An Introduction to. CME Economic Derivatives

Transcription

1 An Introduction to CME Economic Derivatives

2 Global Leadership in the Financial Marketplace CME is the largest and most diverse financial exchange in the world for trading futures and options handling nearly 800 million contracts worth more than $460 trillion in a single year. Founded in 1898, we serve the risk-management needs of customers around the globe by offering the widest range of benchmark financial products available on any exchange, traded via our CME Globex electronic trading platform and on our trading floors. Our innovative products cover major market segments including interest rates, equities, foreign exchange, commodities and alternative investment products. cme.com

3 CME Alternative Investment Products Consistent with its history of innovation, CME is committed to developing alternative, non-traditional investment products to enable customers to better diversify and manage their risks. To provide a categorical home for many of its newest offerings, CME has created a new product group CME Alternative Investment Products which includes both futures and over-thecounter instruments. All CME Alternative Investment Products are cleared by the CME Clearing House. At present, this product group includes CME Ethanol Futures, CME Weather products and CME Economic Derivatives*. * CME Economic Derivatives are offered for trading by the CME Alternative Marketplace, Inc. ( CME AM ), a wholly owned subsidiary of CME. CME AM is not regulated by the Commodity Futures Trading Commission (CFTC). CME AM has filed a notice with the CFTC that it is operating as an exempt board of trade pursuant to Section 5d of the Commodity Exchange Act (CEA). However, as an exempt board of trade, CME AM is not registered with or designated, recognized, licensed, or approved by the CFTC. 1

4 Introduction to CME Economic Derivatives Macroeconomic data releases, such as business activity indexes, national income accounts or inflation measures, drive today s economy and influence portfolio values. To date, direct mitigation of the risks posed by these releases has been difficult. As a result, risk managers have typically resorted to trading proxies for the releases, such as bonds, equities, foreign exchange, and related derivatives. Now, however, CME has partnered with Goldman Sachs to provide CME Economic Derivatives, an innovative new set of risk management products geared to key U.S. and European economic indicators. CME Economic Derivatives are options and forwards, traded in an auction format, that allow customers to tailor precise hedges or gain exposure to the economy without assuming the basis risk associated with proxies. These products also enable participants to observe and trade markets associated with the risk of different economic outcomes. Prices are based on the total committed capital of all participants, and so represent a market consensus price for each option. This market is transparent, cost effective, liquid and open to a wide variety of derivative strategies. CME Economic Derivatives are the first suite of products trading on the CME Auction Markets venue. The CME Auction Markets framework is expected to include other financial products currently under development. The auctions are conducted using a patented process of mutualized order-filling developed and operated by Longitude, Inc., a financial software development firm. CME Economic Derivatives are expected to significantly broaden access to the economic derivatives market and increase the level of investor participation. The CME Economic Derivatives Product Suite The CME Economic Derivatives product suite offers a broad range of digital and vanilla options, as well as forwards, on the outcome of the following:» U.S. Non-Farm Payrolls, a monthly estimate of the change in the total number of employees on nonagricultural payrolls.» The Institute of Supply Management (ISM) Purchasing Manager Index (PMI), a monthly measure of change in orders, production, employment, delivery speeds, inventories and prices for products purchased.» U.S. Initial Jobless Claims, a weekly composite of the initial filings for state unemployment benefits, adjusted to reflect seasonal hiring patterns.» Retail Sales, a monthly measure of sales at retail and food service establishments, not counting automobiles, adjusted for normal seasonal variations.» Eurozone Harmonized Index of Consumer Prices (HICP) Ex-Tobacco, a monthly measure of inflation in Europe.» The U.S. International Trade Balance, a monthly estimate of the balance of payments on U.S. International trade in goods and services.» U.S. Gross Domestic Product (GDP), a quarterly estimate of real U.S. Gross Domestic Product, expressed as a seasonally adjusted annual rate. CME Economic Derivatives will be introduced in two phases. In the first phase, beginning in September 2005, authorized users may participate in these auctions via browser-based interfaces available through cme.com and other channels. CME also plans to begin clearing all trades in CME Economic Derivatives in September, In January, 2006, in the second phase, access via CME Globex will be made available. 2 cme.com

