Barclays Capital will act as a lead market maker to provide liquidity to the new CPI futures. Barclays Capital is a leading dealer in inflation-indexed Treasury securities and in the over-the-counter U.S. inflation swaps market.
CME plans to implement a six-month clearing and GLOBEX® fee waiver program on the contract, which will be in effect until Friday, Aug. 6, 2004. At the conclusion of the program, clearing and GLOBEX fees will be identical to those charged for trading Eurodollar contracts.
CME's CPI futures contract represents the annualized inflation rate on a notional value of $1 million. Similar to the pricing of CME Eurodollar futures, CME CPI futures will be quoted as 100 minus the annualized percentage inflation rate in a three-month period based on the CPI-U price index. For example, if the inflation rate is 3 percent, the contract is quote as 97.00 (100.00 - 3.00). The CPI-U, or Consumer Price Index for All Urban Consumers for the U.S. City Average for All Items, non-seasonally adjusted, is published monthly by the Bureau of Labor Statistics. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, and is a widely followed gauge of U.S. inflation.
Trading will take place on CME's GLOBEX electronic trading platform on Sunday from 5:30 p.m. to 4:00 p.m. (Central time) the following business day, and on Monday through Thursday from 5:00 p.m. to 4:00 p.m. the following day.
The minimum price fluctuation, or tick size, will be 0.005 index points equal to $12.50 per contract. CME will list for trading 12 consecutive contract months in the March quarterly cycle. The last trading day for CME CPI futures will be at 7:00 a.m. on the day the CPI announcement is made in the contract month, or 7:00 a.m. on the first business day following the contract month if the announcement is postponed beyond the contract month. The contracts will be cash-settled.
Potential users of CME CPI futures include holders of Inflation-Indexed Treasury Notes (TIPS), who by acquiring long positions in CPI futures could isolate nominal interest rates in these products. Investors in regular dollar-denominated corporate debt issues or conventional U.S. Treasury notes could create synthetic inflation-indexed securities by initiating a short position in the CPI futures coupled with their long cash position. Traders in the expanding over-the-counter U.S. dollar inflation-indexed swap market could buy CPI futures as a hedge if they are "receiving inflation" in a swap or, conversely, sell CPI futures if they are "paying inflation" in an OTC swap - similar to the way participants in the interest rate swap market hedge their transactions using strips of consecutive Eurodollar futures.
