Source: https://www.readkong.com/page/june-5-2019-christopher-j-kirkpatrick-secretary-commodity-7485375
Timestamp: 2020-04-09 05:47:13
Document Index: 795894541

Matched Legal Cases: ['§40', '§40', '§ 221', '§ 461', '§ 1752', 'art 30', 'art 364', 'art 208', '§ 1005']

June 5, 2019 Christopher J. Kirkpatrick Secretary Commodity Futures
Page created by Kathleen Hill
400 South LaSalle Street › Chicago, IL 60605 › cboe.com June 5, 2019 Christopher J. Kirkpatrick Secretary Commodity Futures Trading Commission Three Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581 Re: Cboe Futures Exchange, LLC Product and Rule Certification for Cboe Three-Month AMERIBOR Futures, Cboe One-Month AMERIBOR Futures, Cboe 14-Day AMERIBOR Futures, and Cboe 7-Day AMERIBOR Futures Submission Number CFE-2019-011 Dear Mr. Kirkpatrick: Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (“Act”), and §40.2 and §40.6 of the regulations promulgated by the Commodity Futures Trading Commission (“CFTC” or “Commission”) under the Act, Cboe Futures Exchange, LLC (“CFE” or “Exchange”) hereby submits terms and conditions for Cboe Three-Month AMERIBOR futures (“AMB3 futures”), Cboe One-Month AMERIBOR futures (“AMB1 futures”), Cboe 14-Day AMERIBOR futures (“AMI futures”), and Cboe 7-Day AMERIBOR futures (“AMW futures”) to be traded on CFE (collectively, “Products” or “AMERIBOR futures”) and accompanying rule amendments to incorporate the Products into CFE’s rules (“Amendment”).1 The Amendment consists of new Chapter 20 of CFE’s Rulebook regarding AMB3 futures, new Chapter 22 of CFE’s Rulebook regarding AMB1 futures, new Chapter 24 of CFE’s Rulebook regarding AMI futures, new Chapter 25 of CFE’s Rulebook regarding AMW futures, and related updates to CFE Policy and Procedure V (Emergency and Physical Emergency Delegations) and CFE Policy and Procedure XIX (Submission Time Frames) in the Policies and Procedures Section of the CFE Rulebook.
Also attached are charts that summarize the Product specifications for each of the Products.
The terms and conditions for the Products and the Amendment will become effective on June 19, 2019 (“Effective Date”). Each of the Products may be listed for trading on CFE on or after the Effective Date on a date to be announced by the Exchange through the issuance of an Exchange notice with respect to that Product. Each of the Products may be first listed for trading on the Exchange on different launch dates. AMERIBOR Futures CFE may list the following four AMERIBOR futures products for trading on CFE. 1 AMERIBOR® is a registered trademark of Environmental Financial Products, LLC and is licensed for use by CFE in connection with the listing for trading by CFE of AMERIBOR futures.
2 AMB3 futures are cash-settled futures that are designed to reflect the market expectations of compounded daily annualized AMERIBOR interest during the approximate three-month time period immediately prior to the final settlement of each AMB3 futures contract. AMB1 futures are cash-settled futures that are designed to reflect the market expectations of average daily simple annualized AMERIBOR interest during the settlement month. AMI futures are cash-settled futures that are designed to reflect the market expectations of average daily simple annualized AMERIBOR interest during a 14-day Federal Reserve System reserve maintenance period (“Maintenance Period”).
AMW futures are cash-settled futures that are designed to reflect the market expectations of average daily simple annualized AMERIBOR interest during a 7-day period that corresponds to either the first half or second half of a Maintenance Period.
AMERIBOR AMERIBOR is a transactions based interest rate benchmark which represents market based borrowing costs. Daily annualized AMERIBOR interest refers to the AMERIBOR overnight unsecured interest rate which is calculated and reported by American Financial Exchange, LLC (“AFX”) following the end of each AFX business day. The AMERIBOR overnight unsecured interest rate is the volume-weighted average annualized interest rate of loan transactions that qualify for inclusion in the calculation under the AFX Rulebook and that are executed on AFX during that business day in the AMERIBOR overnight unsecured loan market.
The daily AMERIBOR overnight unsecured interest rate is denoted as a 360-day annualized percentage rate and is calculated out to five decimal places.
AFX disseminates AMERIBOR rates on a daily basis through the AMERIBOR website at www.ameribor.net. These rates are also disseminated through the Cboe Streaming Market Index (“CSMI”) data feed service, and market data vendors and others may subscribe to receive these rates through CSMI. The AMERIBOR rates that are disseminated through the AMERIBOR website and CSMI will include the (i) daily AMERIBOR overnight unsecured interest rate; (ii) the current accumulated value of the Three-Month AMERIBOR Benchmark for the AMB3 future that is closest to expiration; (iii) the current accumulated value of the One-Month AMERIBOR Benchmark for the AMB1 future that is closest to expiration; (iv) the current accumulated value of the 14-Day AMERIBOR Benchmark for the AMI future that is closest to expiration; and (v) the current accumulated value of the 7-Day AMERIBOR Benchmark for the AMW future that is closest to expiration.
The foregoing current accumulated values are calculated out to four decimal places.
