixed 

payments. Also known as the start date of the swap. 

Maturity Date The final date on which the obligations no longer accrue and the final payment occurs.

Settlement Contingent payment – Payments related to credit event settlement will be determined 

pursuant to the 2009 ISDA Credit Derivatives Determination Committees and Auction 

Settlement Supplement, (i.e., the Big Bang Protocol).

Fixed Quarterly cash payments - Reflected in basis points and paid by the protection 

buyer to the protection seller.

Upfront fee payment - The upfront fee is a portion of the payments, expressed in 

percentage points of the notional, which is present valued and paid immediately to the 

seller.

Trading Hours 00:01-24:00 Sunday-Friday; Eastern Time

Clearing House Bilateral

Block Size As set forth in Appendix F to Part 43 of the CFTC Regulations 

Speculative Limits As set forth in Part 150 of the CFTC Regulations

Reportable Levels As set forth in CFTC Regulation 15.03