5 Why Trade CME Economic Derivatives? New Risk Management Capabilities. Customers who wish to manage the discrete event risk associated with an economic release can use options on economic statistics to hedge this risk. A customer, for example, can use low priced options to position for a possible outlier economic number and mitigate the resulting impact on the customer s portfolio. New Profit Opportunities. With CME Economic Derivatives, customers can express a view directly on economic statistics without basis risk. The customer profits if, and only if, the view on the economic statistic is correct. Without these tools, customers may forecast a number correctly but have the market react in an unpredictable fashion, leading to portfolio losses even though the customer s view on the number was correct. Market-Driven, Fair and Transparent Pricing. With CME Economic Derivatives, all customer prices and fills are based on the relative demand for each option. This pricing mechanism ensures that pricing is fair, market-driven and transparent. CME Clearing House Guarantees Performance on Every Trade. The CME Clearing House will implement clearing processes for CME Economic Derivatives products to guarantee performance on all contracts and to manage credit risk. These procedures will also make it easy for firms to process these new derivatives in existing futures bookkeeping systems. In particular, the Clearing House will break each derivative trade into a series of trades, into what are called bookkeeping instruments, or simply book instruments. The book instruments will appear to firms bookkeeping systems as standard cash-settled options. The Clearing House will be specified as the opposite side of every such trade. CME Economic Derivatives Auction: An Example For illustration, let s consider an example based on the monthly change in U.S. Non-Farm Payrolls (NFP), a widely followed indicator of economic activity, to demonstrate how CME Economic Derivatives auctions work. Suppose, for example, that a hedge fund manager takes a view that NFP may be higher than consensus estimates and decides to use CME Economic Derivatives to take a position on that view. Auction Details The Options. Strike prices for options range from 0 to 350,000 jobs in increments of 25,000 jobs, covering the likely range of NFP outcomes. The hedge fund manager can choose either vanilla or digital options, all with European exercise, on NFP. Vanilla calls and puts in these markets have capped payouts based on the highest and lowest strikes in the auction, which are 350,000 jobs and 0 jobs, respectively. A digital option pays out a fixed amount if it expires in-the-money. The Auction Periods. The manager can participate in any or all of several auction sessions that will take place during the week that NFP gets released, when customer focus on NFP is highest. These sessions allow multiple opportunities to participate and make it possible to purchase an option in one session and sell that option back in a later session. An Introduction to CME Economic Derivatives 3

6 Customer Orders Typical Customer Orders. During each auction session, customers submit orders to buy and sell options using standard derivative market protocols. The hedge fund manager decides to submit an order to buy $100,000 of a vanilla call option with a strike of 125,000 jobs. This option will pay out $100,000 for every 1,000 jobs that NFP is above 125,000 jobs up to the cap of 350,000 jobs. If this order is filled and NFP equals 150,000 jobs, the option pays out $2.5 million ($100,000 multiplied by 25). Alternatively, this hedge fund manager could submit an order to buy a digital call option with a strike of 125,000 jobs and an order amount of $10 million notional. This option, if filled, would provide the fund manager a fixed payout of $10 million if NFP is equal to or greater than 125,000 jobs. Customers Control Prices Paid Using Limit Prices. For all buy orders, customers determine the maximum price to pay, which equals their limit price. To determine appropriate limit prices, customers use methods similar to those that they currently use to value options. The limit price for a vanilla option will depend on an assessment of the volatility of NFP and an estimate of the underlying forward price. The limit price for a digital option will depend on the customer s probability estimate that the option expires in-the-money. To estimate these parameters, the hedge fund manager might use historical data on NFP, or data from a survey of economist forecasts of NFP, as shown below for the May 2005 NFP. Customers Receive Indicative Pricing and Fills During the Auction. While the auction is in progress, the hedge fund manager, and all other participants in this market, can view indicative prices and indicative fills in real time on the CME website and on CME Globex. Since this is an auction, it is important to stress that these prices are indicative no prices or fills are final until the end of the auction. Customers Receive Final Pricing and Fills at the Close of the Auction. At the closing time, the auction is called, and customers receive their final prices and fills. Customers May Receive Improved Prices. With these auctions, like all uniform price auctions, all filled buy orders are filled at the final market price and not at their higher limit price. As one would expect, buy orders with limit prices below the final market price will not be filled. Customers Holding Options In-The-Money Receive Payouts. Suppose that NFP is announced to be 175,000 jobs. In this case, all holders of call options with strikes below 175,000 jobs receive payouts. The hedge fund manager, a holder of 100,000 contracts with a vanilla call option at 125,000 jobs, receives a payout of $5 million ($100,000 multiplied by 50. Note that in this case, the cap is at 350,000 jobs and so does not apply to this strategy. Had the manager held $10 million notional of the digital call option struck at 125,000 jobs, he would have received a payout of $10 million. As another example, a customer who buys 50,000 contracts of a vanilla put option struck at 200,000 jobs receives a payout of $1,000,000 ($50,000 multiplied by 25). Economist Forecasts for the May 2005 Change in Nonfarm Payrolls (NFP) 25 (Change in Thousands of Jobs) Less than Number of Economist Forecasts or greater 4 cme.com

