ASX 24 Participants are advised that ASX will re-establish the minimum price increment (‘tick’ size) for the 3 Year Treasury Bond Futures contract at 0.005% or 0.5 basis point. The effective date will be 5.00pm on 1 December 2017 (Trade Date 4 December 2017).
Currently, ASX sets the minimum price increment at 0.010% or 1 basis point, except for the 5 business days leading up to the contract expiry, when the minimum price increment is halved. ASX will continue this practice for the September 2017 expiry. This will be the last expiry where the tick increment for the 3 Year Treasury Bond Futures contract will be changed for the roll period.
Participants are reminded that EFP and block transactions can be registered via ASX TradeAccept at the minimum tradable increment. For the 3 Year Treasury Bond Futures, EFP and block transactions can be registered at 0.5 basis point increment throughout the life of the contract from Trade Date 4 December 2017.
The Expiry Settlement Prices for 3 Year Quarterly, Serial, Overnight and Intra-day Options will be calculated to four decimal places and rounded to the next highest multiple of 0.005. Where the third and fourth decimal places are 2 and 5 or 7 and 5, the Expiry Settlement Price will be rounded up to the next highest multiple of 0.005.
ASX introduced the narrower price increment during the quarterly roll period from March 2006, before full implementation in December 2006. The move to half-tick trading followed extensive market consultation on optimising the efficiency of the bond futures contract for risk management. In 2009, in light of the credit environment at the time, an assessment of market liquidity as measured by bid/offer volume, price slippage and trading activity in the 3 Year Treasury Bond Futures contract indicated that a review of the minimum tick increment was warranted.
In May 2009, ASX reverted to minimum price increments of 0.010% or 1 basis point, except during the quarterly roll. ASX noted at the time of the switch back to the wider tick, that market liquidity and trading activity would be monitored and that ASX intended to return to half basis point trading when it believed that market activity and order book depth warranted the re-establishment of the narrower price increment. In recent years, order book liquidity has exceeded the levels seen in 2006 and ASX has received a number of requests from end users to review the minimum price increment in the 3 Year Treasury Bond Futures contract. Feedback received from customers highlighted a reduction in the effectiveness of using 3 year bond futures as a hedging instrument (with the wider tick), as market conditions have evolved.
In March 2017, ASX implemented a new trading platform for the derivatives market. After allowing for a few months of trading and a roll period on this new platform, ASX undertook a further assessment of market liquidity, including top of book volume, order book depth, and trading activity. Based on an assessment of market conditions, liquidity and trading activity in the 3 Year Treasury Bond Futures contract, and further customer engagement, ASX determined that a reduction in the minimum price increment would improve the efficiency of the contract for risk management purposes and ensure the 3 Year Treasury Bond Futures continues to be a useful and liquid contract over the medium to long-term. ASX continuously reviews its product offering and the appropriate level of fees to ensure this remains the case.
Participants should advise their customers of the change to the minimum price increment for the 3 Year Treasury Bond Futures contract. Participants and Vendors should also ensure any processes and/or systems take into consideration the tick increment change. This change will be effective from 5pm AEST, 1 December 2017.
Kristye van de Geer
Manager, Interest Rate Markets
Kristye van de Geer