CME Plans Fair Value Settlement, Early Close For Domestic Stock Indexes At Quarter End

The Chicago Mercantile Exchange (CME) today announced that the exchange will revise daily settlement procedures for domestic stock index futures contracts to reflect a "fair value" settlement price, along with a 10-minute earlier close, on the final trading day of each calendar quarter. Under the new settlement procedure, similar to one instituted on the final day of trading last year, daily settlement prices for domestic stock index futures and options at the end of each quarter will be determined on the basis of their "fair value" relative to the daily close of the underlying cash index as reflected at 3:05 p.m. (Central Time). In addition, stock index futures and options will close at 3:05 p.m. (Central Time) at each quarter's end, five minutes after the close of cash equity trading-instead of the usual 15 minutes after the cash markets' close-in order to coordinate more closely with the close of index-related products on other exchanges. All of the CME's domestic stock index futures and options will settle according to the new procedure, including the S&P 500, E-mini S&P 500, Nasdaq 100, E-mini Nasdaq 100, S&P/BARRA Growth, S&P/BARRA Value, S&P MidCap 400 and Russell 2000 indexes. Fair values will be determined by a survey of market participants concluded on the close by exchange staff. Settlement prices will be made available shortly after the close. Fair value represents an "arbitrage free" level at which futures theoretically should be priced in relation to cash index values in the absence of transaction costs, although this is not necessarily the level where they will trade. Fair value is typically calculated as a function of the cash or spot index value, plus financing charges, less any dividends that would accrue with the purchase and carry of all index constituents until the final futures settlement date. Many financial news media regularly publish estimates of fair value for stock index futures contracts. Regular floor trading hours for stock index futures and options are from 8:30 a.m. to 3:15 p.m. (Central Time).