Practice Note — Daily Settlement Price Methodology

Issue date Cross Reference Enquiries
Added on 22 September 200622 September 2006 and amended on 1 October 20091 October 2009, 24 January 201124 January 2011, 8 November 20128 November 2012 and 14 November 201614 November 2016. Rule Please contact Derivatives:

Telephone No: 6236 8888

1. Introduction

Rule of the Clearing Rules states that the Daily Settlement Price for Contracts other than Non-Relevant Market Contracts shall be determined by the Clearing House in accordance with the relevant formula and procedures applicable to each Contract. In arriving at such formula, the Clearing House may, in consultation with the Exchange, take into account factors, including but not limited to:

a) the last traded price;
b) bid and offer spread at the close of market;
c) price data derived from pricing models, as selected or established by the Clearing House from time to time.

This Practice Note sets out the formulas and methodologies used by the Clearing House to compute the Daily Settlement Price as contemplated in the above Rule.

2. Methodology for Computation of Daily Settlement Price

2.1 Most Commonly Adopted Methodology.

Save for exceptional situations, the Clearing House can use any one of the following methodologies to compute the Daily Settlement Price:
a) a price determined by a pre-closing routine; or
b) a price derived from the prices in the closing range;
c) a price determined by taking into account typical spread relationships with other Contract Months in the relevant Contract;
d) a price determined by theoretical pricing models selected by the Clearing House; or
(e) a price determined through polling, conducted by the Clearing House, of market participants and/or any other price source deemed as reliable by the Clearing House.
Higher bid or lower offer prices at the close may be used by the Exchange in the computation of the Daily Settlement Price under methodologies b, c and d.
2.2 Exceptional Situations.

In exceptional cases when none of the methodologies set forth in paragraph 2.1 above yields a Daily Settlement Price that is reflective of market conditions, the Clearing House may use any of the following alternative methodologies for the computation of the Daily Settlement Price:
a) in regards to Futures Contracts, the Daily Settlement Price may be set at a price which when compared to the Daily Settlement Price of the next Contract Month reflects the same differential that existed between the two Contract Months on the previous day, unless there is a higher bid or lower offer in existence at the close. In such case, the higher bid or lower offer may be the Daily Settlement Price; or
b) in regards to Futures Contracts or Options Contracts, such other price that the Clearing House determines to be reflective of prevailing market conditions.
"Option Contracts" and "Futures Contracts" shall have the meaning ascribed to them in the Trading Rules.
2.3 [This paragraph is deleted.]