FAQ: AIR TRF calendar spreads

A standard calendar spread is a futures spread involving the simultaneous purchase (sale) of a nearby-expiring futures contract and a sale (purchase) of the same product at a deferred expiration. ‌This allows users the ability to roll from one expiration to the next or trade two different expirations as a long/short spread at a one-to-one ratio.

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CME Group Equity product (EQ) calendar convention for CME Globex trades displays the nearby-expiring futures code first, then the deferred expiring futures code second. ‌For example, E-mini S&P 500 March 2025-June 2025 calendar spread is displayed ESH5-ESM5. ‌In buying the roll, the participant purchases the deferred expiring futures contract (June 2025) and sells the nearby-expiring futures contract (March 2025). E-mini S&P 500 calendar spreads are priced in the index point difference of the deferred expiring futures contract (June 2025) over the nearby-expiring futures contract (March 2025). ‌The Equity calendar spread model sets the nearby-expiring futures anchor leg (March 2025) to the prior day’s settlement price. ‌The determination of the deferred expiring futures price (in this case June 2025) is the traded calendar spread difference plus the nearby-expiring futures prior-day settlement price.

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Yes, ClearPort allows for block trades, which are subject to Rule 526, in AIR TRF calendar spreads however the two leg prices are specified in the block trade reporting. For Globex to provide a central limit order book (CLOB), the order can only accommodate a single price. As such, using the above indicated pricing convention for the two legs is necessary.

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Globex AIR TRF calendar spreads are structured as the calendar spreads based on the Basis Trade at Index Close (BTIC) of the nearby and deferred contracts. The nearby BTIC will be priced at the prior day BTIC settlement level. The deferred BTIC will then be priced at the front BTIC leg price plus the spread differential agreed upon in the trade. The two BTIC trades will then be the basis for pricing the corresponding AIR TRFs at the conclusion of the trading day using the same day's official index close. Note: Generally speaking, even though the front leg BTIC spread is pegged at the prior day BTIC settlement level, the price of the corresponding AIR TRF will NOT be the same as the settlement price of the contract from yesterday, due to (1) different number of days to expiration, and (2) different index close level.

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As AIR TRF volumes and open interest have grown rapidly, helping investors manage equity financing exposure in a capital-efficient manner and the need to manage and execute across different contract expires has become important. ‌Adding Globex AIR TRF calendar spreads will further unlock the value to clients in this important suite of contracts.

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Globex AIR TRF calendar spreads are similar to two outright AIR TRF BTIC trades. ‌Both settle into the underlying index futures in the same process outlined in this whitepaper with additional calendar spread examples. Also, Globex BTIC calendar spreads and outright BTICs both use the AIR TRF Price Calculator on trade date but the BTIC levels may differ substantially.

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A Globex AIR TRF calendar spread ensures simultaneity of buying and selling offsetting delta. However, two outright BTIC trades, i.e., buying one and selling another individually, can become legged, i.e., buying but not selling the offsetting leg, or vice versa. ‌It is not possible to become legged in trading a calendar spread. Further, Globex AIR TRF calendar spreads will anchor the nearby-expiring BTIC to the previous day’s BTIC settlement, thus the calendar spread will often differ significantly from the basis between the two outright BTICs, despite having similar economic value. Contract day counts can be found on DataMine or other data sources.

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Because Globex AIR TRF calendar spread can differ from outright spreads, Globex AIR TRF calendar spread trades will not be an input in deriving settlement prices. The AIR TRF settlement wiki will remain unchanged.

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This Special Executive Report (SER) sets May 19th as the first trade date of Globex AIR TRF calendar spreads for specific expirations on the S&P 500 Total Return (EFFR) futures contract.

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