The procedures for determining the Marker Price and Settlement Price for futures contracts and the Options Settlement Premium and Options Post Close Premium for options contracts listed by DME (the "Procedures") are intended to supplement Rule 6.27 of the DME Rulebook.
References to "Futures Contract" shall be taken to refer to the DME Oman Crude Oil Futures Contract and references to “Options Contract” shall mean the DME Oman Crude Oil European Style Option Contract.
Terms not otherwise defined in these Procedures shall have the meanings given to them in the DME Rulebook. To the extent that there is any inconsistency between these Procedures and the DME Rulebook, the DME Rulebook shall take precedence.
A.1- In these Procedures, the "Closing Range" in respect of a Trading Day means the price range bounded between the highest price at which a trade was executed (the "High") and the lowest price at which a trade was executed (the "Low") occurring during the five (5) minutes ending at 16.30 (Singapore time), provided that the Exchange may designate that a shorter period ending at 16.30 (Singapore time) be used for determining the Closing Range by publishing such period on its website at least 24 hours prior to effecting the change.
A.2- The Exchange shall determine a Marker Price for each Trading Day of a Contract Month of the Futures Contract.
The Marker Price for each Trading Day of a Contract Month (including the last Trading Day of such Contract Month) which is the current Contract Month shall be the average weighted price ("AWP") of all outright transactions in that Contract Month which occurs during the Closing Range rounded to the nearest minimum fluctuation.
A.3 - Where a Contract Month:
(a) as of the opening of business for that Trading Day, has at least ten per cent (10%) of the total open interest for all Contract Months of the Futures Contract; and
(b) Fifteen per cent (15%) of the volume of all trading during the Closing Range for that Trading Day across all Contract Months is performed in that Contract Month, then the Marker Price for each Trading Day of that Contract Month (excluding the last Trading Day of such Contract Month) shall be the average weighted price ("AWP"), of all outright transactions in that Contract Month which occur during the Closing Range for that Trading Day, rounded to the nearest minimum fluctuation.
A.4- For Contract Months which do not satisfy the criteria set out in paragraph A.3 above, the daily Marker Price shall be determined at the discretion of the exchange provided that, in any circumstance where the Exchange is considering bids and offers for Spread Transactions, it shall consider the mid-point of the best bid and best offer and not the individual best bid or best offer.
In exercising its discretion, the Exchange will consider the spread between Contract Months, with:
(a) greatest weight given to Spread Transactions executed late in the Trading Day in large volumes, and
(b) lesser weight given to:
(i) Spread Transactions traded in lesser volumes;
(ii) Spread Transactions that have bids and offers entered late in the trading day; and
(iii) Spread Transactions, and bids and offers from early in the trading day.
A.5- For the purposes of these Procedures, a "Price Spike in the Closing Range" shall be considered to have occurred if, in the sole discretion of the Exchange, there is a significant and aberrational price movement in a Contract Month without correlative price movements in the immediately preceding and subsequent Contract Months and that significant and aberrational price movement occurred during the Closing Range.
In the event of a Price Spike in the Closing Range in any Contract Month where the daily Marker Price is determined in accordance with paragraph A.2 or A.3 above, the Exchange may disregard the executions which contribute to the Price Spike in the Closing Range for such Contract Month when considering the daily Marker Price.
A.6- Notwithstanding the foregoing, no daily Marker Price shall be established that would be lower than the best bid, or higher than the best offer, where that best bid or offer:
(a) was for at least fifty (50) outright contracts or at least one hundred (100) contracts for Spread Transactions in Futures Contracts; and
(b) had been posted with the Exchange and remained available but unexecuted during the final five (5) minutes of the Trading before commencement of trading in the Closing Range.
A.7- If any daily Marker Price is inconsistent (excluding the last Trading Day of such Contract Month) with executions that occurred during the Closing Range in other Contract Months or with other market information known to the Exchange, then the Exchange may establish an alternate daily Settlement Price ("Alternate Price") at a level consistent with such other transactions or market information. Examples of market information which may lead the Exchange to establish an Alternate Price may include, but is not limited to:
(a) Executions prior to the Closing Range,
(b) Bids or offers which were entered prior to commencement of the Closing Range, but not executed during the Closing Range;
(c) Bids, offers or Strip Transactions which were entered but not executed during the Closing Range; and
A.8- In the event that the Exchange establishes a daily Marker Price in accordance with paragraph A.7 or determines that a Price Spike in the Closing Range occurred in accordance with paragraph A.5, then the Exchange shall retain internal working papers which demonstrate the basis of calculation for daily Settlement Prices and any decisions made with respect a Price Spike in the Closing Range or an Alternate Price.
A.9 The front-month (M1) Marker Price on Expiry Day will be calculated using the Price Adjustment Factor (PAF) with a tiered methodology.
The Price Adjustment Factor (PAF) will use a volume-weighted average of spread trades in the M1-M2 spread during the five- minute marker window.
If there is insufficient liquidity in the M1-M2 spread to derive a representative value, then DME will take the volume-weighted average of trade in the M2 Marker and subtract the M1 Marker.
