SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

II. Regulatory Background

III. Request for Exemption

IV. Exemption

I. Introduction

In a letter dated July 25, 2025,^[1] CME requested that the Commission grant an exemption from the requirements of CFTC regulation 41.25(c) ^[2] in connection with CME's intention to list cash-settled futures on individual equity securities for trading pursuant to its registration as a designated contract market (“DCM”) and notice registration as a national securities exchange. CME requested a parallel exemption from the Securities and Exchange Commission (“SEC”).^[3] During the SEC's review of CME's request, CME agreed to incorporate certain heightened listing standards into its initial proposed listing standard rules.^[4] On July 10, 2026, the SEC granted CME's exemptive request, and included as conditions to its exemptive order the heightened listing standards that CME had proposed.^[5] Subsequently, on July 15, ( printed page 45641) 2026, CME submitted an updated request to the Commission that proposed heightened listing standards identical to those listing standards incorporated as conditions in the SEC Exemptive Order.^[6]

For the reasons discussed below, the Commission has determined it is consistent with the public interest and the protection of customers to grant conditional exemptive relief pursuant to CFTC regulation 41.25(e) ^[7] to CME from the opening price settlement requirements of CFTC regulation 41.25(c).

II. Regulatory Background

The Commodity Futures Modernization Act of 2000 (“CFMA”) authorized the trading of futures on individual stocks and narrow-based security indexes (collectively, “security futures”).^[8] Security futures are jointly regulated by the CFTC and the SEC (together, the “Commissions”). The CFMA defines a security future as a contract of sale for future delivery under the CEA ^[9] and as a security under the Exchange Act.^[10] A DCM listing security futures must meet certain requirements specified in the CEA and the Commission's regulations,^[11] including, among other things, applying listing standards requiring that “[t]rading in the security futures product is not readily susceptible to manipulation of the price of such security futures product, nor to causing or being used in the manipulation of the price of any underlying security, option on such security, or option on a group or index including such securities.” ^[12]

Historically, stock index futures and options used closing-price settlement procedures, which generally base the settlement price on the execution prices from the last regular session trades in the underlying securities.^[13] In the 1980s, use of closing-price settlement procedures led to the proliferation of index arbitrage activities.^[14] To accommodate large buy and sell orders associated with the unwinding of arbitrage orders on expiration Fridays, specialists often had to significantly lower or raise prices at the close to establish sufficient interest to match orders in the underlying securities.^[15] Accordingly, the unwinding of arbitrage-related positions severely strained the liquidity of the underlying securities markets, and raised concerns regarding potential manipulation and abusive trading practices. To ease expiration-related liquidity restraints, markets offering many of these products transitioned to opening-price settlement procedures. Opening-price settlement procedures enabled exchanges to leverage existing technology to process and match incoming unwinding stock orders before the opening of the regular session trading hours, and used long-standing procedures to disseminate indicative prices in an orderly manner before markets opened.

The Commissions codified these market practices in 2002.^[16] Commission regulation 41.25(c) requires that the “final settlement price of a cash-settled security futures product must fairly reflect the opening price of the underlying security or securities.” ^[17] When promulgating the opening-price settlement procedures rules, the Commissions also established rules permitting exemptions from those requirements. Specifically, Commission regulation 41.25(e) provides that “[t]he Commission may exempt a designated contract market from the provisions of paragraph[ ] . . . and (c) of this section, either unconditionally or on specified terms and conditions, if the Commission determines that such exemption is consistent with the public interest and the protection of customers.” ^[18]

III. Request for Exemption

CME intends to list cash-settled futures on individual equity securities for trading pursuant to its registration as a DCM and its notice registration with the SEC as a national securities exchange.^[19] CME intends to use the underlying securities' closing price—rather than opening price—on the last day of trading to establish a final settlement price.^[20]

As discussed above, Commission regulation 41.25(c) states, in part, that the “final settlement price of a cash-settled security futures product must fairly reflect the opening price of the underlying security or securities.” ^[21] However, CME has determined that certain developments in the markets since the adoption of Commission regulation 41.25(c) support the use of the underlying securities' closing price in the settlement of security futures.^[22] In light of these developments, CME requests exemptive relief from the requirement in CFTC Regulation 41.25(c) such that it may adopt listing standard rules for such security futures.

