Def, Thanks for providing the CME links. I just re-read the settlement rules to confirm my understanding. Page 3 clearly says that the final settlement price of the Russell 2000 futures is the "opening price of the underlying index" on the 3rd friday of the expiration month. Just so we're all on the same page, I'm referring to the JUNE ER2 contract that expired last friday (15th june 2007). I had a short position going into the close. Now: 1) The opening price of the Russell 2000 cash-index on June 15, was ~842.65. 2) Fridays range of the russell 2000 cash index- 842-851 3) Thursday range ~ 835-841. 4) CME published the last trade price of the JUNE future as ~843. The point of all this-I was expecting IB to liquidate my JUNE short position at 845 or below. No, you guys liquidated my position at "853.5"- which is a cool 2.5 points above the high of the cash index for the entire week. Please tell me you are not ripping me off. Or please publish what you think ought to be the final settlement price for the june ER2 future. Thanks.
I'll just take what can be considered a highly insulting comment on the chin and do all the homework for you. Keep in mind ALL THE INFO THAT I AM POSTING IS ON THE CME WEB SITE. The settlement price is: 853.45 http://www.cme.com/daily_bulletin/Section11_Equity_And_Index_Futures_2007116.pdf You also need to read up on how an AM settlement works. Again from the CME web site: "Final Settlement Procedures Quarterly settlement of S&P 500 ®, E-mini TM S&P 500, S&P MidCap 400 TM , E-mini S&P MidCap 400, S&P 500 Citigroup/Growth and Value, Russell 2000 ®, E-mini Russell 2000, Russell 1000 ® and SPCTR TM Index futures and options on futures are based on a Special Opening Quotation of the relevant underlying index. The Special Opening Quotation for each index is based on the opening price of each component stock in that index on expiration Friday. 1 Special Opening Quotations (SOQ) generally differ from the opening index value of each index because all stocks do not open immediately. For example, on typical days surveyed by Chicago Mercantile Exchange® (CME), most S&P stocks open quickly, with around 95% open within 15 minutes and 98% open within 30 minutes. Other indexes with larger numbers of stocks may take longer to open." Finally, I'll add that if there was indeed an error on the settlement price - and based upon the info I posted it certainly looks like all was treated properly - all it would take is a call or mail to the IB help desk and they'd see that things would be corrected.
No question the settlement is confusing. I've never held into cash settlement, so I looked at the charts. First of all, you were never going to get an 845 print on settlement as the market RIPPED higher into the open. Forget that number. It does seem as if 853.45 is on the 'high' side, as the Sept contract was trading at about a 7 point premium to June as of the day before. At 9:30 ER2 Sept was at 856 or so, and never traded higher than 856.60 until well past 10 am est. So I'm not sure how a 7 point spread became a sub 3 point spread overnight. This is probably whats causing the confusion here, and it would confuse me as well. Is this simply the nature of the settlement process and a risk one takes in carrying the contract?
you should not trade anything you do not understand. All the contract specifications are reviewed and approved by pertinent governing bodies. Everything is black and white, there should not be any misunderstanding on expectations. The exchanges are highly regulated, monitored, audited, and scrutinized entities. All the big houses and government would jump on them if there is anything amiss. IB is only a broker, it is executing the transaction according to your instructions. If you carry your contract to expiration, your implied/explicit instruction is to execute it according to exchange's settlement procedure, Which Def has so kindly quoted above. You should read the quote again if you still do not understand it. If you do not believe the settlement number, then get out a piece of paper and add up the first print of all the underlying components to see if they add up. If they don't add up, then lodge a complaint to the overseeing government agent, barking at IB would not produce the desired result.
Stock777, Yeah, the ER2 JUNE 853.5 was almost close to ER2 SEP 856. And that's what irritates me. For properly functioning futures market, futures should expire into the cash market at expiration, here the futures actually came close to expiring into the further out SEP contract. Def, Thanks. It's clear to me that IB is not at fault here. It seems that CME can publish anything they want and claim that that is indeed the "special" opening price. The cash index opened at 842.5. And had a high of about 848 within the first 1/2 hour. Its high for the entire day was ~851. Why in the world is the "special opening quotation" 853.5. If the "special opening" has no bearing on the actual opening, why the %^&%& do people follow it.. Unbelievable, CME can publish this garbage and get away with it.
I think we can pretty much assume the number is correct. However, how about some feedback on why it seemed to come in so high, and does this happen on a regular basis, with settlement coming in much higher or LOWER than expected. I suspect it does.
The CME has no control over the settlement price. The index is compiled by The Russell Indexes. http://www.russell.com/indexes/default.asp The rules and settlement procedures are explicitly stated in the contract specs. There are 2000 stocks in the Russell 2000. The opening print as determined by the STOCK exchanges is used for the calculation of the settlement price. There is no room for interpretation by the CME or Russell. If you had the resources, you could readily calculate the settlement price. There are firms that do this and if the price varied from what was broadcast by Russell, they surely would react. You may not like the print, you can curse the print, but classifying the print as random garbage would not be accurate..
Def, This is just a moot point. Just because people can accurately follow some rules and calculate values in a spreadheet does not make it a good value. Now Russell or CME could very well have set some "ultra-special" opening price rule where the settlement is based on the average of the opening price, 10 minutes before the open and/or a moving average of the prints upto 1.5 hours after the open, and so on.. As I have tried to explain, the settlement values should have some logic- the primary one being that futures should expire into the cash. I can easily come up situations where this wonderul logic of "special open price", that you are very proud of, leads to a futures expiration price that is at a premium to further out-months... As far as I'm concerned this is garbage.
Isn't the settlement value of the cash-settled contracts is calculated by the exchanges based on the relevant reporting from the index providers, etc.? i.e., no broker gets to arbitrarily set this.... It's not the broker who gets the index value. It's the exchange who gets it and delivers the settlement value to the broker's clearing agent.