New Back Month Incentive Program
CME's Eurodollar futures are the world's most actively traded futures contract. CME trades quarterly contract expirations on Eurodollars extending out 10 years in the future, allowing customers to extend their short-term interest rate risk management for 10 years. The new volume incentive program, which will last for 10 months beginning March 3, focuses on the "back months" of the Eurodollar futures contracts, or those contract months that trade three to 10 years into the future. In addition, the exchange will expand the back-month area of the Eurodollar futures pit during the first quarter of 2003.
The incentive program is designed to further enhance liquidity in back-month Eurodollars by offering a financial incentive to individual accounts meeting minimum volume thresholds of 20,000 sides per day in monthly average daily volume, with at least 20 percent of the volume generated in the third year forward. The incentive pool will be a maximum of $2 million, and will be paid out once at the end of the fifth month and again at the end of the tenth month of the program.
The pit expansion is designed to accommodate some two dozen additional traders in the back-month area of the Eurodollar pit on CME's trading floor. It is anticipated that their additional business will bring further liquidity to the contract.
"Over the years, CME has offered a variety of innovative incentive programs, including tiered pricing, fee waivers and GLOBEX® fee caps in various products in order to promote liquidity and reduce costs for our most valued customers," said CME Chairman Terry Duffy. "By offering this new incentive program and revising the tiered pricing program we already have in place, we are focusing our efforts on the back months of Eurodollars, which we believe will further enhance liquidity through the entire 10-year spectrum of Eurodollar quarterly expirations."
"Our largest Eurodollar traders make substantial contributions to Eurodollar liquidity and overall volume, and with the new tiered pricing structure we will continue to offer them our most attractive rates," said CME President and CEO Jim McNulty. "Our goal is to promote maximum liquidity in our back month contracts while maintaining revenue and profit growth for the exchange."
Modifications to Existing Tiered Pricing Program
CME introduced tiered pricing in January 2001 to reward high-volume customers and liquidity providers in its Eurodollar futures and options contracts and other interest rate products. Under the existing program, futures and options volume totals are aggregated.
Following the introduction of the tiered pricing program, average daily volume in interest rate futures and options more than doubled from approximately 550,000 contracts in 2000 to 1.2 million contracts in 2002. Options on Eurodollar futures grew at an even faster rate than the futures contract, with options volume increasing 369 percent from 2000 to 2002. The revisions represent the first time CME has modified its original tiered pricing program.
The new tiered pricing structure for Eurodollars, which will count and tier volume separately for futures and options, will be as follows:
| Clearing Fee | Equity Members | 106 H/N | Lessee / 106 F | Non-member |
| First 10,000 sides/day* | $0.08 | $0.49 | $0.29 | $0.64 |
| Beyond 10,000* (4 ¢ discount) | $0.04 | $0.45 | $0.25 | $ |
*Futures and options volume will be counted and tiered separately.
Current rates, in effect through February, are:
| Clearing Fee | Equity Members | 106 H/N | Lessee / 106 F | Non-member |
| First 7,500 sides/day** | $0.08 | $0.49 | $0.29 | $0.64 |
| 7,501 to 15,000** | $0.03 | $0.44 | $0.24 | $0.59 |
| 15,001+** | $0.01 | $0.42 | $0.22 | $0.57 |
**Futures and options volume is currently aggregated for tiering.
Eurodollars are U.S. dollars on deposit in banks outside of the United States. They have been a benchmark interest rate in corporate funding for decades and, more recently, have replaced U.S. Treasuries as the benchmark for short-term interest rates.
CME's Eurodollar futures contracts, traded since 1981, represent an interest rate on a three-month deposit of 1 million U.S. dollars. Eurodollars typically become a focus of global trading activity following meetings of the Federal Reserve Board's Open Market Committee (FOMC), as financial institutions and other customers adjust their positions in response to the Fed's adjustments of short-term rates. The record single-day trading volume in Eurodollar futures occurred on Nov. 16, 2001, when 1.7 million contracts were traded.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX® around-the-clock electronic trading platform. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moves an average of about $1.8 billion per day in settlement payments and manages $27.4 billion in collateral deposits. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE: CME).
GLOBEX is a registered trade mark of Chicago Mercantile Exchange Inc. Further information about CME and its products is available on the CME Web site at www.cme.com.