AFX AFX is a rules-based electronic exchange that facilitates the direct lending and borrowing of money between AFX participants. The concept of AFX is to provide a central and transparent cash market exchange for banks and non-bank financial institutions across the United States to identify prospective counterparties to loans and to determine the market funding costs for those loans. AFX participant banks, which constitute the substantial majority of AFX participants, are typically small, medium, and regional banks and may include larger banks as well. The participants on AFX that are not banks include broker-dealers, private equity firms, business development
3 corporations, hedge funds, futures commission merchants, insurance companies, asset managers, and finance companies. The AMERIBOR overnight unsecured interest rate is designed to reflect the overnight unsecured borrowing costs of these banks and financial market participants. As discussed below, the AMERIBOR rates that will be calculated for purposes of AMERIBOR futures will exclude transactions between two non-banks. Only transactions in which at least one party is a bank will be included in the calculation of these rates.
AFX participants in the AMERIBOR overnight unsecured loan market may include eligible banks and other designated types of eligible non-bank participants that have one of the capacities below and satisfy other requirements designated by AFX.
A bank for this purpose means (i) a “member bank”, as defined in Section 1 of the Federal Reserve Act (12 U.S.C. § 221) or (ii) a “depository institution”, as defined in Section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. § 461(b)(1)(A)), in each case, as determined by AFX in its sole discretion; provided, that a bank shall not include any credit union unless the credit union is an “insured credit union”, as that term is defined in Section 101 of the Federal Credit Union Act (12 U.S.C. § 1752). A bank may act as a lender, a borrower, or both on AFX. Eligible non-bank participants that may act as lenders on AFX may include (i) an insurance company subject to regulation as such under applicable laws and regulations, (ii) a broker-dealer registered with the Securities and Exchange Commission (“SEC”) as such (or an affiliate thereof); (iii) a lender that is registered as such under Regulation U of the Board of Governors of the Federal Reserve System; (iv) a fund that relies on Section 3(c)(1) or 3(c)(7) of the Investment Company Act for exemption from that Act that has as one of its primary purposes the making of loans; or (v) a “finance company” that is affiliated with a broker-dealer, corporation, or financial institution and that is regularly engaged in the business of making loans.
Eligible non-bank participants that may act as borrowers on AFX may include (i) an insurance company subject to regulation as such under applicable laws and regulations; (ii) a broker-dealer registered with the SEC as such; or (C) a futures commission merchant registered with the Commission as such.
AFX participants in the AMERIBOR overnight unsecured loan market also include AFX participant depository institutions referred to by AFX as correspondent banks. A correspondent bank is a bank that wishes to enter loan offers and conduct trades on AFX on behalf of “downstream” depository institutions for which the correspondent bank provides correspondent banking services and which are not direct participants on AFX. All of the downstream depository institutions are also banks under the above definition of bank for this purpose. A correspondent bank enters into loans on AFX as agent for its downstream depository institutions, which become the direct lenders under those loans.
AFX currently has 144 AFX participants. These participants consist of 118 AFX participants that are depository institutions, of which 117 are banks and one is a credit union. The remaining 26 AFX participants are non-banks. Of the 117 AFX participants that are banks, 5 AFX participants are correspondent banks. As of April 30, 2019, 73 AFX participants have executed loan transactions on AFX in the AMERIBOR overnight unsecured loan market. AFX participants have presence in 50 states, Washington, D.C., and Puerto Rico and represent approximately $1.9 trillion in combined assets. The AFX participants that are banks hold approximately $1.3 trillion in deposits, which represents approximately 9.3% of the amount of deposits in U.S.
banks. The AMERIBOR overnight unsecured loan market that is used to establish the AMERIBOR overnight unsecured interest rate currently operates in the following manner. The trading hours are on weekdays except federal holidays from 7:00 a.m. to 5:00 p.m. CT. Borrow
4 and lend orders are entered by AFX participants into the AFX web-based electronic trading system. AFX participants may submit bids/offers to borrow/lend in increments of $1,000,000 in principal through standardized loan terms. Bids/offers are submitted as limit orders and include the side (borrowing/lending), size/amount, and price/interest rate. All bids and offers are anonymously displayed by AFX’s trading system to all AFX participants. Borrow and lend orders are matched and executed based on price/time priority. AFX participants define the other AFX participants to which they would lend and the maximum amount they would lend to each eligible counterparty.
A trade will only be executed if the borrower is on the lender’s approved list and to the extent that the loan is within the cumulative limit established by the lender for that counterparty. AFX participants may also use functionality that allows an AFX participant to designate that a lender’s offer will execute against a borrower’s bid only if the bid is priced at or above the lender’s minimum offer price established by the lender with respect to that borrower. Borrow and lend orders are matched in accordance with AFX rules.
Loan transaction executions in the AMERIBOR overnight unsecured loan market are displayed in real-time by AFX’s trading system to all AFX participants. AFX also disseminates real time AMERIBOR overnight cash loan transaction data through the AMERIBOR website at www.ameribor.net. This data includes last sale information, including the time, quantity, and interest rate of each transaction in the AMERIBOR overnight unsecured loan market. Additionally, AFX also has plans to make its real time market data available to market data vendors who may then make that market data available to their market data subscribers.
