As pit trading at the CME winds down, the Exchange has made a concerted effort to clarify any potential changes in procedures to calculating closing* prices. There are no changes to how housing contracts are closed, but I thought that I’d post a link both here and in the CME Resources section on the front page for anyone who wants a formal review. Net the process remains last trade, or a higher bid, or lower offer. As such, closes over the last few years of rising markets (and infrequent trades) have tended to inch higher as better bids are posted. Those who watch the contract prices closely might see sporadic bids in less-frequently traded contracts. Some of those quotes may have had the impact of raising closing prices and of keeping some sense of a “reasonable” forward curve.
I continue to focus on mid-market levels as a) a somewhat more neutral view of where the next trade might take place, and b) to notice the impact of changes to bids and offers – even if the close remains unchanged. Fortunately, with tighter bid/ask spreads, closes and mid-market levels have converged for many contracts out to Nov ’17. Bid/ask spreads are wider (if two-sided markets exist at all) in longer-dated contracts so differences between close and mid might be more pronounced.
Finally, I put an asterisk by closes in the first line as prices are determined at 2PM (Chicago) even though the contracts stay open until 3. (The contracts used to close at 2 but I asked that the close be moved to coincide with the stock market close a few years ago.) While this is only a detail, it has some importance at expiration as the front contract stops trading an hour before the others.
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