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Bloomberg SEF LLC

New Contract Submission 2023-P-4

September 28, 2023

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

2. The intended listing date is October 3, 2023. 

3. Attached, please find a certification that: (a) the Contract complies with the Commodity 

Exchange Act (the “Act”) and the Commission regulations thereunder; and (b) 

concurrent with this submission, BSEF posted on its website: (i) a notice of pending 

certification of this Contract with the Commodity Futures Trading Commission (the 

“Commission”); and (ii) 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 
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reference price using suitable and well-established acceptable methods or carefully select a 

reliable third-party index.

(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: CDX Emerging Markets High Yield Index

The reference index used to determine the exchange of cash flows for the Contract is a subindex of Markit Group Limited’s (“Markit’s”) “CDX Emerging Markets Index.” This index, CDX 

Emerging Markets HY Index (the “Index”), is composed of a number of sovereign entities from 

Asia, EEMEA (Eastern Europe, Middle East, Africa), and Latin America with credit ratings below 

“BBB-” or “Baa3” that trade in the CDS market.

The Index is based on comprehensive, well-established, and transparent rules that outline, 

among other things, the selection of index constituents (“Reference Entities”), the selection of 

the constituents’ loans or bonds (“Reference Obligations”), and the removal/addition of entities 

to the index.1

The Index is not readily susceptible to manipulation because it is widely accepted by market 

participants as a reliable index, and is based on clear, widely-available, comprehensive and 

transparent rules.

(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 

1

See IHS Markit CDX Emerging Markets Index Rules (“Index Rules”) 

https://www.markit.com/Company/Files/DownloadFiles?CMSID=1a6bc0d295774e548a97b9dcf282765f. See also

IHS Markit Indices News & Information https://www.markit.com/NewsInformation/ViewArchive/CDX (The

September 13, 2023 update details the composition change of Markit CDX.EM.HY 40). 
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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 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

The terms and conditions of the Contract are in Attachment A. As described in Attachment A, 

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

As noted above and in Attachment A, 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 the credit event settlement will be determined pursuant to the 2014 ISDA 

Credit Derivatives Definitions, as published by the International Swaps and Derivatives 

Association, Inc.

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

widely accepted by market participants.

The Index is administered by IHS Markit Benchmark Administration Limited (“IMBA”). IMBA is 

an administrator authorised by the Financial Conduct Authority (“FCA”) under the UK BMR. 

IMBA is listed as an authorised administrator on the FCA's Benchmarks register. IMBA 

administers this Index in accordance with the UK BMR.
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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 cashsettlement 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 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 robust market surveillance program that is effectively able 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 
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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.

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 
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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 CDX Emerging Markets High Yield 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.

The terms and conditions of the Contract note that the Contract is based on the basket of liquid 

assets in the CDX Emerging Markets High Yield Index.

(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 
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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 set 

forth in the Contract. 

(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.

(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. 
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(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), Sunday to Friday; Eastern Time. 
CERTIFICATIONS PURSUANT TO SECTION 5c OF THE COMMODITY EXCHANGE 

ACT, 7 U.S.C. §7A-2 AND COMMODITY FUTURES TRADING COMMISSION 

REGULATION 40.2, 17 C.F.R. §40.2 

I hereby certify that: 1) the Contract complies with the Commodity Exchange Act, 7 

U.S.C. §1 et seq. and regulations thereunder; and 2) concurrent with this submission, Bloomberg 

SEF LLC posted on its website: (a) a notice of pending certification of the Contract with the 

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

_________________________ 

By: Daniel Glatter

Title: Chief Compliance Officer
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Attachment A

Terms and Conditions

Contract Overview Credit Default Swap. An agreement to buy or sell protection on a basket comprised 

of a number of sovereign issues domiciled in Asia, EEMEA (Eastern Europe, Middle 

East, Africa), and Latin America with credit ratings below “BBB-” or “Baa3” that 

trade in the CDS market.

Ticker CDX EM HY CDSI [series number] [tenor]

Index CDX Emerging Markets High Yield; all series

Index Type Corporate; Untranched

Index Version Current version

Index Term Value Same as Tenor

Index Factor Current factor

Currency USD

Quoting Convention Price

Minimum Increment Order Book: $0.0025

Trading Protocols other than Order Book: As agreed by counterparties

Minimum Size Order Book: $1,000,000

Trading Protocols other than Order Book: As agreed by 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 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/Expiration Date The final date on which the obligations no longer accrue and the final payment 

occurs.

Delivery Type Cash

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

determined pursuant to the 2014 ISDA Credit Derivatives Definitions, as published 

by the International Swaps and Derivatives Association, Inc.

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.

Settlement Date Same as Expiration Date

Settlement Currency USD

“Made Available to Trade” 

Determination

None

Mandatory Clearing 

Determination

None

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

Settlement Procedure Bilateral
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Clearing House Bilateral

Block Size As set forth in 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