7 Frequently Asked Questions: CME Economic Derivatives Trading Are CME Economic Derivatives futures? No, they are not. CME Economic Derivatives are over-thecounter derivatives contracts. However, they will cleared and guaranteed by the CME Clearing House. How do customers benefit from trading CME Economic Derivatives? Benefits of CME Economic Derivatives include new profit opportunities and the ability to better manage economic exposures. These products enable customers to extract value from forecasting and tracking economic activity. They also make it possible to trade options directly on economic indicators without the basis risk associated with expressing economic views using other financial instruments. CME Economic Derivatives also offer portfolio managers a new tool for risk management, and the ability to guard against the event risk associated with the statistics that drive the capital markets. What is the difference between CME Economic Derivatives and CME Auction Markets TM? CME Economic Derivatives are products traded on the CME Auction Markets platform. Which customers are likely to trade CME Economic Derivatives? A broad range of customers have expressed interest in CME Economic Derivatives, including macro hedge fund managers, relative value players, dealers, proprietary traders, portfolio managers with in-house economics expertise, and inflation and fixed income managers. Many previously have traded Economic Derivatives in their previous format, and find the financial safeguards of the CME Clearing House an important benefit of CME Economic Derivatives. Please note that only Eligible Contract Participants, as defined in Section 1a(12) of the Commodity Exchange Act, are permitted to trade CME Economic Derivatives. How are CME Economic Derivatives traded? CME Economic Derivatives are traded in a mutualized orderfilling process called a universal price auction. This patented auction technology offers a powerful mechanism to aggregate liquidity and fill orders efficiently and cost-effectively. It also offers the ability to enter limit-price orders and whenever possible, it fills those orders at the market price instead of at the limit price. What investment strategies can customers use to trade CME Economic Derivatives? Customers can use the same investment strategies that they use in other markets, including directional trading, volatility plays and relative-value strategies. Options and Forwards What type of option strategies can customers trade with CME Economic Derivatives? Customers can trade digital (binary) options, vanilla options and forwards. Customers will be able to trade a full range of option strategies including calls and puts, spreads, straddles, strangles, risk-reversals, digital calls, digital puts, digital ranges, digital strangles and digital risk reversals. Forwards and vanilla strategies will have capped payouts at the extremes of the underlying values, generally two to three standard deviations away from the expectations. How do forwards work in the CME Economic Derivatives marketplace? The purchaser of a forward receives the difference between the final value of the statistic and the trade price, if the statistic ends up above the trade price, and pays this difference if the statistic ends up below the trade price. This also applies to the seller of the forward. Just as with the capped options, however, these amounts are capped: the maximum that the buyer can receive is the difference between the cap price and the trade price (no matter how high the statistic goes), and the maximum that the buyer must pay is the difference between the trade price and the floor price (no matter how low the statistic goes.) An Introduction to CME Economic Derivatives 5

8 Can a customer write options? Yes, all options, forwards, and strategies can be bought and sold, subject to standard credit restrictions and eligibility to trade. What is the difference between digital (binary) options and vanilla options? A digital option pays a fixed amount if the option expires inthe-money, whereas a standard vanilla option pays a variable amount depending on the differential between the strike and the outcome subject to the cap. How can one determine an appropriate limit price for a vanilla option order? Standard valuation techniques such as option pricing models (adjusted for the capped payout) can be used to price vanilla derivatives. Customers will need to estimate a volatility parameter, and will also need to make assumptions with regard to the forward value of the underlying economic statistic. How can one determine an appropriate limit price for a digital (binary) option order? The limit price a customer submits should be closely tied to the customer s estimated probability that this option will expire in-the-money. This probability may be determined by the customer s view, an econometric model, or a third-party survey such as Bloomberg. Auctions What information will be available during the auction? CME Economic Derivatives auctions will exhibit a high degree of transparency. Customers will have access throughout the auction, on cme.com, to current indicative prices for the options, as well as the implied distribution that results from those prices. How are prices displayed during the auction? Indicative prices for each option and forward will be displayed throughout the auction. This price represents the clearing price of a given option or forward if the auction were to close at that moment. All executed buy and sell orders will be filled at this single clearing price, plus or minus a transaction fee. Can a customer receive a fill prior to the end of an auction? No. During an auction, indicative prices and fills will adjust as new orders come into the market. No prices or fills are final until after the auction has closed. If there is low volume in the auction, what will happen? Even if there are relatively few customer orders, a CME Economic Derivatives auction will still clear the maximum possible amount of customer premium. Transaction costs are not affected by the number or amount of orders in an auction. In addition, Goldman Sachs will be providing initial liquidity to each auction. What if a customer wants to sell an existing option position after the auction but prior to expiration? If there is another auction scheduled prior to expiration, a customer can trade out of the position. Customers may be able to lock in profits or add to a position by trading in multiple auctions. 6 cme.com

