CME Prepares for Transition of Russell 2000 and Russell 1000 Futures Contracts

CME calls for clients to roll over their positions from the ICE to the CME.

Photo: Bloomberg

On August 3, 2015, the Chicago Mercantile Exchange announced that it had struck an agreement with the London Stock Exchange (LSE) to exclusively list the derivatives contracts of Russell Indexes from July 10, 2017. At that time, Russell Indexes were listed only on the InterContinental Exchange (ICE). As part of the agreement with LSE, the CME has begun the transition of Russell Futures from the ICE.

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Russell Indexes are small cap index futures that are maintained by the LSE. They are the most used benchmark by mutual funds that consider themselves small cap funds.

Since July 1 the ICE has not been allowed to list any new expiration for Russell Futures. From then until September 15, there will be a period when the futures will exist at both the CME and the ICE. Those futures that do not have any open interest at the ICE were delisted.

Positions at the ICE will need to be transitioned or rolled off to the CME. This will need to be done by the client and will not happen automatically. The CME has called for traders to transition their positions as liquidity begins to build on the Russell 2000 and Russell 1000 Indexes.

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Ways to Transition

By using the BTIC (Basis Trade at Index Close) functionality at the CME and the TIC (Trade at Index Close) functionality at the ICE, clients can transition their positions from one exchange to the other.

The other way to transition is by trading the roll in the CME Sep/Dec calendar spread and then holding the position at the ICE till expiration. If the client is long in Russell Futures for September, then he can short them for September at the CME and long them for December at the CME.

This way, there will be no price risk as the client will be fully hedged for September. Once the September contracts expire, the client will only long the December Russell futures at the CME. The reverse needs to be done if the client holds a sell at the ICE.

To encourage and facilitate the transition, the CME has waived the fees for Russell 2000 and Russell 1000 BTIC, block, EFP and calendar spreads till September 30, 2017. It has also given margin credits and ensured that there are no double margins for calendar spreads. These margin credits are for both Russell 2000 and Russell 1000 Futures.

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