AFX has established a daily price limit that is a percentage above and below the AMERIBOR overnight unsecured interest rate from the immediately preceding AFX business day. This price limit percentage is currently set at 15%. Based on this price limit, any bids that exceed 115%, and any offers that are less than 85%, of the AMERIBOR overnight unsecured interest rate from the immediately preceding AFX business day are not accepted or displayed by AFX’s trading system. As a result, no transactions on AFX may occur that are less than 85%, or more than 115%, of the AMERIBOR overnight unsecured interest rate from the immediately preceding AFX business day.
AFX may adjust the daily price limit percentage from time to time, such as because of interest rate increases or decreases resulting from Federal Open Market Committee policy or in order to allow for orderly markets.
The matching of a borrow order and a lend order results in the execution of a loan transaction between the AFX participants that submitted those orders. At the time of execution, the lender and borrower are deemed to have entered into the loan pursuant to the standardized terms specified by AFX and incorporated into AFX rules, at the specific terms of the loan resulting from the trade. Settlement of the loan is done directly between the AFX participants that are the parties to the trade. The execution of a trade initiates the following settlement process. AFX directs the lender to transfer cash to the borrower equal to the principal amount of the loan.
Following receipt of that instruction, the lender transfers to the borrower the principal amount of the loan via FedWire (or other customary and appropriate means) by no later than 5:30 p.m. CT on the date of the trade execution. Once the borrower has received the full amount of the principal relating to the loan, the borrower acknowledges to AFX within the AFX trading system by no later than 5:30 p.m. CT on that date that the borrower has received the principal. AFX does not include in the calculation of the AMERIBOR overnight unsecured interest rate any loan for which this acknowledgment is not received prior to the calculation of the AMERIBOR overnight unsecured interest rate for that AFX business day.
On the maturity date of the loan, the borrower transfers to the lender the required repayment amount (including any interest) for the loan via FedWire (or other customary and
5 appropriate means) by no later than 5:30 p.m. CT. Upon its receipt in full of the repayment amount, the lender acknowledges to AFX within the AFX trading system by no later than 5:30 p.m. CT on that date that the lender has received the repayment. Each AFX participant agrees to be bound by, and comply with, AFX rules and to be subject to AFX’s jurisdiction through the execution of a User Agreement with AFX and through the jurisdictional provisions of AFX rules which automatically apply to any AFX participant that accesses or enters an order into AFX’s trading system. Under AFX Rules, a loan transaction that is executed on AFX becomes legally binding on each of the parties, and the borrower and lender become contractually obligated to each other to complete the loan and perform their obligations, in accordance with the standard terms included in AFX Rules.
A failure to fund, or to pay principal or interest on, a loan executed through AFX, therefore, would constitute a violation of AFX Rules, for which AFX could impose sanctions, and a breach of agreement with the counterparty, which could result in liability for damages and potentially regulatory sanctions. AFX rules also include prohibitions of various forms of misconduct relating to activity on AFX. AFX participants are prohibited from, among other things (i) making, reporting, or purporting to make or report any false or fictitious transaction; (ii) disseminating any false, misleading, or inaccurate information, including reports concerning any orders, trades, loans, or AMERIBOR rates effectuated on or through AFX or market information or conditions that affect or tend to affect the price of any instrument traded on AFX; (iii) manipulating, or attempting to manipulate, the price (or rate) of any instrument traded on AFX; (iv) entering bids or offers into AFX’s trading system other than in good faith for the purpose of executing transactions, or making any bid or offer for the purpose of establishing a market price which does not reflect the true state of the market; (v) submitting an order to AFX or misleading the market by sending signals with the intent to cancel the order before it is executed, or modifying the order to avoid execution; (vi) submitting any bid order or offer order to AFX with the knowledge that the transaction would result in no change in beneficial ownership; (vii) knowingly entering into a transaction on AFX that is a wash sale or any other similar transaction entered into for the purpose of manipulating the market; and (viii) submitting orders, entering into loans, or otherwise using AFX’s trading system other than in accordance with any and all applicable law.
AFX rules provide AFX with the authority to take disciplinary action and to impose fines and other sanctions against AFX participants and persons associated with AFX participants for violations of AFX rules. AFX has a Committee on Compliance and Dispute Resolution (“Compliance Committee”). The function of the Compliance Committee is to receive and consider periodic market surveillance reports and to deliberate on and recommend the resolution of possible AFX rule violations, including the acceptance of offers of settlement and the levying of penalties, which include termination of participation on AFX.
Loan Markets, LLC (“LML”), an affiliate of CFE that holds an equity interest in AFX, acts as a services provider to AFX with respect to the operation of the AFX market pursuant to a services agreement (“Services Agreement”) between AFX and LML. These services include, among others, services related to the compliance activities of AFX and the oversight of the AFX market. LML utilizes Cboe Exchange, Inc. (“Cboe Options”) (a CFE affiliate that is a registered national securities exchange) as a third party services provider to perform these market surveillance, regulatory, and compliance services.
In performing this role, Cboe Options, among other things, conducts surveillance of the trading on AFX, submits surveillance reports to AFX, reports deviations and infractions to AFX for any necessary Compliance Committee action, and acts as a record keeper of daily AFX exchange data.