9 Pricing How are CME Economic Derivatives priced? All prices are based on relative demand. As demand increases for a given option and participants bid up the price, other options become relatively less expensive. In this way customers can trade a market-driven price that reflects the consensus view of all participants in the auction. Prices are based on commitment of capital by all participants, and are not set by any individual market-maker. All claims that settle in the-money are funded by those that settle out-ofthe-money. These principles result in a market that is fair, transparent, and cost-effective. How do I know what my final price will be? To ensure pricing control, all orders are placed on a limit price basis. At the end of the auction all filled orders for a given option receive the same price. This means that if the final market-clearing price of the option is less than a customer s limit price, it will be filled at the lower, market price not the customer s higher limit price. Price improvement is automatic. If a customer submits a bid with the limit price above the indicative price, will the order get filled? Not necessarily. If a customer bids higher than the indicative price, the order will receive an indicative fill amount at that time. However, in a CME Economic Derivatives auction all prices and fills are indicative until the auction is closed. A buy order that has an indicative fill (either fully or partially) during the auction may receive no fill at the end of the auction if prices have moved above the customer s limit price in the elapsed period. Submitting Orders Can orders be canceled or modified? Orders may be canceled or changed up to the end of the auction. Does it make a difference if a customer submits an order early in the auction period or waits until the end of the auction? All orders are filled on a pro rata basis. There is no priority given to orders that are placed earlier in the auction. However, placing a trade early encourages other participants by showing new liquidity and changing the prices of all the options and strategies. Price improvement occurs due to the fact that buying one options entices sellers of that option or buyers of options that are mutually exclusive. Should a customer with a large order only submit an order for a partial amount so as not to move the market? No. Customers should submit large orders with the full amount at their limit price. Entering a large order early in the auction period maximizes the probability that the order will be filled and will receive the best possible price. A buy order, submitted with the full amount and a limit price above the indicative price for the option, will increase the price of the option. It will also change the prices of other options in the auction, making them relatively more attractive. This may encourage relative-value participants, for instance, to submit orders based on these new prices. The new orders are then more likely to fill the original order in question, and at an improved price. In any event, as in other markets, the customer will never pay more than his limit, and may receive a better price due to the activity of auction participants in other options. In these auctions, liquidity truly begets liquidity. Should a customer submit an order even if the limit price is far away from the current indicative price? Yes. Prices may change significantly during the auction, and an order that appears unlikely to be filled at one point in the auction may in fact be filled when the auction is closed. Remember all prices and fills are indicative and subject to change until the auction closes. An Introduction to CME Economic Derivatives 7

