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Cantor Futures Exchange

New Contract Submission 

March 17, 2015

1. The text of the terms and conditions of the CANTOR FUTURES EXCHANGE

US DOLLAR/YEN DIGITAL FLEX SWAPS CONTRACT (the “Contract”) and all 

related rules are attached.

2. The intended listing date is March 23, 2015

3. The certification of compliance with the Act and regulations thereunder is attached.

4. A certification that Cantor Futures Exchange that this submission was posted on the 

Cantor Futures Exchange, L.P. website the day of its submission to the Commission is 

attached. 

5. Confidential Treatment is not requested. 

CONCISE EXPLANATION AND ANALYSIS OF THE CONTRACT’S 

COMPLIANCE WITH APPLICABLE CORE PRINCIPLES AND COMMISSION 

REGULATIONS

Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended, and 

Commodity Futures Trading Commission (“Commission”) Cantor Futures Exchange, L.P 

(“Cantor Exchange” or the “Exchange”) hereby notifies the Commission of the Exchange’s 

certification that it will list the Contract for trading.

As set forth above, Cantor Exchange intends to list the Contract as of March 23, 2015. 

The terms and conditions for the new contracts are contained in new Exchange rule

IX1010. Such new rule language including terms and conditions is provided in this submission 

as Appendix A.

The Exchange has received no opposing views regarding introduction of the Contract and 

respectfully submits the below narrative describing the contract, including data and information 

to support the Contract's terms and conditions, as set by the Exchange:

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

Susceptible to Manipulation

(4) Options on Physicals Contracts. (i) Under the Commission’s regulations, the term 

‘‘option on physicals’’ refers to option contracts that do not provide for exercise into an 

underlying futures contract. Upon exercise, options on physicals can be settled via physical 

delivery of the underlying commodity or by a cash payment. Thus, options on physicals 
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raise many of the same issues associated with trading in futures contracts regarding 

adequacy of deliverable supplies or acceptability of the cash settlement price series. In this 

regard, an option that is cash settled based on the settlement price of a futures contract 

would be considered an ‘‘option on physicals’’ and the futures settlement price would be 

considered the cash price series.

(ii) In view of the above, acceptable practices for the terms and conditions of options on 

physicals contracts include, as appropriate, those practices set forth above for physicaldelivery or cash-settled futures contracts plus the practices set forth for options on futures 

contracts.

As required by Appendix C, the following analysis with respect to the Contract, which consists 

of options on physicals, sets forth those relevant sections of Appendix C that pertain to cashsettled futures contracts and to options.

(1) A narrative describing the contract, including data and information to support the 

contract's terms and conditions, as set by the designated contract market.

The contract is based on the US dollar/yen exchange rate. The cash settlement price is 

based on a price index determined by the Exchange (the “Index”). Contract Rule IX1010(b) explains the Index calculation methodology in detail. 

The Index price is derived from the latest eight spot bids and spot offers of independent 

third-party spot market participants. Cantor Exchange calculates the Index every halfsecond and broadcasts this value to market participants.

Cantor Exchange confirms that the Index remains representative of spot market value by 

continuously monitoring and comparing it with other widely accepted values for the US 

dollar/yen exchange rate provided by major quote vendor systems. As provided in Rule 

IX-1010(b) the calculated Index value will be replaced by the US dollar/yen rate 

provided by major quote vendors any time the Exchange determines that the Index is best 

represented by that rate, for example, if there were less than eight bids and offers 

received within an appropriate interval based on market conditions. 

Contracts are listed for daily expiration, with an expiration the following day at 4:00pm. 

Participants may also request intra-day expirations by electronic means or by agreement 

with the Exchange.