If there is insufficient liquidity in the M2 Marker to derive a representative value, then the Exchange will use other market correlations and indicators such as bids and offers to establish fair value.
The Exchange retains the right to exclude non-representative trades from the spread calculation.
The PAF will be sent out as a Member Notice one trading day prior to Expiry Day.
A.10- This section applies in the event that the Trading Platform exhibits systemic problems or otherwise malfunctions in a manner which impairs the ability of market participants to access the Trading Platform during the Closing Range ("System Outage").
The daily Marker Price shall be calculated by the Exchange in accordance with the following formula ("Marker Price Formula"):
1. Identify the last execution in the Contract prior to the System Outage (the "Last Trade")
2. Identify the time of the Last Trade in the Contract prior to the System Outage (the "Strike Time")
3. Calculate the weighted average price of trades in the Contract executed during the 5 minutes prior to the Strike Time (the "Average Price")
4. Identify the price of the execution in CME Group Brent Crude Futures - North Sea ("Brent") which occurred closest in time to the Strike Time ("Brent Price")*
5. Calculate the price differential between the Average Price and the Brent Price (the "Differential Amount")**
6. Calculate the weighted average price of all executions which occurred in Brent on CME Group during the time period which would be used for determining the Closing Range for the Contract if there was not a System Outage ("Weighted Brent Price")
7. The daily Marker Price is equal to the Weighted Brent Price, plus or minus the Differential Amount.
* Note that all references to Brent should be for the same contract month as the contract month of OQD for which the daily Marker Price is being calculated.
** In the event that the Last Trade did not occur on the same trading day as the day for which the daily Settlement Price is being calculated, then the Differential Amount shall be the price differential between the daily Marker Price for the Contract on the previous day and the execution in Brent which occurred closest to 12.30pm (Dubai time) on the previous day. Once the Differential Amount has been calculated, follow steps 6 & 7 of the Marker Price Formula above.
The Marker Price Oversight Committee ("MPOC") shall review application of the Marker Price Formula in determining the daily Marker Price. Composition of MPOC shall include: Senior Executive Officer (or delegate)
Head of Compliance (or delegate)
Chief Liaison Officer (or delegate)
The Head of Compliance shall use best endeavors to ensure that the daily Marker Price is reviewed by MPOC and then published on the DME website as soon as practicable on the same day as the day on which the System Outage occurs and in time for settlement procedures to be conducted by the Clearing House.
B. Daily Settlement Prices for Futures Contracts
B.1-In these Procedures, the Settlement Range in respect of a Trading Day means, the price range bounded between the highest price at which a trade was executed (the "High") and the lowest price at which a trade was executed ("Low") occurring during the five (5) minutes ending at 14.30 (New York time) provided that the Exchange may on occasion apply a shorter time period up until 14.30 (New York time) if the Exchange considers this to be necessary taking into account the volume of trading on the Trading Platform.
B.2- The Exchange shall determine a Settlement Price for each Trading Day of a Contract Month which is the front month of the Futures Contract. The procedures for determining the Settlement Prices for Contract Months of the Futures Contract shall be the same as those set out in section A. above for determining the daily Marker Prices for the Futures Contract except that references in A. above to the Closing Range shall be construed as references to the Settlement Range.
CME Group staff determines the daily settlements for the out of the money options based on market activity throughout the day, on all venues (including, but not limited to, Globex, Clearport and CME Direct). Once the underlying futures have been settled the implied volatility skews will be used in conjunction with the futures settlement price to derive settlement prices for the options.
D. General Comments
For all contract months not determined by one of the methods set forth above, relevant spread relationships between contract months will be used to derive the settlement.
The marker price shall be a price consistent with the minimum tick increment for the product. If the calculated marker price is not a standard tick increment, the calculated marker price will be rounded either to the nearest tick or to the tick closer to the previous day’s marker price.
The procedure used to determine the marker price of a product will depend on the product group, level of activity and liquidity during the defined closing time period, and the trading venue(s) used to derive the settlement.
Unless otherwise specified in the contract terms or settled pursuant to one of the methods set forth above, settlement of contracts cleared through ClearPort Clearing will be based upon relevant market data including, but not limited to, cleared prices in the contract, pricing data obtained from market participants, the settlement prices of related products and any other pricing data from sources deemed to be reliable.
Notwithstanding the above, if a settlement price in any product, as derived by the normal methodology used for that product, is inconsistent with trades, bids or offers in other months/ strikes during the closing range, or other relevant market information, or if there is no relevant market activity, an Exchange official may establish a settlement price that best reflects the true market valuation at the time of the close.
Notwithstanding the above, in the case of inaccuracy or unavailability of a settlement price, or if a settlement price creates risk management concerns for the Clearing House, the Clearing House reserves the right to calculate settlement variation using an alternate price determined by the Clearing House.
If you have any questions, please call DME or the CME Global Command Center (GCC) on +65 6223 1357 (Asia) / +44 20 7623 4708 (Europe) / +1 312 456 2391 (North America).