10 CME Economic Derivatives: Glossary of Trading Instruments A diverse set of instruments is available for trading in the CME Economic Derivatives marketplace, including the following: Capped options capped calls and floored puts. These options are cash-settled based on a final statistic, such as Non-Farm Payrolls. If the statistic s final value exceeds the strike price, the buyer of a call, for example, receives money equal to the amount by which the final statistic exceeds the strike price subject to the following restriction. The maximum amount that the holder of the option receives is the difference between the cap price and the strike price, where the cap price is the highest strike price available in the auction. Payouts work in a similar way for a floored put, the buyer of the floored put option receives the amount by which the option ends up in-the-money, but not more than the amount by which the floor price which is the lowest strike price available in the auction is less than the strike price. Forward range forward. The purchaser of a forward receives the difference between the final value of the statistic and the trade price, if the statistic ends up above the trade price, and pays this difference if the statistic ends up below the trade price. The opposite applies to the seller of the forward. Just as with the capped options, however, these amounts are capped: the maximum that the buyer can receive is the difference between the cap price and the trade price (no matter how high the statistic is at expiration), and the maximum that the buyer must pay is the difference between the trade price and the floor price (no matter how low the statistic is at expiration). Various predefined strategies combinations of different instruments including call and put spreads; straddles, strangles and risk reversals on the capped options; and digital strangles and digital risk reversals. Digital options (binary options) digital calls, digital puts, and digital range options. These are cash-settled options which payout a fixed amount if the option expires in-the-money. It is important to note that the payout does not depend on the amount by which the option expires in-the-money. For a digital call, the option pays if the final value of the statistic is greater than or equal to the strike price. For a digital put, the option pays if the final value is less than the strike price. For a digital range option, there are two strike prices a lower one and an upper one and the holder of the option receives (and the seller pays) the fixed payoff amount if the final value of the statistic ends up greater than or equal to the lower strike, and less than the upper strike. 8 cme.com

11 Economic Derivatives: Product Specifications U.S. NON-FARM PAYROLLS The change in Non-Farm Payrolls as determined and published by the U.S. Department of Labor, Bureau of Labor Statistics, estimating the monthly change in the total number of employees on non-agricultural payrolls. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Monthly Four times per event: 6:30 a.m. to 7:15 a.m. Central Time on each of the two days prior to the event; 2:00 p.m. to 3:00 p.m. Central Time on the day prior to the event; and 6:00 a.m. to 7:00 a.m. Central Time on the day of the event. Option: NFP Underlying Index: NFP U.S. Dollars Typical Exercise Price Increment 25 Sample Exercise Prices -100, -75, -50, 175, 200 Clearing Product Codes NFP for contract size = 10,000; NFQ for contract size = 1 Minimum Price Interval (Decimal locator = 4) Value Per Tick $1.00 for NFP and $ for NFQ Strike Offset (Value to be added to actual 1,000 strikes and to underlying prices to ensure they are positive) An Introduction to CME Economic Derivatives 9

12 U.S. GROSS DOMESTIC PRODUCT Quarterly estimate of Real U.S. Gross Domestic Product expressed as a seasonally adjusted annual rate, for the calendar quarter ending in the month immediately preceding the release date, published by the U.S. Department of Commerce. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Quarterly Three times per event two months before, one month before, and on the event day at 6:00 a.m. to 7:00 a.m. Central Time. Option: GDP Underlying Index: GDP U.S. Dollars Typical Exercise Price Increment 0.1 Sample Exercise Prices 2.0, 2.2, 2.4, 4.8, 5.0 Clearing Product Codes GDP for contract size = 10,000; GDQ for contract size = 1 Minimum Price Interval (Decimal locator = 4) Value Per Tick $1.00 for GDP and $ for GDQ Strike Offset (Value to be added to actual 0 strikes and to underlying prices to ensure they are positive) 10 cme.com

13 EUROZONE HICP INFLATION INDEX The monthly level of the Eurozone Harmonized Index of Consumer Prices Ex-Tobacco, as published by Eurostat. A measure of inflation designed for international comparison as required by the treaty establishing the European Monetary Union. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Monthly Twice per event two months before and one month before at 9:00 a.m. to 10:00 a.m. Central Time. Option: HI1 and HI2 Underlying Index: HIC Euro Currency Typical Exercise Price Increment 0.1 Sample Exercise Prices 116.5, 116.6, 117.4, Clearing Product Codes HI1 and HI2 for contract size = 10,000; HJ1 and HJ2 for contract size = 1 Minimum Price Interval (Decimal locator = 4) Value Per Tick $1.00 for HI1 and HI2 and $ for HJ1 and HJ2 Strike Offset (Value to be added to actual 0 strikes and to underlying prices to ensure they are positive) An Introduction to CME Economic Derivatives 11

14 U.S. INITIAL JOBLESS CLAIMS The seasonally adjusted, initial Unemployment Insurance weekly claims over the week that ends on the Saturday immediately preceding the expiration date as published by the U.S. Department of Labor. A composite of the initial filings for state unemployment benefits, adjusted to reflect seasonal hiring patterns. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Weekly Weekly on Thursdays Once per event 6:00 a.m. to 7:00 a.m. Central Time on the day of the event. Option: IJ1 and IJ5 Underlying Index: IJC U.S. Dollars Typical Exercise Price Increment 1 Sample Exercise Prices 295, 300, 305,...340, 345 Clearing Product Codes IJ1 through IJ5 for contract size = 10,000; IK1 through IK5 for contract size = 1 Minimum Price Interval (Decimal locator = 4) Value Per Tick $1.00 for IJ1 through IJ5 and $ for IK1 through IK5 Strike Offset (Value to be added to actual 0 strikes and to underlying prices to ensure they are positive) 12 cme.com