Specifically, CME believes an exemption from CFTC regulation 41.25(c)'s requirement that security futures settled based on the opening price of the underlying security is appropriate for three reasons. First, CME states that recent data show that highly liquid securities now trade in greater volume at market close, alleviating the concerns that motivated the promulgation of Commission regulation 41.25(c).^[23] Second, CME states that trading in cash-settled index options that settle based on closing prices demonstrates the benefits of using underlying securities' closing price to establish a final settlement price.^[24] Additionally, CME proposes to apply heightened listing standards for security futures that provide for final settlement based on the underlying security's closing price, rather than its opening price (“Proposed Security Futures”) to provide additional protection against manipulation. Those listing standards would, among other things, require the securities underlying the Proposed Security Futures be limited to those that are highly liquid, including at the close of market.^[25] The Commission discusses ( printed page 45642) each of these reasons in greater detail below.

A. Recent Data for Highly Liquid Stock Shows Greater Trading Volume at Market Close

CME states that, in general, liquidity in the equity securities markets has substantially increased since 2002, including trading volumes at both the open and close of markets.^[26] CME further states that trading volumes for equity securities are today generally significantly greater at the market close, as compared to the market open. Given these developments, CME believes the concern that using closing prices for final settlement could strain trading liquidity at the close for the underlying securities when market participants engaged in intermarket trading strategies to unwind their securities positions is no longer valid.^[27]

To demonstrate the current state of liquidity for the relevant equity securities, CME analyzed recent data reflecting the trading volume of highly liquid stocks—specifically, stocks with average daily volume of transactions (“ADVT”) of $100 million or more—at market close. First, CME compared the trading volume ^[28] at the market close versus the market open for stocks in the Russell 1000 index, which were screened to capture securities that meet or exceed a $100 million ADVT threshold.^[29] The analysis indicated that, on the 25 Fridays between January 2025 and June 2025 (excluding April 18, 2025, Good Friday, as the markets are closed), trading volume at the close was significantly higher than the trading volume at the open.^[30] The analysis further indicated that the lower the ADVT, the higher the ratio became between closing and opening auction.^[31]

Next, CME provided a robustness analysis of trading under different market conditions. CME isolated trading data for three separate weeks, intending to capture periods of average, high, and low market volatility conditions. CME found that under all scenarios, the comparison between opening and closing auctions remained consistent in that closing auctions were more robust as compared to opening auctions. CME also found that for opening and closing prices on third Fridays other than quarterly third Fridays, the difference in volume is even more in favor of the close.^[32]

In sum, CME found that trading volumes at the close were substantially larger than the trading volumes at the opening across various market conditions.^[33] CME therefore concluded that today's equities markets have substantial liquidity that can better accommodate demand at the close, as compared to the less liquid markets of the past. CME states that “it is no longer a valid concern that using official closing prices for final settlement of security futures contracts could strain trading liquidity at the close for the underlying securities when market participants engaged in intermarket trading strategies unwind their securities positions.” ^[34]

B. Cash-Settled Index Options Demonstrate Benefits of Closing-Price Settlement

CME also stated that other exchanges have relied on closing prices of underlying securities for listed options without incident, underscoring that securities markets have evolved and do not present the same concerns as in the past.^[35] Specifically, CME states that while certain listed securities index options settle based on opening prices, listed options on individual stocks are exercised based on the underlying securities' closing prices.^[36] The SEC has recently granted permanent approval of Cboe Exchange, Inc. rules pursuant to which Cboe Exchange, Inc. lists index options using closed prices of the underlying securities for the index calculation.^[37]

CME also explains that, because many cash-settled security index options, including those on individual securities, settle based on closing prices,^[38] absent securities futures on the same underlying securities, a disconnect would arise in the settlement parameters between security futures and security index options and lead to market disruption and inefficiency for intermarket arbitrage or hedging strategies. Aligning settlement of security futures and security index options at closing prices could avoid the risk of such disruption and inefficiency.