6 It is also relevant to note that those AFX participants that are banks, which, as set forth above, constitute a substantial majority of AFX participants, account for virtually all of the lending and borrowing activity on AFX. During the period from January 1, 2018 through April 30, 2019, over 98% of the loans executed on AFX were interbank loans in which both the lender and borrower were banks, and there was not a single loan executed during the same period in which neither party was a bank. Each of these banks is subject to regulatory requirements imposed by, and to the oversight of, federal or state bank regulatory authorities.
A violation of AFX rules, including breach of an obligation to perform under the terms of a loan executed through AFX, therefore, could give rise to regulatory exposure as well. In addition, those AFX participants that are banks are subject to the requirement to file quarterly Consolidated Reports of Condition and Income, commonly referred to as Call Reports, which reflects each bank’s financial condition, including its lending and borrowing activities. The Call Reports specifically address Fed Funds transactions, which is the category in which loan transactions on AFX are reported on the Call Report to the Federal Deposit Insurance Corporation (“FDIC”), Office of the Comptroller of the Currency (“OCC”), and Board of Governors of the Federal Reserve System.
It would be a regulatory and potentially criminal offense to file an inaccurate Call Report, which provides a further control on transactions executed through AFX. Additionally, a majority of the AFX participants that are not banks are subject to other regulatory schemes.
Bank participants, and certain of the regulated non-bank participants, on AFX, are also subject to internal and regulatory requirements regarding internal risk management, audit, and compliance functions, and to regulatory oversight with respect to their compliance with those requirements. Violations of AFX rules, and particularly breaches of obligations with respect to loans executed through AFX, would be subject to these internal and external controls. Bank participants on AFX are subject to a variety of different federal and/or state regulatory regimes, and there is not a single set of statutory or regulatory requirements applicable to all such banks.
However, the banking agencies have promulgated identical, generally applicable standards that are set forth in 12 C.F.R. Part 30, Appendix A of the OCC’s regulations for national banks and federal savings associations, in 12 C.F.R. Part 364, Appendix A of the FDIC’s regulations for state chartered non-member banks and other insured institutions regulated by the FDIC, and in 12 C.F.R. Part 208, Appendix D-1 for state banks that are members of the Federal Reserve System. These requirements, therefore, should be applicable to all bank participants on AFX. The Interagency Operational and Managerial Standards include the following: A.
Internal controls and information systems. An institution should have internal controls and information systems that are appropriate to the size of the institution and the nature, scope and risk of its activities and that provide for: 1. An organizational structure that establishes clear lines of authority and responsibility for monitoring adherence to established policies; 2. Effective risk assessment; 3. Timely and accurate financial, operational, and regulatory reports; 4. Adequate procedures to safeguard and manage assets; and 5. Compliance with applicable laws and regulations. B. Internal audit system.
An institution should have an internal audit system that is appropriate to the size of the institution and the nature and scope of its activities and that provides for: 1. Adequate monitoring of the system of internal controls through an internal audit
7 function. For an institution whose size, complexity, or scope of operations does not warrant a full scale internal audit function, a system of independent reviews of key internal controls may be used; 2. Independence and objectivity; 3. Qualified persons; 4. Adequate testing and review of information systems; 5. Adequate documentation of tests and findings and any corrective actions; 6. Verification and review of management actions to address material weaknesses; and 7. Review by the institution’s audit committee or board of directors of the effectiveness of the internal audit systems.
The underlying control standards and the requirement that the controls be audited necessarily require detailed, reliable records and management information systems, particularly of transactional activity that affects a bank’s financial safety and soundness.
Robust recordkeeping and controls are also of importance because banks have detailed financial reporting requirements to the FDIC. The Chief Financial Officer and at least two directors must attest to the correctness of the Reports of Condition and Income. (see FFIEC: Reports of Condition and Income Instructions for the FFIEC 031 and 041 Report Forms, available at: https://www.fdic.gov/regulations/resources/call/crinst/callinst2018-dec.htm l). This in turn requires preparation and maintenance of accurate and complete records of all transactions. The safety and soundness guidelines, including the internal control environment, are incorporated into examination procedures that each agency conducts.
For example, the FDIC’s “Internal Routine and Controls” section of its Risk Management System Manual of Control Policies (available at: https://www.fdic.gov/regulations/safety/manual/section4-2.pdf) contains detailed criteria for assessment of key control system components and policies, including for risk assessments, dual controls, segregation of duties, rotation of personnel, reporting irregularities, and recordkeeping systems that created audit trails. There are also internal audit program requirements designed to ensure that there is an independent review of the effectiveness of risk management and internal control processes that is then made available to senior management and the board of directors.
Based on the foregoing considerations, an AFX bank participant would potentially be in violation of the safety and soundness guidelines, as well as internal controls requirements, under the regimes identified above, if it violated AFX rules by breaching its obligations under loans executed through AFX. Moreover, a banker who caused an AFX transaction to be confirmed in the bank’s books where there was no intention to perform and that was intended to deceive the market would also potentially be exposed to criminal liability for making false entries under 18 U.S.C. § 1005. In addition, a participant breaching its loan commitment would be subject to sanctions by AFX as well as liability to its counterparty.