Final cash settlement of the contract is digital in nature, such that if at the final settlement 

time the US Dollar/Yen Index is above the strike price then each purchaser shall be paid 

one dollar; if at final settlement time the US Dollar/Yen Index is below the strike price, 

then each seller shall be paid one dollar; if at final settlement time the US Dollar/Yen 

Index is equal to the strike price, then each purchaser and each seller shall receive fifty 

cents. The settlement obligation does not vary based upon the amplitude by which the 

price at expiration exceeds the strike price. 
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2) A Detailed cash market description for physical and cash-settled contracts. Such 

descriptions should be based on government and/or other publicly-available data whenever 

possible and be formulated for both the national and regional/local market relevant to the 

underlying commodity.

The Contract is based upon a price Index that is calculated with reference to the relative 

value of a pair of currencies. Such trading is common. The foreign exchange market 

enjoys a large trading volume, has high liquidity, is geographically dispersed, and 

operates throughout the business day. 

Contracts on foreign currency have been listed for many years on designated contract 

markets. Moreover, contracts on foreign currency have been recognized generally as not 

readily subject to manipulation because of the enormous depth and transparency of the 

market. The Commission has recognized this by determining that foreign currency 

markets do not require speculative position limits. Congress, too, has recognized this 

distinction, classifying foreign currency as an “excluded commodity” under the Act.1 

The following narrative, in chart format, details the particular contract terms and how 

they comply with Core Principle 3 and Commission Rule 38.200.

(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 

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).

Please see the narrative above which sets forth an explanation of the commodity 

underlying the Index and the calculation of the Index. The following chart sets forth each 

of the Contract’s terms and conditions with a narrative explanation of how the term or 

condition is consistent with cash market practice and Commission rules. 

 

1

See Section 1a(19) of the Act.
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Term or condition 

Rule number 

of identical 

approved 

provision, if 

any1

Explanation as to consistency with, or reason 

for variance from, cash market practice

1. Commodity 

characteristics (e.g., grade, 

quality, weight, class, 

growth, issuer, maturity, 

source, rating, etc.)

IX-1010(b) The commodities are foreign currency pairs of 

major financial center currencies. The US 

Dollar/Yen Index is derived from dealable bids or 

offers of independent third party spot market 

participants received by the Exchange which 

embodies the relationship between the applicable 

currencies.

2. Delivery months, noting 

any cyclical variations in 

trading activity that may 

affect the potential for 

manipulating the cash 

settlement price

IX-1010(d) Contracts are settled to the US Dollar/Yen Index 

which consists of at least 8 different bids and 

offers gathered from a wide array of market 

participants. Additionally, Cantor Exchange may 

use values obtained from outside market data 

providers in determining the settlement price. 

Therefore the settlement price will always be 

representative of the underlying US dollar/yen 

exchange rate.

3. Last trading day IX-1010(d) Each contract expires at or before 4PM New York 

time each trading day.

4. Contract size IX-1010(e) One dollar.

5. Minimum price change 

(tick)

IX-1010(f)(ii) The minimum price change is $0.01 and is 

designed to result in liquid trading with

competitive bid/offer spreads.

6. Daily price limit 

provisions, relative to cash 

market price movements

IX-1010(f)(i) Contracts may not trade above a price of one 

dollar, which is also the maximum cash settlement 

value of the Contract. 

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 
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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 Exchange has taken into account the characteristics of the spot currency market in 

determining the means by which it will calculate the Index value. As discussed above, 

the foreign currency spot markets are liquid, deep and relatively transparent. Cantor 

Exchange will calculate the Index using the Olympic average methodology. As set forth 

above, the US Dollar/Yen Index will be calculated by the Exchange by continuously 

taking the last eight bid and the last eight offer spot quotations for each US dollar/yen 

exchange rate received by the Exchange, then removing the two highest bids and two 

highest offers and removing the two lowest bids and two lowest offers received by the 

Exchange from recognized distributors of currency price information or dealable 

quotations from independent third-party spot market participants, then taking the 

midpoint. The Exchange then compares its Index value against the values other price 

feeds that track spot currency prices in order to ensure the accuracy of its Index. 

