SUBMISSION COVER SHEET

Registered Entity Identifier Code (optional): 2015-P-12 Date: February 12, 2015

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; terms and conditions of the “Option on CDS Index Contract – European 

Investment Grade 5Y [ICE]” are attached as Attachment A.

DESCRIPTION

In accordance with Commodity Futures Trading Commission (“Commission”) Rule 40.2(a), 

this is a certification submission by Bloomberg SEF LLC (“BSEF”) of a new product for 

trading – the “Option on CDS Index Contract – European Investment Grade 5Y [ICE]” 

(“Contract”). 
600136002

Bloomberg SEF LLC

New Contract Submission 2015-P-12

February 12, 2015

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

2. The intended listing date is ten days after submission of this certification to the 

Commission. 

3. Attached, please find a certification that, concurrent with this submission, 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. Attached, please find a certification that the Contract complies with the Act and the 

Commission regulations thereunder.

EXPLANATION AND ANALYSIS OF THE CONTRACT’S COMPLIANCE WITH

APPLICABLE CORE PRINCIPLES AND COMMISSION REGULATIONS

As required by Commission Rule 40.2(a), the following demonstrates that the Contract is 

consistent with the requirements of the Act and the Commission regulations and policies 

thereunder.

Commission Rule 37.301 provides that, “To demonstrate to the Commission compliance with the 

requirements of §37.300, a swap execution facility shall, at the time it submits a new swap 

contract in advance to the Commission pursuant to part 40 of this chapter, provide the applicable 

information as set forth in Appendix C to part 38 of this chapter—Demonstration of Compliance 

That a Contract is not Readily Susceptible to Manipulation. A swap execution facility may also 

refer to the guidance and/or acceptable practices in Appendix B of this part.”

The Contract certified herein is an option to enter into the following underlying Swap (as this 

term is defined in the BSEF Rulebook): CDS Index Contract – European Investment Grade 5Y 

[ICE].

An option on a swap grants its owner the right, but not the obligation, to enter into an underlying 

swap. The Payer Option has the right but not the obligation to Buy Protection by purchasing the 

underlying Swap under which the buyer of protection pays a premium to the seller in case of a 

credit event occurring. Credit events include Bankruptcy and Failure to Pay. The Receiver 

Option is the right but not the obligation to sell protection by selling the underlying Swap 

whereby the seller receives the premium payments from the protection buyer. The seller owns 

the credit risk of the underlying swap.
600136002

This contract is a European option, which provides that the purchaser is permitted to exercise the 

option and enter into the swap only on the option’s expiration date—the Option Expiry. 

Appendix B to Part 37—Guidance on, and Acceptable Practices in, Compliance with Core 

Principles

Appendix B to Part 37 requires that a SEF demonstrate that a Swap to be certified under 

Commission Rule 40.2 not be readily susceptible to manipulation. BSEF provided a 

demonstration in its certification with internal identifier 2014-P-19, submitted on Februray 25, 

2014, that the swap underlying this option, BSEF listed Swap, CDS Index Contract –European 

Investment Grade 5Y [ICE], is not readily susceptible to manipulation. BSEF incorporates that 

demonstration in this submission as if it were fully set forth herein.

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

Susceptible to Manipulation

Appendix C provides with respect to options that, “The Commission's experience with the 

oversight of trading in futures option contracts indicates that most of the terms and conditions 

associated with such trading do not raise any regulatory concerns or issues.” The Commission 

therefore concluded that as long as the terms and conditions of an option are specified in an 

automatic and objective manner, any specification would be acceptable and does “not affect an 

option contract's susceptibility to manipulation or its utility for risk management.” 

Accordingly, the terms and conditions of the option on BSEF Swap CDS Index Contract –

European Investment Grade 5Y [ICE] are set forth below. As with options on futures, the 

terms and conditions of options on swaps do not separately affect the contract’s susceptibility to 

manipulation. Accordingly, conceptually, the terms and conditions of the option should 

therefore be acceptable under Commission guidance as long as those terms are specified in an 

automatic and objective manner. As discussed below, not all of the terms and conditions 

applicable to options on futures will be applicable to options on swaps, or they may be applicable

but in a different manner due to the difference between Swaps and futures. 

