Effective Sunday, May 18 (trade date Monday, May 19), a new exchange-defined Averaged Price Implied Bundle spread will be made available for trading on CME Globex. The new spread will utilize a new strategy type (AI).  

The new AI spread is a implied enabled futures spread involving the simultaneous purchase (sale) of futures positions at the averaged price of the legs.

This page provides technical specifications and additional details on the new AI strategy type.

Contents

Revision History

Key Events and Dates

Testing and Certification

Certification is not required. Testing is strongly recommended.

Summary of Impacts

• New Strategy Type

• Product Details

• Spread Construction

New Strategy Type

SecuritySubType=AI

The new AI spread is a implied enabled futures spread involving the simultaneous purchase (sale) of futures positions at the averaged price of the legs.

The Averaged Price Implied spread is identified by FIX tag 762-SecuritySubType=AI in the MDP3 security definition message; and strategyType=AI in the CME Reference Data API.

Spread Product Details

The AI spread will launch with the following products:

Security Exchange

The Averaged Price Implied spreads will have 207-SecurityExchange=XCME.

Spread Construction

Averaged Price Implied spread has:

• One product

• Minimum of four legs

• Maximum of 40 legs

• Expiration of all the legs must be consecutive quarterly outright futures

• Quantity/side ratio +1:+1:+1:+1:…+1

• Buying a Averaged Price Implied buys all legs of the spread

• Selling a Averaged Price Implied sells all legs of the spread

Example:

Instrument Symbol = ESR: AI

Non-Implied Functionality

Pricing

• Averaged Price Implied spread trade price is = (Leg1+Leg2+…LegN) / total number of legs

• Leg price assignment:

  • Prior day settlement price will be rounded up to .50 tick

  • The difference between the total spread trade price (multiplying the trade price by the number of legs) and the sum of the spread prior days rounded settlement price is calculated:

    • [(Trade price * number of legs) – (Sum of the legs’ prior days rounded settlement price)]

    • The average differential from step 2 is applied to each leg’s prior days rounded settlement price

    • Legs may be adjusted to equal spread trade price

  • Any adjustment of the outright leg prices due to remainder will be assigned according to the Averaged Price Implied leg pricing assignment rules. The remainder will be applied in .50 increments starting with most deferred leg.

The below example is based on a Non-Implied Trade using prior days rounded settlement prices.

Pricing Example – Equal Distribution:

Averaged Price Implied trades at 9705.0

Leg1 prior days rounded settlement price = 9706.5

Leg2 prior days rounded settlement price = 9705.5

Leg3 prior days rounded settlement price = 9703.5

Leg4 prior days rounded settlement price = 9702.5

Total spread trade price – sum of prior days rounded settlement price

Apply average differential to each leg:

Pricing Example – Unequal Distribution:

Averaged Price Implied trades at 9700.0

Averaged Price Implied remainder leg pricing assignment rules applied

• Apply average differential to each leg

• Apply remainder starting with most deferred leg

• The legs are adjusted as follows:

Implied Functionality

The AI spreads will launch with Implied-IN and Implied-OUT functionality enabled.  Implications will occur between the AI spreads and the outright futures legs, as well as between the AI spreads to AI Balanced Strip (SB) spreads, and AI Balanced Strip Butterfly (BB) spreads.

Pricing

Implied-IN AI Spread = (Leg1+Leg2+…LegN) / Number of legs

• Sum of the legs Fair Market Price divided by the total number of legs

• Calculated implied bid/ask may be rounded up or down if calculated implied prices are off tick 

  • If the calculated Implied Bid is not on tick - round down to nearest tick

  • If the calculated Implied Ask is not on tick - round up to nearest tick

Pricing Example

Averaged Price Implied Bid in Spread

Implied-OUT Leg1 = (Spread * Number of legs) - (Leg2+Leg3+…LegN)

Implied bid/ask price using Fair Market Value of the legs

• Leg prices may be rounded up or down if calculated implied prices are off tick 

  • If the calculated Implied Bid is not on tick - round down to nearest tick

  • If the calculated Implied Ask is not on tick - round up to nearest tick

Pricing Example

Averaged Price Implied Bid Price In LegX trades at 9600.25

(9600.25 * 4) - (9597 + 9601.5 + 9602.5)

On tick no rounding required = 9600

Resultant Fills:

Additional information and examples of Implied-IN and Implied-OUT orders can be found in Implied Orders.

Partner Exchange Impacts

There are no Partner Exchange Impacts.

Contact Information

For technical development support, contact Certification Support for Electronic Trading (CSET).

For production requests, please contact the Global Command Center (GCC).

For all other inquiries, please contact Global Account Management (GAM).