We will launch Mortgage Rate futures (OB30C) on January 13, 2025, that will be cash settled to the Optimal Blue 30-Year Fixed Rate Conforming Index^[1] (Bloomberg ticker: OB30C Index). They should be an effective hedging tool for mortgage originators, mortgage servicers and for anyone holding conventional 30-year loans as assets on their books or balance sheet. For example, the Index is highly correlated to the Freddie Mac PMMS 30-Yr FRM Index that is commonly used by mortgage servicers. Please refer to our recent whitepaper, Correlation Between Mortgage Benchmarks, for more details.

Mortgage Rate futures will be adopting the 100- R (rate) pricing convention. For example, an Index Value of 6.759 would be subtracted from 100.000 to determine a contract final settlement price of 93.241 index points. The contact has an index multiplier of $5,000 resulting in a tick value $25 per ½ basis point ($5,000*0.005=$25). The contracts will have calendar spreads with a reduced/smaller tick size of 0.0025.

Figure 1 summarizes the contract specifications. All times of day are Central time (CT) unless otherwise noted.

Prices shall be quoted in 100-R terms, with R being the five business days up to and including the last trading day, which is defined as MBS settlement dates for Class A instruments. Please refer to Figure 2 below for the 2025 dates from the Securities Industry and Financial Markets Association (SIFMA website). At any given time, the Exchange will have six monthly contracts based on each of these dates.

^{Source: SIFMA}

Due to the index multiplier of $5,000 per contract, the contract size is slightly less than $500K. With an index value of 6.759 and settlement price of 93.241, the contract value would be $466,205 (5000*93.241=$466,205)

Expiring contract months will terminate on the MBS settlement dates for Class A instruments and the final settlement prices will be published on the next business day.     

The final settlement price will be averaged over the five business days preceding the final settlement day of the contract month. The last trading day of the futures contract will coincide with the Mortgage-Backed Security (MBS) settlement dates for Class A instruments. For example, if the futures became available for trading and clearing in November 2024, which had a settlement date of November 14, 2024, the contract produced an average price of 93.2298 based on the index values over the prior five trading days. Refer to the table below in Figure 3 for a demonstration of the November 24 contract month for the Optimal Blue Mortgage Market Indices (OBMMI) 30-Year Conforming Fixed Rate Index futures contract.

As a leading provider of mortgage rates in the U.S. residential mortgage market, Optimal Blue is committed to ensuring data integrity, reliability and transparency. Optimal Blue policies and procedures comply with applicable laws, regulations‌ and mandates while championing consistent corporate policy and standard management practices that meet business objectives and requirements across the Company. 

Optimal Blue serves as the Administrator of the Optimal Blue Mortgage Market Indices (OBMMI) 30-Year Fixed Rate Conforming Index (herein referred to as “the Index”). 

The Index is a benchmark designed to measure the average interest rates for 30-year fixed rate Conforming Loan Mortgages in the United States. This methodology document outlines the procedures and standards used to ensure the Index is transparent, reliable and compliant with International Organization of Securities Commissions (IOSCO) principles.

In addition to this Index methodology, Optimal Blue maintains the Optimal Blue 30-Year Fixed Rate Conforming Index Handbook. The handbook contains further detail on the topics below: 

• Index cessation 
• Record retention 
• Audit 
• Complaints 
• Index Oversight Committee 
• Methodology review 
• Stakeholder consultation

• Conforming loan: A mortgage that meets the funding criteria of Fannie Mae and Freddie Mac. 
• FHFA: Federal Housing Finance Agency, which sets the conforming loan limits. 
• Product and Pricing Engine: software tool used by mortgage originators to determine pricing options and eligible mortgage products for a given borrower and lending scenario 
• Rate lock: An agreement between a borrower and lender that allows the borrower to lock in the interest rate on a mortgage for a specified period. 
• Simple Average: An arithmetic mean where all data points are equally weighted. 
• Index Value: The final calculated figure representing the benchmark rate. 
• Index Oversight Committee: A committee responsible for overseeing the methodology, ensuring compliance with regulatory standards,and addressing exceptional market conditions and significant changes to the Index. 
• IOSCO: International Organization of Securities Commissions 
• Optimal Blue website: Optimal Blue 30-Year Fixed Rate Conforming Index webpage

The design of the Index seeks to achieve an accurate and reliable representation of the economic realities it aims to measure. The methodology takes the following factors into consideration: 

• Adequacy of the sample used to represent the interest 
• Size and liquidity of the relevant market 
• Relative size of the underlying market in relation to the volume of trading in the market that references the benchmark 
• The distribution of trading among market participants (market concentration) 
• Market dynamics (e.g., to ensure that the benchmark reflects changes to the assets underpinning a benchmark)

By incorporating these key design elements, the Index calculation methodology aims to provide an accurate, reliable and representative benchmark for the mortgage market.

Optimal Blue collects rate lock data from its Product and Pricing Engine platform, which currently captures roughly one-third of all residential mortgage transactions in the United States. This data includes all variables relevant for determining pricing and eligibility for a given loan scenario as well as loan product details such as interest rate, loan type, loan amount, credit score and loan-to-value ratio.

