Bloomberg SEF LLC 

New Contract Submission 2022-P-04 

October 17, 2022 

1. The Contract’s terms and conditions are provided in Attachment A. 

 

2. The intended listing date is November 3, 2022. 

 

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 U.S. Commodity Futures Trading Commission (“Commission”); and 

(b) a copy of this submission. 

4. Attached, please find a certification that the Contract complies with the Commodity 

Exchange Act (the “Act”) and the Commission regulations thereunder. 

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

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). 

The Contract certified herein is an option to enter into the following underlying Swap: USD 

SOFR OIS Fixed-to-Floating Swap Contract. 

An option on a swap, also known as a swaption, grants its buyer the right, but not the obligation, 

to enter into an underlying swap on a specified future date. Swaptions come in two main types: a 

payer swaption and a receiver swaption. In a payer swaption, the purchaser has the right but not 

the obligation to enter into a swap contract where they become the fixed-rate payer and the 

floating-rate receiver. A receiver swaption is the opposite i.e., the purchaser has the option to 

enter into a swap contract where they will receive the fixed rate and pay the floating rate. 

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

Susceptible to Manipulation 

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

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

demonstration in its certification with internal identifier 2018-P-5, submitted on August 9, 2018, 

that the swap underlying this option, BSEF listed Swap, USD SOFR OIS Fixed-to-Floating 

Swap Contract, 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 USD SOFR OIS Fixed-toFloating Swap Contract 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 buyer of the option must notify the seller of the option of the 

owner’s intent to exercise the option during business hours on the 

expiration date of the option and the manner of the exercise: cash or 

physical (delivery). Notice shall be in the form and manner as agreed by 

the counterparties. If the counterparties elected the exercise by physical 

delivery, the counterparties must submit the Swap for clearing to the 

Clearing House. 

Exercise procedure: In case of exercise by physical delivery, positions in the underlying 

swap will be established via book entry by the Clearing House. In case 

of cash settlement, the exercise shall be conducted as agreed by the 

counterparties. 

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. 

Strike price intervals: Unlike options on futures, BSEF does not specify strike price intervals 
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for options on swaps. The interval is as agreed between the parties. 

Automatic exercise 

provisions: 

There is no automatic exercise. The option buyer must exercise by 

notifying the option seller. 

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. 
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
Attachment A 

Terms and Conditions 

Option – USD SOFR OIS Fixed-to-Floating Swap Contract 

Contract Overview An agreement granting the buyer the right, but not the obligation, to enter into a Swap 

listed for trading on BSEF which is exercisable only on a specific date. 

Ticker USD SWAP vs SOFR [Underlying Tenor] [Strike] [Expiry Date] 

Underlying Swap USD SOFR OIS Fixed-to-Floating Swap Contract 

Index of Underlying Swap SOFR 

Tenor of Underlying Swap Any

Currency USD 

Quoting Convention and 

Minimum Increment 

As agreed by counterparties 

Minimum Size As agreed by counterparties 

Trading Conventions A payer option gives the buyer of the option the right to enter into a swap where they 

pay the fixed leg and receive the floating leg. 

A receiver option gives the buyer of the option the right to enter into a swap in which 

they will receive the fixed leg and pay the floating leg. 

Option Strike Price Fixed coupon of the underlying swap

Option Expiry Date As agreed by the parties 

Option Settlement Type Cash or delivery of a cleared or non-cleared swap 

Exercise method The buyer of the option must notify the seller of the option of the buyer’s intent to 

exercise the option during business hours on the expiration date of the option and the 

manner of the exercise: cash or physical (delivery). Notice shall be in the form and 

manner as agreed by the counterparties. If the counterparties elected the exercise by 

physical delivery, the counterparties must submit the Swap for clearing to the Clearing 

House. 

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

Clearing House for the underlying 

Swap

Chicago Mercantile Exchange, Inc.; LCH.Clearnet Ltd.; Eurex Clearing AG or 

Bilateral 

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