Further, AFX has the authority to audit any of the books and records of its participants related to transactions on AFX, including the wiring instructions of AFX participants and is authorized to request confirmations of Fed and other bank wires that were sent and received and other supporting documentation as necessary to verify that AFX participants funded loans executed on AFX and that those loans were repaid with interest pursuant to the terms of those loans.
The authority of AFX and Cboe Options as service provider to AFX to review and audit a participant’s books and records includes the ability to obtain loan verification through the receipt of wire transfer reference numbers and additional settlement details. Cboe Options will request that AFX participants provide fund transfer acknowledgment information for loan transactions on
8 AFX that meet specified criteria within a designated time frame following receipt of the request. CFE has separately provided to the Commission on a confidential basis further information regarding this review process.
AFX will exclude from the AMERIBOR rate calculations any transactions that are between two non-banks, such that each transaction that is included in the calculations will have at least one bank party, and based on prior experience as set forth above, most transactions will be bank-tobank. This ensures that the regulatory constraints and internal checks described above will cover all loans included in the calculation of the various AMERIBOR rates. Additional Information The above descriptions are intended to be high level summaries of the AMERIBOR overnight unsecured interest rate, AFX, and the operation of the AFX loan markets that are used to establish the AMERIBOR overnight unsecured interest rate.
For further information in this regard, the methodology for the calculation of the AMERIBOR overnight unsecured interest rate, the AFX Rulebook for Overnight Unsecured AMERIBOR Loans, and the Standard Terms and Conditions for Loans Executed on the AFX Markets may be referenced at www.ameribor.net. The above information and documents may change over time.
AFX Trading Volume The chart below reflects the average daily trading volume in overnight unsecured loans on AFX by month and the number of AFX participants by month through April 30, 2019 since AFX launched on December 11, 2015. Average daily trading volume in overnight unsecured loans on AFX in April 2019 was $1.778 billion per day.
9 Levels of AMERIBOR in Relation to Other Interest Rate Benchmarks The chart below reflects the levels of the AMERIBOR overnight unsecured interest rate in relation to the levels of other interest rate benchmarks, including the Secured Overnight Financing Rate (“SOFR”), the Effective Federal Funds Rate (“EFFR”), and the Overnight London Interbank Offered Rate (“LIBOR”).
Uses of AMERIBOR Futures AMERIBOR futures could be used by a number of different groups for commercial purposes. Among the groups that may find AMERIBOR futures to be useful are banks and nonbank financial institutions, proprietary trading firms, and others. For example: Banks and nonbank financial institutions may find AMERIBOR futures useful to hedge their variable overnight funding costs and interest rate risk. Proprietary trading firms may find AMERIBOR futures to be useful for hedging their exposure to other interest rate derivatives. Proprietary trading firms may also conduct trading strategies involving AMERIBOR futures on the one hand and other interest rate derivatives on the other hand such as derivatives based on SOFR, EFFR, and LIBOR.
Other users may utilize AMERIBOR futures as a vehicle for implementing trading strategies related to
10 interest rates or to hedge interest rate risk. The AMERIBOR overnight unsecured interest rate also has attributes which distinguish it from other interest rate benchmarks such as SOFR, EFFR, and LIBOR. Accordingly, in addition to the general utility of AMERIBOR futures, CFE believes that these distinguishing characteristics will serve to enhance the utility of AMERIBOR futures for certain market participants in particular. For example, SOFR is a secured interest rate benchmark whereas AMERIBOR is an unsecured interest rate benchmark, which makes it a more accurate reflection of the interbank borrowing and lending rates of small, medium, and regional domestic banks and other financial institutions across the United States.
As another example, unlike AMERIBOR, EFFR reflects the cost of borrowing balances held at Federal Reserve Banks. Similarly, LIBOR reflects the cost of funds of larger banks in London whereas AMERIBOR may be more reflective of the borrowing costs of small, medium, and regional banks in the United States. As a result, certain market participants in particular, such as those with exposure to unsecured borrowing costs or to the borrowing costs similar to those of small, medium, and regional banks in the United States, may find AMERIBOR futures to be a useful vehicle to hedge that exposure.
Because AMERIBOR may be more reflective of the borrowing costs of small, medium, and regional banks in the United States, those banks, larger banks, financial institutions that do business with those banks, and small and middle market U.S. companies are among the users that may find utility in the use of AMERIBOR futures. For example, AMERIBOR futures may be used in connection with loan origination by small, medium, and regional U.S. banks at spreads to an interest rate benchmark that is more representative of the actual borrowing costs of these financial institutions. Similarly, these banks may be able to utilize AMERIBOR futures in connection with optimizing asset-liability management by matching assets and liabilities through a common AMERIBOR benchmark and hedging interest rate exposure for AMERIBOR referenced assets and liabilities.
AMB3 Futures As further described in the attached summary product specifications chart for AMB3 futures and in Chapter 20 of the CFE Rulebook, the contract specifications for AMB3 futures include the following: CFE may list for trading up to twelve expiration months on the March quarterly cycle for AMB3 futures. For each AMB3 futures contract, the contract month is the month in which the contract measurement quarter begins. The contract measurement quarter is the time period from (and including) the third Wednesday of the contract month to (and including) the Tuesday immediately prior to the third Wednesday of the settlement month.
