600242784 

SUBMISSION COVER SHEET 

Registered Entity Identifier Code (optional): 2016-P-24 Date: December 23, 2016 

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 

Commodities – Fixed/Floating Swap/Cash Settled Forward White Sugar Contract (“Contract”) 
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Bloomberg SEF LLC 

New Contract Submission 2016-P-24 

December 23, 2016 

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

 

2. The intended listing date is December 28, 2016. 

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 Commodity 

Futures Trading Commission (the “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 

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 counterparty. 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 
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should either: Calculate its own 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 

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

the potential for manipulation or distortion of the reference price. 

Reference Price Not Readily Susceptible to Manipulation 

This Contract, a fixed-to-floating commodity swap, is a cash-settled agreement between two 

counterparties to exchange a fixed price for a floating price on a designated commodity, at a 

given date (or date range, as explained below) in the future (“calculation period”). The fixed leg 

is thus determined at the start of the Contract and remains unchanged throughout the life of the 

swap. The floating leg, however, is based on the price of the designated futures contract for the 

reference commodity during the calculation period.1

 As such, the reference price for the 

Contract is the price of the applicable futures contract. The source for the futures contract price 

will be the prices published by ICE Futures Europe. As the exchanges are self-regulatory 

organizations (“SROs”), futures data from these sites is widely-accepted, publicly available and 

used by numerous participants. 

(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 

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). 

Essential Economic Characteristics of the Contract 

 

1

 As described further below, the respective futures contract is: ICE Futures Europe White Sugar. 
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Terms 

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

this is a commodity swaps contract in which the counterparties exchange a fixed price and a 

floating price on the same commodity at a specified future date. This Contract has several 

flexible terms. For instance, counterparties are able to choose the currency (from a list of 

currencies in Attachment A) on which the notional value and the settlement value, respectively, 

will be based. Moreover, counterparties are able to choose whether the floating price will be the 

price of the futures contract on a single date or the average price over a specified date range. (If 

the counterparties choose the latter, the price would be averaged across all of the days.) Other 

flexible terms include the Contract’s: notional amount, minimum size, and settlement date. The 

trading hours, however, are fixed at twenty-four hours, Sunday – Friday (ET). The Contract is 

not readily susceptible to manipulation because, though the Contract has many flexible terms, all 

of the essential terms, except for the floating price, are agreed upon at the start of the Contract. 

And, as noted above, the floating price is based on the price of the futures contract which is 

available through ICE Futures Europe – reliable and widely accepted sources. 

 

Contract Not Readily Susceptible to Manipulation 

The Contract is not susceptible to manipulation for a number of reasons. First, as noted above, 

all of the essential terms of the Contract are agreed upon at the start of the Contract and remain 

static throughout the life of the swap, except for the floating price. And, as noted, the floating 

price is based on the price of the applicable futures contract, which is available directly from the 

exchange – reliable and widely accepted sources. Second, as indicated by volume data for 

futures contracts on the respective products, 2 the underlying markets are very liquid – making 

manipulation very difficult to achieve. Also, 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. 

Calculation of Cash Settlement Price 

As described above, the cash settlement price will be calculated as follows: 

(a) On the last day of the calculation period – which could be either a single date or the last 

day of a date range, depending on the determination of the counterparties – the floating 

price will be determined based on the price of the futures contract for the designated 

commodity. If the counterparties chose to use a date range, the average across all of the 

days in the range will be used. 

(b) The counterparties will then calculate the difference between the fixed price (determined 

at the start of the Contract) and the floating price, and multiply that difference by the 

notional amount based on the notional currency that the counterparties designated at the 

start of the Contract. 

 

2

 ICE Futures Europe White Sugar November 2016 monthly turnover of 2,725,432 contracts, total open interest of 

1,613,370 contracts as of December 20, 2016. Current information is available at: 

https://www.theice.com/marketdata/reports/176/product/15249/hub/17453/. 

 
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(c) On the settlement date, which is also designated at the start of the Contract, the 

counterparties will exchange payment amounts (which can be netted) in the settlement 

currency (on which they agreed at the start of the Contract). 

 

This method of cash settlement is consistent with the customary practice of cash-settling 

commodity swaps contracts in the market. 

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 

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. 

As noted above, the futures contract underlying the Contract operates in liquid commodity 

markets with many participants. Also, as noted above, the cash settlement price is not easily 

susceptible to manipulation or distortion, as the method of determining the price is based on 

factors (a) that are fixed at the start of the contract, and (b) a reliable reference price. 

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

price series, the designated contract market should verify that the third counterparty 

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 
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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. 

As the information on the price of futures contracts is publicly available, a licensing agreement is 

not necessary. Moreover, as the exchanges are SROs, they have robust provisions in place to 

prevent market manipulation, including comprehensive surveillance and continual oversight of 

their employees. 

(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 calculation of 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 counterparties 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 
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price, as well as any other supporting information that is appropriate or feasible to make 

available to the public. 

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

price will be made publicly available on BSEF’s website on a timely basis. The cash settlement 

price for the underlying futures contract is made available by ICE Futures Europe. 

(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. 

As described above, the contract terms are attached as Attachment A. As noted above, while 

there are common terms such as the trading hours, many of the terms are flexible. Nevertheless, 

the terms are all within commonly accepted market norms. 

(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 specifically list the commodity on which the reference 

instrument is based. 

(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 is as determined by the counterparties, which 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 not readily susceptible to 

manipulation, is described 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. 
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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 determined by 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 will be the last day of the calculation period, which is set by the individual 

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. 

As noted above, netted payments will be made on the settlement date in accordance with the cash 

settlement method described above. No payments are made prior to the settlement date. 

(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 Part 150 of the Commission’s regulations. 
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(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 (ET). 

Attachment A 

Terms and Conditions 

Commodities – Fixed/Floating Swap/Cash Settled Forward White Sugar Contract 

Contract Overview A fixed/floating swap contract is a cash settled agreement between two counterparties whereby one counterparty

agrees to pay a fixed amount to the other counterparty on a given date, and in exchange the second counterparty

will pay a floating amount to the first counterparty on the same given date. The fixed amount paid is determined

based on the notional quantity traded and the execution price on BSEF.  The floating amount paid is determined

based on the notional quantity and the price of specified futures contracts based on an agreed reference commodity

over an agreed future calculation period.

Reference Commodity White Sugar

Contracts on

Reference

Commodities

ICE Futures Europe White Sugar Futures Contract

Settlement Currency Currency in which payments are made between the two counterparties:

 USD

 EUR

 GBP

 CAN

 JPY

 CHF

 BRL

 PLN

 SEK

 KRW

Quoting Convention  

and Minimum

Increment

Notional amount, as agreed by the counterparties

Minimum Size Notional amount, as agreed by the counterparties

Notional Currency   Currency in which the fixed and floating prices are quoted:  

 USD  

 EUR

 GBP

 CAN

 JPY

 CHF

 BRL

 PLN

 SEK

 KRW

Trading Conventions Buy or Sell which refers to whether or not the fixed amount is paid (buy) or received (sell)  

Calculation Period Can be a single date or date range over which the reference price of the underlying futures contract will be

calculated. If a date range, the reference price will be averaged across all days.

Trade Date The date on which the counterparties enter into the contract

Settlement Date Specified settlement or payment date when the fixed payment amount and the floating payment amount are

exchanged (can be netted)

Settlement Procedure   Bilateral cash settlement performed in settlement currency

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

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