Data filtering 

Time window 
Rate locks included in the daily Index Value will have been collected from the Optimal Blue Product and Pricing Engine between 12:00 a.m. and 11:59 p.m. Central time on the previous non-holiday, business day (Monday through Friday, no published Index Values for Saturday or Sunday). The list of applicable holidays is available on the Optimal Blue website.

Outlier removal 
Extreme values that could distort the Index are identified and removed using statistical techniques. 

• Loan amount > 10,000,000 
• Lock period < 1 or > 360 
• LTV < 0 or > 210 
• Note rate < .25 or > 20 
• Price < 90 or > 110 

Index filters 
The collected data is filtered to include only loans that meet the conforming loan limits established by the FHFA. Further, to increase the homogeneity of the rates in each index, a consistent set of variables representing the most common loan scenarios is used. This ensures the Index accurately reflects the conforming loan mortgage market. Rate locks included in the calculation have the following characteristics:

• Single-family property type 
• Purchase and rate/term refinances (cash-out refinances are excluded) 
• Conventional loans 
• Loan amounts are below the conforming loan limits by county and year 
• Fixed-rate loans 
• One-unit properties 
• Primary residences 
• 30-year amortization term 
• Retail and correspondent originations (excludes wholesale channel originations)

Simple Average 
Optimal Blue calculates a Simple Average interest rate from the filtered rate lock data. Each rate lock contributes equally to the average, providing a straightforward measure of the market rate. 

Index Value 
The final Index Value is the Simple Average interest rate for the qualifying 30-year conforming fixed-rate mortgages.

Optimal Blue monitors the number of rate locks included in the Simple Average calculation on a daily basis to ensure that there is sufficient data to produce an Index Value. At a minimum, there must be 100 rate locks in order to publish an Index Value using the primary calculation method described herein. If there is inadequate data, whether as a result of market disruption, technical challenges or other unforeseen circumstances, the Index Value published will revert to the value from the most recent publication date. 

The Index is published in the morning (Tuesday through Saturday), typically before 7:00 a.m. Central time, based on the rate locks from the previous non-holiday business day (no published Index Values for Saturday or Sunday or holidays listed on the Optimal Blue website). The Index Values are disseminated through the Optimal Blue website, data vendors and other designated channels. Historical Index data is also available on the Optimal Blue website. 

Deviations from primary methodology 
The Index Values published by Optimal Blue will always adhere to the calculation methodology described herein unless otherwise stated. If an Index Value is calculated using an alternative method such as expert judgement or reversion to the previous day’s Index Value due to a lack of observations, a description of the methodology used in the value determination will be published on the Optimal Blue website. 

Index Value verification 
To ensure the integrity and accuracy of the index, a second Index calculation is performed daily to validate there are no errors with the primary index calculation. If any discrepancies are identified between the two calculations, troubleshooting is initiated and if necessary, a ticket is opened in Optimal Blue’s issue/incident ticketing system for tracking and resolution.

In exceptional market conditions, such as extreme volatility or disruptions in data collection, Optimal Blue may delay or suspend the publication of the index. Any such decisions will be communicated promptly via the Optimal Blue website, with a clear explanation of the circumstances and expected duration of the disruption. Any delays or suspensions of the Index will be subsequently reviewed by the Index Oversight Committee.

Any identified errors in the index calculation or publication process are corrected promptly and the corrected Index Values are republished. If the error is greater than 0.1 basis point and identified within 5 business days from the original date of the Index Value publication, a notification of the correction is posted to the Optimal Blue website. A log of errors and corrections is maintained for audit purposes. Errors and corrections are reviewed by the Index Oversight Committee.

Given the rules-based nature of the methodology, the daily calculation of the Index does not require expert judgment. However, Optimal Blue reserves the right to use expert judgment to generate an Index Value where unforeseen market conditions prevent the use of the methodology or fallback value publication described in this document. Documentation of the use of expert judgment includes the reasons for its application and the potential impact on the Index Value. All instances of application of expert judgment are published via the Optimal Blue website and subject to retrospective review by the Index Oversight Committee. Other areas of discretion, such as methodology changes, are not, for the purposes of this document, considered expert judgment.

The Index represents the average rates for 30-year fixed-rate conforming mortgages based on the available data in the Optimal Blue Product and Pricing Engine. It may not capture all market nuances or account for every factor influencing mortgage rates. Users should be aware of these limitations when utilizing the Index for financial or investment decisions.

Please refer to the Optimal Blue website for the current index methodology and Index Administrator Handbook. Chart 1 demonstrates the history of the index from Jan 8, 2015, to Oct 17, 2024, available on the website.

At launch, Mortgage Rate (OB30C) futures are projected to have margin requirements that are less than 2% of the notional value, and will be eligible for margin offsets against Treasury futures, 30-Yr UMBS TBA futures and Eris SOFR Swap futures.

All 30-Yr UMBS TBA as well as Treasury Note and Bond futures, are deliverable. In contrast, this contract is cash settled at expiration based on the final settlement price, and nothing is physically delivered. Treasury Note and Bond futures are quarterly and roll on a quarterly basis. As with other mortgage products such as TBAs, they have a monthly listing schedule and roll on a monthly basis. The notional size of Mortgage Rate futures is about $500K. The notional sizes of the TBA and most Treasury futures are $100K. The Mortgage Rate futures will reference and adhere to the SIFMA TBA/MBS Market Governance as the TBA futures do.