The settlement month is the third month following the month in which the contract measurement quarter begins and is the month that includes the final settlement date of the contract. The final settlement date is the third Wednesday of the settlement month. The last day of trading for an AMB3 futures contract is the Exchange business day that precedes the final settlement date.
For example, the contract measurement quarter for the March contract begins on the third Wednesday of March and ends on the Tuesday before the third Wednesday of June. The settlement month for the March contract is June. The final settlement date of the March contract is on the third Wednesday of June. The last day of trading for the March contract is on the Tuesday before the third Wednesday of June. The unit of trading for an AMB3 futures contract is the compounded rate of the daily
11 annualized AMERIBOR interest during the contract measurement quarter.
Based on the notional amount and multiplier, each basis point of interest per year is equal to $25 per contract. Compounded daily annualized AMERIBOR interest is expressed as an annualized interest rate which accrues on the basis of a 90-day contract measurement quarter divided by a 360-day year. The minimum increment for single leg prices in AMB3 futures and the net prices of spreads in AMB3 futures is 0.25 basis points (equal to a dollar value per minimum increment of $6.25 per contract). The minimum increment for individual legs of spreads in AMB3 futures is 0.01 basis points (equal to a dollar value per minimum increment of $0.25 per contract).
The contract multiplier for each AMB3 futures contract is $25 multiplied by the contract price. AMERIBOR interest exposure represented by the final settlement price of an AMB3 futures contract accumulates during the contract measurement quarter. Based upon a contract measurement quarter that has a generic length of ninety days within a generic 360-day year, the implied principal amount of a hypothetical overnight loan that underlies each AMB3 futures contract is $1,000,000 (equal to ($25 per basis point per contract/0.0001 per year) x (360 days per year/90 days)).
An AMB3 futures contract price is expressed as 10,000.00 minus the product of compounded daily annualized AMERIBOR interest during the contract measurement quarter multiplied by 100. For example, a contract price of 9775.75 points represents compounded daily annualized AMERIBOR interest of 2.2425% (equivalent to 224.25 basis points). AMB3 futures contract prices are stated in decimal format out to two decimal places. There will be regular trading hours in AMB3 futures on business days Monday through Friday from 8:30 a.m. to 3:15 p.m. AMB3 futures contracts will also have extended trading hours on business days Monday through Friday from 5:00 p.m.
the previous day to 8:30 a.m. and from 3:30 p.m. to 4:00 p.m. All of these trading hours times are referenced in Central Time. AMB3 futures will be offered for trading on the same days and follow the same holiday trading schedule as other CFE products that have these trading hours.
The formula for the calculation of the final settlement value of an expiring AMB3 future is set forth in the attached summary product specifications chart for AMB3 futures. The formula includes a determination of the compounded daily annualized AMERIBOR interest during the contract measurement quarter based on the daily annualized AMERIBOR interest values during that time period. For any weekend day or normally scheduled AFX holiday, the applicable value shall be the daily annualized AMERIBOR interest calculated for the immediately preceding AFX business day.
The Three-Month AMERIBOR benchmark rate for an AMB3 futures contract during its contract measurement quarter is a mix of (i) known daily annualized AMERIBOR interest values consisting of the daily annualized AMERIBOR interest values for all days from start of the contract measurement quarter to the present and (ii) market expectations of daily annualized AMERIBOR interest values for all remaining days in the contract measurement quarter.
As an AMB3 futures contract progresses through its contract measurement quarter, the forward-looking component of its price based on market expectations plays a steadily diminishing role in the fair valuation of the contract as a greater percentage of the daily annualized AMERIBOR interest values included in the calculation become realized. This Three-Month AMERIBOR benchmark then becomes the final settlement value of the AMB3 futures contract following the conclusion of the contract measurement quarter based on all of the realized daily annualized AMERIBOR interest values during the contract measurement quarter.
13 AMB1 Futures As further described in the attached summary product specifications chart for AMB1 futures and in Chapter 22 of the CFE Rulebook, the contract specifications for AMB1 futures include the following: CFE may list for trading up to seven near-term serial expiration months for AMB1 futures. For each AMB1 futures contract, the contract month is the month that precedes the settlement month. The settlement month is the month that immediately follows the contract month and that includes the final settlement date of the contract. The final settlement date is the first CFE business day of the settlement month.
The contract measurement period for an AMB1 futures contract begins on the first calendar day of the contract month and ends on the last calendar day of the contract month. The last day of trading for an AMB1 futures contract is the last Exchange business day of the contract month.
For example, the March contract settles in April. The final settlement date of the March contract is the first Exchange business day of April. The contract measurement period for the March contract begins on the first calendar day of March and ends on the last calendar day of March. The last day of trading for the March contract is on the last Exchange business day of March. The unit of trading for an AMB1 futures contract is average daily annualized AMERIBOR interest during the contract month. Based on the notional amount and multiplier, each basis point of interest per year is equal to $50 per contract.