Based on the above, the Exchange believes that the Index that it calculates will be a 

robust and reliable indicator of the value of spot currency and will provide an acceptable 

and widely accepted underlying for this Contract.

(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.

Not applicable; the Index is calculated by Cantor Exchange.

(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 
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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.

Not applicable.

(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.

The final settlement relies upon dealable price quotes that are continuously made 

available from institutional independent third-party spot market participants. Dealable 

prices are superior to surveys because the quotes used represent levels at which parties 

are willing to enter into spot transactions. Furthermore, the rules provide for alternative 

calculation at the discretion of the Exchange in the event that dealable US dollar/yen spot 

quotes are unavailable due to market conditions.

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

eliminate or reduce the impact of potentially unrepresentative data.

As noted above, the Exchange automatically discards the two highest and lowest bids and 

offers from the Index calculation. This methodology insures that inadvertent or 

intentional attempts by any single market participant to influence the Index calculation 

will have no impact. Furthermore, the Exchange does not always use dealable quotes 

from the same providers, so it is impossible for any market participant to know if their 

quote is being used in the calculation of the Index. 

(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.

The Index is calculated by reference to dealable quotes for spot market foreign currency 

transactions that are available to the Exchange. These quotes are being offered by 

numerous spot market participants that transact regularly and are active in the spot 

foreign currency market. Because the Exchange uses only dealable bids or offers, these 
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quotes represent accurate values of the underlying spot commodity. The Exchange 

confirms that its Index tracks other US dollar/yen spot market prices to ensure the 

reliability of the Index values.

(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.

As discussed above, the market for foreign currency trading is perhaps the most liquid 

and transparent in the world. Accordingly, the Index values will be readily comparable to 

pricing information on the value of spot currency that is widely disseminated by a 

number of reputable price reporters. In addition, the Exchange will disseminate the Index 

on a continuing basis to its members and to the public.

(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.

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

Terms and Conditions Related to Speculative Limits.

Speculative 

limit Standard

Level

(exchange rule)

1. Spot, single 

month, all 

months

Must be no greater than 

necessary to minimize the 

potential for manipulation or 

distortion of the contract's or 

the underlying commodity's 

price.

The Rules provide for a Position Accountability 

level of 10,000 contracts, combined, in the 

Contract. See CFTC Rule 150.5.

4. Reporting 

level

Equal to or less than levels 

specified in CFTC rule 15.03.

The exchange and clearing house have available 

complete information with respect to the positions 

of each participant, and therefore are able to 

report complete position information to a Swaps 

Data Repository or to the Commission to the 

extent required.
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5. Aggregation 

rule

Same as CFTC rule 150.5(g) 

or previously approved 

language.

Yes.

Conclusion

As indicated by the above discussion and analysis, the cash price series for the Index is reliable, 

acceptable and timely and is not readily subject to manipulation. The Index will be calculated by 

Cantor Exchange based upon dealable bids and offers by third party market participants for spot 

currency transactions available to the Exchange. The data is collected in a highly automated 

manner and generally is recognized as reliable by cash market participants. In light of the depth 

and liquidity of the foreign currency spot market and the high transparency of spot market 

transactions, Cantor Exchange believes that the quotes upon which the Index is calculated are 

unlikely to be readily subject to manipulation.
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CERTIFICATIONS PURSUANT TO SECTION 5c OF THE COMMODITY EXCHANGE 

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

40.2, 17 C.F.R. §40.2

I hereby certify that the US DOLLAR/YEN DIGITAL FLEX SWAPS CONTRACT

complies with the Commodity Exchange Act, 7 U.S.C. §1 et seq. and regulations thereunder.

_________________________

By: Manavinder S. Bains

Title: Counsel & Chief Regulatory Officer

Dated: March 17, 2015

I hereby certify that a copy of this filing was posted on the Cantor Futures Exchange, L.P. 

website the day of its submission to the Commission.

