The 30-Second Rule: TMAC’s Role in Reducing Execution Costs for Traders

Trade Marker at Close (TMAC) transactions allow for precise execution into the near-month Equity Index futures at a price determined during the daily settlement window: The 30-second VWAP ending at 4:00 p.m. ET, described here. In 2024, TMAC transactions totaled 77,342 contracts at par to the settlement window. The settlement window is important because this is the level used for daily futures margin settlement as well as determining moneyness on options on futures expiration. Additionally, while the 30-second settlement window represents .036% of the E-mini S&P 500 23-hour trading day, E-mini S&P 500 settlement volume realizes nearly 3% of a day’s volume trading within the window. This outsized volume metric highlights the importance of the window for all futures traders.

For in-the-money expiring Equity options on futures, TMAC offers the opportunity to seamlessly transition from physical delivery to cash or vice versa, as both TMAC and the price used for options on a futures’ moneyness are identical. Whereas Equity futures settle to the nearest tick during that window highlighted in yellow in Table 1, TMAC settles to a more granular 1c increment. This makes TMAC an extremely important benchmark for all E-mini traders.

Given the scale of trading volume and the fixing price importance, TMAC can be valuable for buy-side futures traders, index arbitrage traders, quantitative traders, systematic traders, passive index replication and options for futures users.

Source: CME Group

Figure 1 displays CME Direct markets on a typical day. Buying the TMAC on E-mini S&P 500 futures (ESX below) will deliver the E-mini S&P 500 futures based on that day’s VWAP price from the 30-second settlement window rounded to the 1c increment. Daily settlement will round to the nearest tick as defined in Table.  The daily settlement values can differ from the TMAC price due to rounding.

On January 27, the VWAP on E-mini S&P 500 futures (ES) from 15:59:30 ET to 16:00:00 ET was 6,046.64 and E-mini S&P 500 settled to the nearest tick of 6,046.75. If in the above example, the trader paid 10c, the price delivered would be 6,045.74 rather than the settlement price of 6,046.75. If the trader traded mid-market, they could transact at 6,046.64, reducing execution slippage to zero and outperforming settlement by 11c. With over 90% of TMAC trades consummated at zero, competitive levels are obtainable in either block or through bidding or offering on screens. Access block reporting rules, which are also summarized on the Block Trade Cheat Sheet.

The strongest value proposition for TMAC is reduced execution risk. In 2024, E-mini S&P 500 futures realized a standard deviation of 1.07 index points during the settlement fixing window fixing price, referred to as “ESF”.

The settlement window market microstructure is showcased in Table 2 and Chart 2. Of the $394.1 billion E-mini S&P 500 futures average daily value traded (ADVT) in 2024, roughly 2.9%, or $11.5 billion is traded during the settlement window. This is a significant amount of liquidity concentrated in an extremely small window. Notably, the notional traded during this window in 2024 has also grown +28% year-on-year, in line with the E-mini S&P 500 option suite given the importance of the benchmark to options traders.

Chart 3 and Table 2 highlight that annualized realized ES price volatility is also notably higher during this 30s settlement window than the full-day volatility. During 2024 alone, despite growing liquidity, annualized volatility during the ESF fixing was 38.6% higher than full trading sessions for the E-mini S&P 500 futures.

TMAC also reduces trading slippage on E-mini Nasdaq-100 futures, E-mini DJIA futures and E-mini Russell 2000 futures. Table 2 shows 2024 volume metrics and realized 10-day volatility. One interesting difference, possibly due to higher relative volatility, the 2024 realized annualized volatility during the settlement window was lower than full-day realized for E-mini Nasdaq-100 and E-mini Russell 2000 futures.

Source: CME Group

Lastly, Table 2 also highlights savings can be substantial. Given a 32% probability of a greater than one standard deviation move from the mean, in 2024 traders could have reduced slippage by ~2bps on average using TMAC versus trading outright during the fixing window.

It is also important to highlight the differences between our TMAC and the Basis Trade at Index Close (BTIC). BTIC enables market participants to execute a basis trade relative to the official close for the underlying index. Whereas the TMAC calculation references futures trades only, not the underlying index. Due to the use of different inputs, transactions based on TMAC and BTIC can differ substantially. The below table highlights 2024 slippage between BTIC and TMAC for end-of-day settlement trading.

Source: CME Group

The Equity futures settlement window is a crucial and liquid part of the trading day, and TMAC helps minimize trading slippage. This advantage is valuable for a wide range of traders, from buy-side futures traders to options users. Enhance your trading precision and efficiency by leveraging TMAC. Remember key benefits when using TMAC

1. The Equity futures settlement window is an impressively liquid portion of the day.
2. TMAC as an order type enables settlement trading with reduced trading slippage.

These benefits extend to anyone trading risk during the end-of-day settlement, including futures traders, index arbitrage traders, quantitative traders, systematic counterparties, passive index replication and options users – anyone trading risk to the end-of-day settlement.