Average daily annualized AMERIBOR interest is expressed as an annualized interest rate which is calculated on the basis of a 30-day contract month divided by a 360-day year. The minimum increment for single leg prices in AMB1 futures and the net prices of spreads in AMB1 futures is 0.25 basis points (equal to a dollar value per minimum increment of $12.50 per contract). The minimum increment for individual legs of spreads in AMB1 futures is 0.01 basis points (equal to a dollar value per minimum increment of $0.50 per contract). The contract multiplier for each AMB1 futures contract is $50 multiplied by the contract price.
AMERIBOR interest exposure represented by the final settlement price of an AMB1 futures contract reflects average daily annualized AMERIBOR interest over the interval of one calendar month. Based upon a calendar month that has a generic length of thirty days within a generic 360- day year, the implied principal amount of a hypothetical overnight loan that underlies each AMB1 futures contract is $6,000,000 (equal to ($50 per basis point per contract/0.0001 per year) x (360 days per year/30 days)).
An AMB1 futures contract price is expressed as 10,000.00 minus the product of average daily annualized AMERIBOR interest during the contract measurement period multiplied by 100. For example, a contract price of 9775.75 points represents average daily annualized AMERIBOR interest of 2.2425% (equivalent to 224.25 basis points). AMB1 futures contract prices are stated in decimal format out to two decimal places. AMB1 futures will have the same trading hours and be offered for trading on the same days as AMB3 futures as described above.
The final settlement value of an expiring AMB1 future is determined through the following calculation: (100.0000 minus the arithmetic average of daily annualized AMERIBOR interest values during the contract measurement period rounded to four decimal places) multiplied by 100.
For any weekend day or normally scheduled AFX holiday, the applicable value shall be the daily
14 annualized AMERIBOR interest calculated for the immediately preceding AFX business day. The One-Month AMERIBOR benchmark rate during the contract month for an AMB1 futures contract is a mix of (i) known daily annualized AMERIBOR interest values consisting of the daily annualized AMERIBOR interest values for all days from start of the contract month to the present and (ii) market expectations of daily annualized AMERIBOR interest values for all remaining days in the contract month. As an AMB1 futures contract progresses through its contract month, the forward-looking component of its price based on market expectations plays a steadily diminishing role in the fair valuation of the contract as a greater percentage of the daily annualized AMERIBOR interest values included in the calculation become realized.
This One-Month AMERIBOR benchmark then becomes the final settlement value of the AMB1 futures contract following the conclusion of the contract month based on all of the realized daily annualized AMERIBOR interest values during the contract month.
AMI Futures As further described in the attached summary product specifications chart for AMI futures and in Chapter 24 of the CFE Rulebook, the contract specifications for AMI futures include the following: CFE may list for trading up to 26 near-term expirations for AMI futures. For each AMI futures contract, the futures symbol denotes the month and week of the last day of the contract measurement period. A Maintenance Period is a time frame during which banks and other depository institutions are required by the Federal Reserve to maintain a specified level of funds. A Maintenance Period begins on a Thursday and ends on the second Wednesday thereafter.
The contract measurement period for an AMI futures contract is the Maintenance Period that ends during the settlement week. The final settlement date is the Thursday immediately following the last day of the contract measurement period. The last day of trading for an AMI futures contract is the Exchange business day that precedes the final settlement date.
For example, an AMI futures contract that corresponds to a Maintenance Period that runs from Thursday, January 3rd to Wednesday, January 16th would have a contract measurement period that begins on Thursday, January 3rd and ends on Wednesday, January 16th and would have a final settlement date of Thursday, January 17th. The last day of trading for that AMI futures contract would be on Wednesday, January 16th. The unit of trading for an AMI futures contract is average daily annualized AMERIBOR interest during the contract measurement period, such that each basis point of interest per year is equal to $35 per contract.
Average daily annualized AMERIBOR interest is expressed as an annualized interest rate which is calculated on the basis of a 14-day contract measurement period divided by a 360-day year. The minimum increment for single leg prices in AMI futures and the net prices of spreads in AMI futures is 0.25 basis points (equal to a dollar value per minimum increment of $8.75 per contract). The minimum increment for individual legs of spreads in AMI futures is 0.01 basis points (equal to a dollar value per minimum increment of $0.35 per contract). The contract multiplier for each AMI futures contract is $35 multiplied by the contract price.
AMERIBOR interest exposure represented by the final settlement price of an AMI futures contract reflects average daily annualized AMERIBOR interest over the interval of 14 days. Based upon a generic 360-day year, the implied principal amount of a hypothetical overnight loan that underlies each AMI futures contract is $9,000,000 (equal to ($35 per basis point per contract/0.0001 per year) x (360 days per year/14 days)).
15 An AMI futures contract price is expressed as 10,000.00 minus the product of average daily annualized AMERIBOR interest during the 14-day contract measurement period multiplied by 100. For example, a contract price of 9775.75 points represents average daily annualized AMERIBOR interest of 2.2425% (equivalent to 224.25 basis points). AMI futures contract prices are stated in decimal format out to two decimal places. AMI futures will have the same trading hours and be offered for trading on the same days as AMB3 futures as described above.
The final settlement value of an expiring AMI future is determined through the following calculation: (100.0000 minus the arithmetic average of daily annualized AMERIBOR interest values during the contract measurement period rounded to four decimal places) multiplied by 100.