C. Proposed Listing Standards To Ensure Proposed Securities Futures Are Not Readily Susceptible to Manipulation

CME's Request is limited to futures, herein called “Proposed Security Futures,” which would conform to certain initial requirements to ensure sufficient liquidity exists in the underlying securities.^[39] CME believes that such heightened listing standards will “assure a robust market for the underlying security to protect against manipulation.” ^[40] Specifically, the Request stated that CME supported conditioning exemptive relief on CME implementing listing standards under which the underlying security for each Proposed Security Future must: ^[41]

1. Exceed 20 million shares in estimated deliverable supply;

2. Have a minimum outstanding market capitalization of $100 billion;

3. Have a minimum ADVT of $450 million over the prior six months (or if the underlying security has been trading for less than six months, a minimum ADVT of $1 billion over the prior month).

CME also stated in the Request that it intends to review the underlying securities listed pursuant to the proposed exemption on a quarterly basis and apply as maintenance standards a market capitalization of at least $50 billion and ADVT of at least $200 million over the prior quarter (or if the underlying security has been trading for less than a calendar quarter, a minimum ADVT of $1 billion over the prior period traded during the calendar quarter).^[42]

CME further stated that position limits will provide additional protection ( printed page 45643) against manipulation.^[43] CME has set initial position limits at 200,000 contracts in the context of 100 share contracts, or the equivalent thereto for contracts listed in another size.^[44] CME's rule also provides that any adjusted position limits will be set, in accordance with Commission regulation 41.25(b)(3), at levels no greater than the equivalent of 12.5 percent of the estimated deliverable supply of the underlying security for securities exceeding 20 million shares in estimated deliverable supply and no greater than 25,000 contracts for securities at or below 20 million shares in estimated deliverable supply, and that such limits will be effective during the last three trading days of an expiring contract month.^[45]

Additionally, CME cites its anti-manipulation rules and monitoring and surveillance by CME's Market Regulation Department as protections against manipulation.^[46]

IV. Exemption

Based upon the foregoing, including the following facts:

CME has represented and presented analysis to show the underlying securities for the Proposed Security Futures typically trade in greater volume at the close of the trading day than the opening of the trading day.

CME has represented that other exchanges have relied on closing prices of underlying securities for certain listed options without incident, underscoring that securities markets have evolved and do not present the same concerns of market manipulation as in the past.

CME has represented that it will apply heightened listing standards to the Proposed Security Futures to assure a robust market for the underlying security to protect against manipulation.

CME has represented that it will apply position limits to the Proposed Security Futures that are consistent with the requirements of Commission regulation 41.25(b)(3),^[47] that it will apply its anti-manipulation rules, and that trading in the Proposed Security Futures will be subject to monitoring and surveillance by CME's Market Regulation Department.

The Commission believes these market developments and the heightened listing standards proposed by CME mitigate the concerns that animated Commission regulation 41.25(c)'s requirement that the final settlement price of cash-settled security futures must fairly reflect the opening price of the underlying security or securities.^[48]

Accordingly, the Commission FINDS, as required by Commission regulation 41.25(e), that, with respect to the Proposed Security Futures, an exemption from the opening price settlement requirement in Commission regulation 41.25(c) is consistent with the public interest and the protection of customers.