_________________________

By: Manavinder S. Bains

Title: Counsel & Chief Regulatory Officer

Dated: March 17, 2015
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CANTOR FUTURES EXCHANGE, L.P.

CHAPTER IX

CONTRACTS

IX-1010 US DOLLAR/YEN DIGITAL FLEX SWAPS CONTRACT

(a) Scope and Underlying

These Contract Rules will govern the trading on the Cantor Futures Exchange, 

L.P. (the “Exchange”) of the US DOLLAR/YEN DIGITAL FLEX SWAPS CONTRACT (the 

“Contract”). Clearing of the Contract will be governed by the rules of the Cantor Clearinghouse, 

L.P. (the “Clearinghouse”). These Contract Rules are established pursuant to and constitute 

“Contract Rules” under Rule I-5 of the Rules of the Exchange and constitute “Contract Rules” 

Under Rule I-7 of the Rules of the Clearinghouse. Capitalized terms used, but not defined 

herein, have the meanings ascribed to them in the Rules of the Exchange or the Rules of the 

Clearinghouse, as applicable.

(b) Calculation of the Index

The US Dollar/Yen Index will be calculated by the Exchange continuously taking 

the last eight bid and the last eight offer spot quotations for each US dollar/yen exchange rate 

received by the Exchange, then removing the two highest bids and two highest offers and 

removing the two lowest bids and two lowest offers received by the Exchange from recognized 

distributors of currency price information or dealable quotations from independent third-party 

spot market participants, then calculating the arithmetic mean of the remaining eight values and 

rounding to the third decimal place. Notwithstanding the above, the Exchange may determine the 

Index value, in its sole and absolute discretion, using the best available indicative spot US 

dollar/yen prices available from recognized distributors of currency price information. 

(c) Trading Hours for the Contract

(i) Except as otherwise posted on the Exchange website, tradable contracts 

under the Contracts will be open for trading Sunday 6:30 PM ET until Friday 4:00 PM ET. No 

trading in these contracts shall occur between the hours of 4:00 PM ET and 6:30 PM ET on any 

Exchange Trading Day.

(ii) Abbreviated holiday trading schedules may apply and will be posted on 

the Exchange website.

(d) First Time of Trading, Last Time of Trading For the Contract

(i) Tradable contracts under the Contracts shall be listed for trading for each 

Exchange Trading Day except as otherwise published on the Exchange website and shall begin 

trading at 6:30 PM ET and shall cease trading at 4:00 PM ET on that Exchange Trading Day.
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(ii) Tradable contracts under the Contract may also be listed in response to 

requests received by the Exchange from Participants. All such requests shall include the final 

settlement time and the strike price for the contract. Contracts become tradable immediately 

upon listing by the Cantor Direct System, and remain tradable until the final settlement time.

(e) Contract Final Settlement for the Contract

(i) Each open position in tradable contracts under the Contract will be Cash 

Settled such that if at the final settlement time the US Dollar/Yen Index is above the strike price 

then each purchaser shall be paid one dollar; if at final settlement time the US Dollar/Yen Index 

is below the strike price, then each seller shall be paid one dollar; if at final settlement time the 

US Dollar/Yen Index is equal to the strike price, then each purchaser and each seller shall 

receive fifty cents.

(f) Contract Price Limits and Minimum Increment for the Contract

(i) There shall be no trading in tradable contracts under the Contracts at a

price of more than one dollar.

(ii) The minimum trading increment of each tradable contract under the 

Contract is one cent.

(g) Contract Position Accountability Levels

The position accountability level shall be 10,000 net short or net long contracts 

combined in tradable contracts under the Contract.

(h) Original Margin for the Contract

(i) Original Margin shall be 100% of the at-risk amount for both buyers and 

sellers of tradable contracts under the Contract.

(ii) As required by rule IX-1010(h)(i), buyers of tradable contracts under the

Contract shall post the purchase price as Original Margin; sellers of tradable contracts under the 

Contracts shall post one dollar minus the sale price as Original Margin.