Settlement

Weather Futures and options will be settled at 15:15 CST every day, unless GLOBEX closes
early. All related information, including but not limited to: GLOBEX bid / ask information,
Trade information, Block Trade information, clearing 360 trade information and market
information from third party sources, will be included in the settlement calculation.
Monthly Futures
For these, around 3:00 p.m. -15:10 p.m. CST, a snapshot of the business data for GLOBEX will
be taken. If there is an exchange in the instrument, this would be the basis for the settlement. If
both the GLOBEX trade and the Block trade have occurred for the instrument, the more recent of
the two would be the baseline. If the baseline drops outside the GLOBEX market, the settlement
will be changed to either the offer or the offer, depending on which side of the market the
exchange falls. Information from third parties will also be considered; if there is a better bid or
offer posted on third party newsletters, for example, that is more recent than trade and falls
against GLOBEX 's bid or request, the settlement price will be considered as per the bid or offer.
In no case can the information of third parties change the settlement price to a level beyond the
GLOBEX market. Offer and bids of less than 50 contracts (from either source) will be rejected
for settlement purposes, and the next best bid or bid that reaches that minimum may be used. In
the absence of trade information, the settlement will be the mid-market price of the posted
GLOBEX market. In the absence of trade information, the settlement will be the mid-market
price of the posted GLOBEX market. In the absence of trade and market knowledge, the
settlement would return to the previous day's settlement. If the contract is "in period," the amount
can be applied to the actual measured heating or cooling degree days to date plus the 10-year
average of the HDDs or CDDs for the remainder of the term. Monthly contracts with no trade
details can be changed to represent the market discovery in the strips of which they are part.
Share options can be considered for potential settlement purposes in the absence of future trades.
Seasonal or Strip Futures
Seasonal or Strip futures will be settled in compliance with the same procedures described above
for monthly futures, with a few notable exceptions:
1. In the absence of trade data, the sum of the component monthly settlements would be the
seasonal or strip settlement. If this is beyond the GLOBEX bid or offer released, the settlement
of the strip will be adjusted to that bid or offer and the subsequent component months will also
be modified to represent the adjustment.
2. In the case of "in-period" strips with expired components, the final settlement price of the
expired component will be used for the sum-of-month calculation; the components resolved with
the decimal component will be rounded to the nearest integer and rounded up to the next integer.
Options
The Jewson option valuation model will be used to determine settlement rates for options. Trades
with caps would be resolved at their "uncapped" rates, thus retaining the gap between strikes.
When a trade occurs in a contract that is "out of time," the relevant underlying futures settlement
and the selling price will be used to calculate the expected standard deviation for the deal. This
standard deviation will be used to assess all option agreements for this city and expiration will
continue until either another option exchange happens and a new standard deviation or the
contract period starts. If no actual future settlement is valid, the 10-year historical average
contract value will be used as the actual settlement and for the purposes of the implicit
measurement of the standard deviation. If the contract is "in period," whether a monthly option
or a seasonal or strip option, the standard deviation would begin to decay. This decay function
would be the ratio between the historical standard deviation on the date of exchange and the
historical standard deviation for the remainder of the time on the date the function is performed.
This ratio will then be compounded by the implied standard deviation of exchange, and the result
will be used to calculate settlement rates for all options in that city and expiring. This decay
feature will be run as frequently as twice a week for monthly options throughout the era, on
Mondays and Wednesdays; for seasonal and strip options, it will be run once every two weeks
initially with a rising frequency until only one month is left. CME reserves the right to suspend
the activation of this decay mechanism while enforcing it, which would encourage a settlement
price that is outside of the bid or offer entered into. If multiple options trades occur and expire in
a given area, a linear programming algorithm can be used to calculate the acceptable standard
deviation and underlying futures settlement that will settle all trades at their respective rates.