15 ISM MANUFACTURING PMI INDEX The change in the Institute for Supply Management Purchasing Manager Index, an index constructed by surveying more than 400 purchasing agents on recent trends in their orders, production, employment, delivery speeds, inventories and prices for products purchased. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Monthly Once per event 7:00 a.m. to 8:00 a.m. Central Time on the day of the event. Option: ISM Underlying Index: ISM U.S. Dollars Typical Exercise Price Increment 0.1 Sample Exercise Prices 55.0, 55.5, 56.0, , 60.0 Clearing Product Codes ISM for contract size = 10,000; ISN for contract size = 1 Minimum Price Interval (Decimal locator = 5) Value Per Tick $0.10 for ISM and $ for ISN Strike Offset (Value to be added to actual 0 strikes and to underlying prices to ensure they are positive) An Introduction to CME Economic Derivatives 13

16 U.S. INTERNATIONAL TRADE BALANCE Monthly estimate of the balance of payments on U.S. International trade in goods and services, expressed in billions of current U.S. Dollars, for the calendar month which is two months prior to the month in which such estimate is scheduled by the U.S. Department of Commerce to be released. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Monthly Once per event 6:00 a.m. to 7:00 a.m. Central Time on the day of the event. Option: ITB Underlying Index: ITB U.S. Dollars Typical Exercise Price Increment 0.1 Sample Exercise Prices -65, -64, -52, -51 Clearing Product Codes ITB for contract size = 10,000; ITC for contract size = 1 Minimum Price Interval (Decimal locator = 4) Value Per Tick $1.00 for ITB and $ for ITC Strike Offset (Value to be added to actual 100 strikes and to underlying prices to ensure they are positive) 14 cme.com

17 RETAIL SALES The monthly percentage in retail sales not counting automobiles, as published by the U.S. Department of Commerce. Measures the dollar amount of spending at retail and food service establishments, adjusted for normal seasonal variations. Event Frequency Auction Frequency and Times Clearing Code/Ticker Symbols Settlement Currency Monthly Once per event 6:00 a.m. to 7:00 a.m. Central Time on the day of the event. Option: RSX Underlying Index: RSX U.S. Dollars Typical Exercise Price Increment 0.1 Sample Exercise Prices 1.0, 1.1, 1.2, 2.5, 2.6 Clearing Product Codes RSX for contract size = 10,000; RSY for contract size = 1 Minimum Price Interval (Decimal locator = 6) Value Per Tick $0.01 for RSX and $ for RSY Strike Offset (Value to be added to actual 10 strikes and to underlying prices to ensure they are positive) An Introduction to CME Economic Derivatives 15

18 Getting Started in CME Economic Derivatives Today s greater need for risk management and hedging tools has required investors to become increasingly sophisticated about alternative investment products. With customers around the world; a diverse product line; deep, liquid markets; and strategic alliances with other exchanges, CME is truly a global marketplace. Why not make it yours? To get started trading CME Economic Derivatives contact your ICAP broker, call ICAP at (502) or visit Goldman Sachs is a leading global investment banking, securities and investment management firm. To learn more about economic derivatives, visit CME Economic Derivatives auctions use a patented process of mutualized order filling developed and operated by Longitude, Inc. To learn more about how these auctions work, visit Participants in these markets will need to fill out a special form and submit it to the CME Clearing House. Customers may also wish to contact their brokers to inquire about procedures for trading these new products and to ask whether they are participating in these products. For more information about CME Economic Derivatives and CME Auction Markets call CME Customer Service at and ask to speak with a CME representative regarding the CME Auction Market. The CME Web site offers a number of brochures and education materials that can answer questions about these products at 16 cme.com

19 The Globe Logo, Globex, CME, CME Alternative Marketplace TM and CME Auction Markets M are trademarks of CME. All other trademarks are the property of their respective owners. The information within this brochure has been compiled by CME for general purposes only. CME assumes no responsibility for any errors or omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME rules. Current CME rules should be consulted in all cases concerning contract specifications. Copyright 2005 CME. All rights reserved.

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