CME Group
August 17, 2020
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Adjusted Interest Rate (AIR) Total Return futures

Total return equity index exposure, now enhanced with a floating rate.
Coming September 21.

Get ready to float this fall

New Adjusted Interest Rate (AIR) Total Return futures on the S&P 500 Index are designed to give you total return exposure with an overnight floating rate built in. The enhanced contract design provides similar economics to an equity index total return swap with the margin efficiency of listed futures.

* Pending regulatory approval

METHODOLOGY

How AIR Total Return futures work

Here is the basic premise behind the contract. AIR Total Return futures (TRF) have a known maturity date, and its valuation will be based on three key components: the underlying equity index, accrued financing rate, and a financing spread adjustment that follow this basic formula:   

  • Equity index  value – will always be the official index daily close represented in an E-mini S&P 500 BTIC transaction
  • Accrued financing –  represents   the sum of the daily accrued financing from the product’s listing date, accrued daily based upon the benchmark reference rate (EFFR).

The sum is incorporated into the daily settlement of the product and netted with the equity index performance as shown above – giving the AIR TRF buyer the index exposure minus the sum of the accrued daily financing to date.

  • Financing spread adjustment  – represents the amount the counterparties will agree to lock into a spread +/- to the reference rate (TRF spread) for the remaining time to maturity. 

The spread rate will be determined primarily by the rebate value the market ascribes to the value of the underlying index’s stocks. Thus, the TRF spread is equivalent to the spread that would be charged above or below the benchmark reference rate in an equity index swap.

Find a detailed methodology of the contract in the resources section below.

Resources and tools

       

      

      

Preliminary contract specifications

Understanding AIR Total Return S&P 500 futures

Watch a brief video to find out more about the unique features of this contract.

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