BTIC on Bloomberg Commodity Index Products

Commodity index transactions often face market disruption events (MDE) which occur whenever an underlying futures component of the corresponding commodity index closes limit-up or limit-down. When such instances arise, the official index close for that particular day is unknown and will not be established until the price of the disrupted underlying futures contract is resolved. MDEs may affect more than one underlying futures and may persist for multiple days.

To calculate the resultant price of a Bloomberg Commodity Index futures or cleared swap entered into via a BTIC transaction on a MDE day, CME Clearing will add the negotiated basis to the ‘unresolved’ BCOM closing price (price established by the daily futures settlement prices of all non-disrupted futures and the lock-limit price(s) of the disrupted futures) and will notify market participants that it is a preliminary price. Upon resolution of the disrupted contracts, CME Clearing will apply a cash adjustment to the affected accounts. Such adjustment would represent the difference between the unresolved price (BCOM) and the official BCOMTL closing level once the disruption is resolved. In addition, CME Clearing will send a notification informing market participants of the end of the MDE along with the resolution and will provide Clearing Members holding open interest with a spreadsheet file illustrating the differential price, the preliminary BCOM value, the preliminary trade value, the final BCOMTL value and the final trade value.

Timing: must be reported to the exchange within five (5) minutes of agreeing to terms of the transaction.

Reporting: can be handled just like regular Block trades and price reported and cleared via CME Direct or ClearPort.

Price Increment: must have a basis or price increment stated in standard size ticks (minimum price increments for basis) of the contract. Note, however, that the resultant futures price may not be in the contract specified tick increment. These positions will be created automatically by CME Clearing based on the reported BTIC Block trade basis price.

The Bloomberg Commodity Index (BCOM) is designed to be a highly liquid and diversified benchmark for commodity investments. BCOM provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the Index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.

Suppose that two eligible contract participants want to transact a BTIC on the Cleared OTC Bloomberg Commodity Index Swaps based on the closing index value, BCOMTL. After agreeing on maturity, size and basis they submit the following trade terms for clearing on CME Direct or Clearport:

• Underlying BTIC Ticker: DGTU8 (BTIC on a September 2018 Cleared OTC BCOM Swap)ⁱⁱ
• Basis/price:  0.5306 (Negotiated and traded in allowable tick increments)
• Trade size: 100 contracts
• Parties report the BTIC transaction to CME Direct or ClearPort as DGTU8 100x @ 0.5306.

        – Note, cleared swaps are trade type OPNT (OTC Privately Negotiated Trades); for a BTIC swap, TrdTyp=”22” and TrdSubTyp=”43”.

• Suppose that the closing BCOMTL level is 82.8425. A position of DGSU8 100x @ 83.3731 (i.e. 82.8425 + 0.5306) will be created, and the original DGTU8 trade will be eliminated.

BTIC transactions have their own unique ticker codes. Use the tickers in the table below when submitting BTIC Blocks, BTIC trades on CME Globex or a BTIC transaction on a cleared OTC swap.

[I] BTIC Block trades must comply with requirements in CME and CBOT Rule 526 (Block Trades), as applicable

[II] The resultant trade price, after adding the basis, in the allowed tick increment, to the official index close does not need to be in the contract specified tick increment and will not be rounded to the nearest tick.