For any weekend day or normally scheduled AFX holiday, the applicable value shall be the daily annualized AMERIBOR interest calculated for the immediately preceding AFX business day. The 14-Day AMERIBOR benchmark rate during the contract measurement period for an AMI futures contract is a mix of (i) known daily annualized AMERIBOR interest values consisting of the daily annualized AMERIBOR interest values for all days from start of the contract measurement period to the present and (ii) market expectations of daily annualized AMERIBOR interest values for all remaining days in the contract measurement period.
As an AMI futures contract progresses through its contract measurement period, the forward-looking component of its price based on market expectations plays a steadily diminishing role in the fair valuation of the contract as a greater percentage of the daily annualized AMERIBOR interest values included in the calculation become realized. This 14-Day AMERIBOR benchmark then becomes the final settlement value of the AMI futures contract following the conclusion of the contract measurement period based on all of the realized daily annualized AMERIBOR interest values during the contract measurement period.
AMW Futures As further described in the attached summary product specifications chart for AMW futures and in Chapter 25 of the CFE Rulebook, the contract specifications for AMW futures include the following: CFE may list for trading up to 52 near-term expirations for AMW futures. For each AMW futures contract, the futures symbol denotes the month and week of the last day of the contract measurement period. The contract measurement period for an AMW futures contract is either the first 7 days or the second 7 days of a 14-day Maintenance Period that begins on a Thursday and ends on the second Wednesday thereafter.
The final settlement date is the Thursday immediately following the last day of the contract measurement period. The last day of trading for an AMW futures contract is the Exchange business day that precedes the final settlement date. For example, AMW futures contracts that correspond to a Maintenance Period that runs from Thursday, January 3rd to Wednesday, January 16th would have the following contract measurement periods. The contract measurement period of the AMW futures contract that corresponds to the first half of the Maintenance Period begins on Thursday, January 3rd and ends on Wednesday, January 9th and would have a final settlement date of Thursday, January 10th.
The last day of trading for that AMW futures contract would be on Wednesday, January 9th. The contract measurement period of the AMW futures contract that corresponds to the second half of the Maintenance Period begins on Thursday, January 10th and ends on Wednesday, January 16th
16 and would have a final settlement date of Thursday, January 17th. The last day of trading for that AMW futures contract would be on Wednesday, January 16th. The unit of trading for an AMW futures contract is average daily annualized AMERIBOR interest during the contract measurement period, such that each basis point of interest per year is equal to $35 per contract. Average daily annualized AMERIBOR interest is expressed as an annualized interest rate which is calculated on the basis of a 7-day contract measurement period divided by a 360-day year. The minimum increment for single leg prices in AMW futures and the net prices of spreads in AMW futures is 0.25 basis points (equal to a dollar value per minimum increment of $8.75 per contract).
The minimum increment for individual legs of spreads in AMW futures is 0.01 basis points (equal to a dollar value per minimum increment of $0.35 per contract). The contract multiplier for each AMW futures contract is $35 multiplied by the contract price. AMERIBOR interest exposure represented by the final settlement price of an AMW futures contract reflects average daily annualized AMERIBOR interest over the interval of 7 days. Based upon a generic 360-day year, the implied principal amount of a hypothetical overnight loan that underlies each AMW futures contract is $18,000,000 (equal to ($35 per basis point per contract/0.0001 per year) x (360 days per year/7 days)).
An AMW futures contract price is expressed as 10,000.00 minus the product of average daily annualized AMERIBOR interest during the 7-day contract measurement period multiplied by 100. For example, a contract price of 9775.75 points represents average daily annualized AMERIBOR interest of 2.2425% (equivalent to 224.25 basis points). AMW futures contract prices are stated in decimal format out to two decimal places. AMW futures will have the same trading hours and be offered for trading on the same days as AMB3 futures as described above.
The final settlement value of an expiring AMW future is determined through the following calculation: (100.0000 minus the arithmetic average of daily annualized AMERIBOR interest values during the contract measurement period rounded to four decimal places) multiplied by 100.
For any weekend day or normally scheduled AFX holiday, the applicable value shall be the daily annualized AMERIBOR interest calculated for the immediately preceding AFX business day. The 7-Day AMERIBOR benchmark rate during the contract measurement period for an AMW futures contract is a mix of (i) known daily annualized AMERIBOR interest values consisting of the daily annualized AMERIBOR interest values for all days from start of the contract measurement period to the present and (ii) market expectations of daily annualized AMERIBOR interest values for all remaining days in the contract measurement period.
As an AMW futures contract progresses through its contract measurement period, the forward-looking component of its price based on market expectations plays a steadily diminishing role in the fair valuation of the contract as a greater percentage of the daily annualized AMERIBOR interest values included in the calculation become realized. This 7-Day AMERIBOR benchmark then becomes the final settlement value of the AMW futures contract following the conclusion of the contract measurement period based on all of the realized daily annualized AMERIBOR interest values during the contract measurement period.
Contingencies AFX rules set forth procedures for the determination of an AMERIBOR benchmark interest rate such as daily annualized AMERIBOR interest in unusual circumstances. Specifically,
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