Now therefore:

It is hereby ordered that, pursuant to Commission regulation 41.25(e),^[49] CME is exempted from the requirements of Commission regulation 41.25(c) ^[50] in connection with listing single security futures contracts, subject to the following conditions:

Listing Standards: CME shall establish the following listing standards for single security futures contracts:

1. Each underlying security for a securities future listed and traded pursuant to exemption shall maintain over 20 million shares in estimated deliverable supply;

2. Each underlying security for a securities future listed and traded pursuant to exemption shall maintain a minimum outstanding market capitalization of $100 billion;

3. Each underlying security for a securities future listed and traded pursuant to exemption shall maintain a minimum average daily value traded (“ADVT”) of $450 million over the prior six months (or if the underlying security has been trading for less than six months, a minimum ADVT of $1 billion over the prior month); and

4. To maintain listing of a securities future listed and traded pursuant to exemption, each underlying security must have a market capitalization of at least $50 billion and ADVT must be at least $200 million over the prior quarter (or if the underlying security has been trading for less than a calendar quarter, a minimum ADVT of $1 billion over the prior period traded during the calendar quarter).

Listing Schedule: CME shall limit its listing schedule for securities futures listed and traded pursuant to exemption to contracts with underlying securities with no longer than 9 months to expiration.

Public Data Provision: CME shall make publicly available in a machine-readable Comma-Separated Values format for a period of 18 months the following information:

1. On a daily basis, a daily report of aggregate long and short positions by market participant type (including market maker, firm, and customer) or by clearing member account type ( e.g., proprietary and customer account, as required by Commission regulation 16.00 ^[51] ) for each security future listed and traded pursuant to this exemption (“Listed Cash-Settled Product”);

2. For each security underlying a Listed Cash-Settled Product, the opening price for the next trading day after the settlement Friday and the closing price on the settlement Friday, along with the percentage change between these two prices, and the average percent change between these two prices over the course of a year, made available every six months from initial listing and to the Commission upon request;

3. For each Listed Cash-Settled Product, the month-end aggregate long and short positions by market participant type (including market maker, firm and customer) or by clearing member account type ( e.g., proprietary and customer account as required by CFTC Rule 16.00) and trading volume for each month, made available every six months from initial listing and to the Commission upon request; and

4. For each security underlying a Listed Cash-Settled Product, the first traded price and the last traded price for the 15-minute periods of 3:30 p.m.-3:45 p.m. and 3:45 p.m.-4:00 p.m. for every Friday of each month along with the next trading day's opening price, made available every six months from initial listing and to the Commission upon request.

CME Study: CME shall provide the Commissions within 18 months from initial listing a report examining the effect of cash-settled single stock futures and, to the extent listed and traded, cash-settled single stock options, on the market for the underlying securities. This report shall include analysis concerning the Proposed Cash-Settled Products, as well as analysis of any other similar P.M. settled, cash-settled single stock security futures, security ( printed page 45644) options, or other similar derivative listed and traded during the period subject to the report. The report shall examine the price of the underlying stock at 3:30 p.m. and 3:45 p.m. on expiration day, the closing price of the underlying stock on expiration day, the opening price on the next trading day, and the percentage change among such prices. The report shall also include the number of the Proposed Cash-Settled Products settled based on the closing price of the underlying stock, with a discussion of price reversal ( i.e., change in the closing price of the underlying security and the opening price on the next trading day). The report shall be made publicly available.

This Order is based upon the analysis set forth above the information contained in the petition. Any material change in law or circumstances pursuant to which this Order is granted might require the Commission to reconsider its finding that the exemption contained herein is consistent with the public interest and the protection of customers. Further, the Commission reserves the right, in its discretion, to revisit any of the terms and conditions of the exemption provided herein, and to condition, suspend, terminate, or otherwise modify or restrict the exemption granted in this Order, as appropriate, upon its own motion.

Note:

The following appendix will not appear in the Code of Federal Regulations.

Appendix to Order Providing Exemptive Relief To Facilitate Listing of Cash-Settled Futures on Individual Equity Securities—Commission Voting Summary

On this matter, Chairman Selig voted in the affirmative. No Commissioner voted in the negative.

91 FR 45640