Exercise method The owner of the option must notify the writer of the option 

of the owner’s intent to exercise the option during business 

hours on the expiration date of the option. Notice shall be 

in the form and manner as agreed by the counterparties. 

Upon exercise, the counterparties must submit the Swap for 

clearing to the Clearing House. 

Exercise procedure: Positions in the underlying swap will be established via 

book entry by the Clearing House.

Strike price listing provisions: The fixed coupon rate of the underlying Swap is the strike 

price. Unlike options on futures wherein the exchange lists 

various strike prices for trading, in options on swaps, the 

strike price is as agreed by the parties.
600136002

Strike price intervals: Unlike options on futures, BSEF does not specify strike 

price intervals for options on swaps. The interval is as 

agreed between the parties.

Automatic exercise provisions: There is no automatic exercise. The option owner must 

exercise by notifying the option writer.

Contract size: The size of the option is as the parties shall agree. Unlike 

options on futures, the size of the underlying is as the 

parties agree. 

Option minimum tick: Unlike in futures trading, there is no tick size for the 

Contract because the size of the Contract is determined by 

the counterparties. 

Option Expiration & Last Trading Day: Appendix C provides that for options on futures, 

“the specification of the last trading day should 

consider the relationship of the option expiration 

date to the delivery period for the underlying futures 

contract.” Appendix C continues by discussing the 

relation of option expiration to futures expiration 

date and delivery on the futures contract.” 

These concerns do not apply to options on swaps. 

Unlike futures, performance on the swap only 

begins upon entry into the swap. Accordingly, in 

the case of a swap, upon exercise of the option, the 

parties enter into a swap that will have an extended 

period in which the parties will be obligated to 

perform. This is in contrast to futures where option 

exercise could be simultaneous with the futures 

expiration and delivery would occur simultaneously 

on both. This could lead to concerns regarding 

increases in open interest of futures at the time 

delivery will be required. This concern is not 

manifest in an option on a swap and therefore this 

consideration is not applicable to trading options on 

swaps. Accordingly, the timing of option Expiry 

and entry into the underlying Swap is not a 

consideration with respect to whether the instrument 

is readily subject to manipulation.

Speculative Limits. Speculative position limits or position 

accountability will be the same as the underlying 

swap. 

Attachment A 

Terms and Conditions 

[see attached] 
Bloomberg SEF LLC

Option on Credit Default Swaps (CDS):

CDS Index Contract –European Investment Grade 

5Y

Contract Overview An agreement granting the owner the right, but not the obligation,

to enter into a Swap listed for trading on BSEF which is 

exercisable only on a specific date. Upon exercise of the option, 

the counterparties enter into and submit the underlying swap for 

clearing by a derivative clearing organization set forth below (the 

“Clearing House”).

Ticker ITRX EUR CDSI 5 [Series] [Expiry] [Direction] [Strike]

Underlying Swap CDS Index Contract – European Investment Grade 5Y (ICE). 

An agreement to buy or sell protection on a basket of liquid 

European based entities with an investment grade credit rating. 

Index of Underlying 

Swap

ITRAXX.EUROPE: Series 10 to current

Currency EUR

Quoting Convention and

Minimum Increment

As agreed by counterparties

Minimum Size As agreed by counterparties 

Trading Conventions

Payer Option=right but not the obligation to buy protection by 

purchasing the underlying Swap whereby the buyer of protection 

pays a premium to the seller in case of a credit event occurring. 

Credit events include bankruptcy and failure to pay.

Receiver Option= right but not the obligation to Sell Protection by 

selling the underlying Swap whereby the seller receives the 

premium payments from the protection buyer. The seller owns the 

credit risk of the underlying swap.

Option Strike Price Fixed coupon of the underlying swap

Option Expiry Date As agreed by the parties

Exercise method

The owner must notify the writer of the option of its intent to 

exercise the option during regular business hours on the Expiry 

Date. The form and method of notification shall be as agreed by 

the counterparties. Upon exercise of the option, the counterparties 

must submit the underlying Swap for clearing to the Clearing 

House. 
 

Trading Hours and 

Venue

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

Clearing Venue for the 

underlying Swap

ICE Clear U.S.; ICE Clear Europe

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

Speculative Limits Same as for the underlying Swap

Reportable Levels Same as for the underlying Swap